Pensions, insurance sector pays out $1 billion claims

Zimbabwe’s pensions and insurance sector is showing resilience to the Covid-19 crisis, with players in the sector having paid out close to $1 billion in claims during the peak phase of the pandemic.

Despite the sector being weighed down by the double whammy of reduced contributions and premiums on the one hand and underperforming investment assets on the other, the sector has continued to play its essential role.

But even before the impact of the pandemic began to be felt around March this year, the sector was already trying to cope with the effects of a hyperinflationary environment.

“Despite all these challenges, the industry has demonstrated resilience. Notwithstanding all these macro-economic challenges and the Covid-19 pandemic, the industry remains resilient as indicated by the fact that it has continued to operate and continued to pay claims and benefits even during the lockdown,” said Insurance and Pensions Commission (IPEC) Commissioner Dr Grace Muradzikwa recently.

“For instance, the insurance sector paid about $726 million in claims from April to June 2020. And the pensions sector paid benefits worth $483 million between January and June 2020.”

Analysts say the Covid-19 pandemic is having a three-pronged effect on insurance firms, that is: the inflow side (revenues), liability or outflow side (payouts) and investment side.

“Clearly, the combined effects of these three pressures could be significant and are likely to grow over time. It is certainly true that the insurance industry is well-capitalized and well-diversified – but no one should be taking anything for granted,” said KPMG in a recent note.

“In most industries, there are early warning indicators about possible liquidity difficulties which are usually debt covenant related. But in the insurance sector, early warnings will be harder to see – making it all the more important to introduce the right cash management and forecasting tools.”

The extent of pressure on the industry highlights how resilient the sector has been over the course of the pandemic to date.

Impressively, official statistics show that the pensions sector recorded a 843 percent growth in asset base between June 2019 and June 2020, which was above the June 2020 annual inflation rate of 732 percent.
Key to this resilience has been the regulator’s efforts to ensure that the sector remains viable during the pandemic.

Over the past few months, IPEC has issued a number of circulars, including Circular 8 of 2020 (Maintenance of skeletal staff during Covid-19 to process claims and benefits), Circular 9 of 2020 (Extension of submission of first quarter returns), Circular 10 of 2020 (Assessment of impact of Covid-19), and Circular 16 of 2020 (Request of information on Covid-19 related claims).

And the local insurance firms and pension funds have also shown great flexibility in being able to adapt.

“The ability to anticipate and plan for issues that will most directly affect the business is what separates those businesses that survive this crisis from those that do not,” says X-Pert Solutions managing consultant Joice Benza.

As at September 3, 2020 Ministry of Health and Child Care figures showed that Zimbabwe had recorded 6638 Covid-19 cases since the epidemic began, as well as 206 deaths.

The country recorded its highest number of daily cases (490) on August 2. Since then, the number of recorded daily infections have been on the decline indicating a flattening of the curve.

In view of this flattening of the curve, and a significant reduction in lockdown restrictions, the local insurance and pensions sector may have already seen the worst of the pandemic.-Business Weekly