FEARS of yesteryear losses triggered by the dramatic collapse of the Zimbabwe dollar and loss of value in pension payouts continues to haunt life assurance companies after a new report revealed that traditional products contributed only 10% of business written by the sector while funeral assurance contributed the bulk of the transactions.
Zimbabwe has over the past 15 years experienced cycles of currency volatilities which have dampened confidence in the country’s financial services sector which includes insurance companies.
The government, through the Insurance and Pension Commission (Ipec), has since 2010 been making frantic efforts to stimulate the uptake of insurance products to promote a culture of savings as well as drive economic growth. Insurance companies are heavily exposed in the equities market, property market and money market. But the weakening of the domestic currency has had a huge toll on the return on investment.
According to the latest Ipec quarterly report as at 31 December 2022, there were 12 registered life assurers and four registered life re-assurers under the supervision of the insurance regulator. This report is based on 11 out of the 12 direct life assurers, and the four re-assurers.
“In terms of business composition, 76% of the total GWP [gross written premiums] was generated from funeral assurance business which has become the mainstay of the sector,” Ipec says in in fourth-quarter life assurance report.
“Traditional life assurance products, which include term assurance, endowment policies, pure endowment and whole life, accounted for a small proportion (10%) of business generated by life assurers. This reflects a low appetite for traditional life assurance products by the market as confidence in the sector remains low.
“The Commission encourages all life assurers to deploy customer-centric product development that leverages on modern technology to redesign their products in line with customer expectations in terms of relevance and value preservation.
“The Commission encourages all life assurers to deploy customer centric product development that leverages on modern technology to redesign their products in line with customer expectations in terms of relevance and value preservation.”
Recurring business, the report shows, contributed about 88% of the GWP for the life assurance sector for the year ended 31 December 2022.
“The low GWP generated from new business reflects the volatile macroeconomic environment that prevailed during the period under review, which limited the uptake of new business due to low disposable incomes,” Ipec says.
“However, there was a slight improvement from the third quarter which ended 30 September 2022, where new business was 10% of the GWP, reflecting slight improvement in economic stability being witnessed in the economy since June 2022.”
The report further shows that for the year ended 31 December 2022, the life assurance sector wrote foreign currency business amounting to US$23.2 million. Funeral assurance business was the major contributor, with one entity writing 50% of the business.
After the introduction of the greenback, the government in 2015 commissioned a special inquiry to investigate the impact of the currency reform on both policyholders and the economy. The inquiry was led by retired High Court Justice George Smith.
During the inquiry, the commission received many complaints from individual members of the public, as well as from insurance and pension representative organisations.
The main concerns related to the loss of value arising from pension contribution arrears, value lost during hyperinflation, inter-generational transfer of benefits, value lost through conversions on dollarisation, forced commutations of the full pension, loss arising from de-mutualisation of Old Mutual and First Mutual and conversion of pension schemes from defined benefit funds to defined contribution funds.
A few years ago, cabinet resolved to compensate policyholders, but critics say the amounts are just a drop in the ocean.