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Funeral business grapples with problems



THE funeral assurance sector has been found wanting on a number of compliance issues, including in areas ranging from capital requirements, prescribed assets, reinsurance and investments. In December, Zimbabwe Funeral Assurers Association (Zafa) president Solomon Chikanda (SC) spoke to The Newshawks’ correspondent Ronald Muchenje (RM) on the sidelines of a stakeholders’ breakfast meeting themed “Unpacking the Funeral Business Model and its Regulatory Implications”, focusing on problems affecting the sector. Chikanda said non-compliance was the result of unwillingness to follow procedure. Below are excerpts from the interview:

RM: Take us through the major concerns that the funeral assurance industry is facing.

SC: The major key concerns are in relation with the funeral assurance and services model. This model emphasizes or has a bias on funeral services provision. We all know that a funeral service policy is a contract which promises a policyholder benefits or either cash. But in our case, the Zimbabwean model emphasizes the provision of funeral services. Now from our perspective, we are saying there should be an alignment.

This is especially with reference to Statutiry Instrument 95 from Ipec (Insurance and Pensions Commission) which emphasizes on investment to be more in cash, when we are saying if a policyholder passes on, at the time of claim, we can provide tangible benefits. The investment guidelines should match with service provisions model.

RM: Enlighten us on the tangible benefits.

SC: If a policyholder passes on today and one walks into funeral parlour, you will not expect a funeral parlour to give you cash. In actual fact,  you should be expecting a coffin, a hearse or mortuary services, dressing and the chapel services.

These are the tangible benefits that we are saying investment guidelines should not be biased towards money because these are the reasons why one takes a funeral policy after all. The investment guideline model gives 100% cash and haircuts to mortuary services.  You have heard the commissioner saying coffins shouldn’t be part of our investments, but we are saying coffins are the real deal. That is the major reason why a policyholder holder will take it.

RM: So are you engaging the regulator over these concerns?

SC: The breakfast meeting we just had is one of our engagements efforts. We thought if we organise a meeting like this and invite them, they will better understand our concerns and we also understand theirs.

RM: Ipec commissioner Grace Muradzikwa spoke about minimum capital requirements and prescribed issues, which she said the industry has been found wanting. What is your comment on that?

SC: Ok let me start with the minimum capital requirements. We understand from history that funeral companies’ capital requirements have always been lower than other classes of insurance. But it’s only this period where our capital has been moved double the short terms.

We underwrite only one product which is a funeral product, unlike short term that underwrites different classes of insurance. So, who actually should have more capital, one who underwrites one product and the one who underwrites more? I think the one who underwrites more.

This has been the model from long back but, if you look at it, short term are at ZW$37 million while we are at ZW$62 million. That is why you see there is less compliance.

In terms of prescribed assets, we really understand, but we also feel it’s on the high side on the basis that we invest into parlours, mortuaries, coffins and the like, which then leaves us with less disposable income.

That is why you find that the whole industry is failing to comply. And again,  we have legacy issues. If you look at the commissioner of inquiry report, you will realise that it stated that funeral companies, in as much as they have some issues from the findings, they assumed and carried over risk.

Even those policies that had lapsed in 2007 and 2008, the funeral industry did not stop. It carried over the risks and we still have it. It is part of several ways that affected our disposable income.
If you look at the short term, it did not carry over any risk, which is why we are saying we compensated, in a way, the policyholders.

RM: There has been an argument that available classes of prescribed assets are not performing. What is your comment?

SC: Yes, it’s another reason. I think as funeral industry we also submitted our concerns through the insurance apex council. Our submissions were that prescribed assets at the moment are not attractive in terms of interest and are heavily exposed to inflation. So as a result we are saying they should be linked to inflation, have stability so we don’t lose policy funds that we are holding.

RM: In terms of the economy, there has been inflation, change of currency and many other issues. How have these affected you as the funeral industry?

SC: We have been affected so much. In terms of the policies, I think the changeover, the removal of the multi-currency bringing in the Zimdollar in a situation where we are underwriting a long-term policy, was disastrous. Now if you change policies that way, it affects one’s investment plans. These policies affected investments and the structure of the funeral industry.  In an unstable economy you don’t see insurance performing well.

RM: Ipec recently said the industry was struggling with valuations in relation to high costs. What is your comment on the issue?

SC: Previously, actuarial valuations were done after three years. Currently, they are being done on a yearly basis. To an extent it’s an additional cost and a liability. These are professional people who charge highly for their skills so it’s affecting us badly.

RM: As Zafa, what is your outlook?

SC: With the concerns that we have raised we look forward to the commissioner to address them. We will have a bright future then. Also looking at the recent forex system which has brought in a little stability, should it continue, the future is bright as well.

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