National insurance policy to spur economic growth

ZIMBABWE has generally experienced low levels of insurance uptake over the years, with insurance penetration declining from above 6% to 1.7% in the past decade. This is very low when compared to other markets on the wider African continent such as South Africa (14.3%), contributing nearly 75% of the total assets written in Africa, Kenya 2.34%, Namibia 8.71% and Morocco (3.83%), according to Swiss Re Sigma’s current report.

The global average insurance penetration rate is 7.23%, highlighting the huge gap between Zimbabwe and the world. The penetration rate has been gradually declining in the last decade with a vast population of low-income earners as well as micro and small businesses (MSMEs) generally not covered.

MSMEs, to a larger extent, have been generally neglected with the majority resorting to selling some of their assets when a risk struck, due to limited products suited for their operations.

There are various reasons for the low level of insurance penetration. These include low levels of insurance awareness, large under-served population of both individuals and MSMEs, failure to recognise critical sectors such as agricultural insurance, gaps in data and skills, and limited innovation and adoption of technology.

Other factors include intense competition for existing business, limited adoption of innovation and technology, and a focus on short-term returns generated from corporate and high net-worth individual clients with a large population remaining excluded.

Further, business models remain skewed towards compulsory lines of business, which has a tendency to distort development of the insurance market with implications on the long-term sustainability of insurance business.

Analysis of figures for real growth rate and insurance density, that is premium per capita, indicate the potential for substantial growth of the insurance industry in Zimbabwe.

To enhance the performance of the economy, improve confidence in the overall financial system and address issues of inclusion, access, affordability, consumer protection and usage of insurance services, there is a need for a National Insurance Policy.

This policy will therefore make Zimbabwe’s insurance industry efficient and financially sustainable, providing appropriate and affordable risk management solutions to a majority of Zimbabweans in line with the country’s Vision 2030 and Sustainable Development Goals.

The overarching objective of having a National Insurance Policy will be to meet the financial needs of all Zimbabweans through a vibrant, inclusive, accessible, fair, safe, and a customer-centric competitive insurance industry.

The policy therefore should be centred on strengthening the policy, legal and regulatory environment; enhancing access of customer-centric insurance products and services, particularly by marginalised groups such as MSMEs, the rural population and farmers; mobilising financial resources for long-term development; ensuring broader financial inclusion and access; and promoting public confidence through provision, servicing of insurance products and services and prompt settlement of claims.

The government in past years has been focusing much on strengthening the banking sector, paying little attention on the insurance sector.

The government is partly to blame for the poor development of the insurance sector. Insurance is a key driver of economic growth, transformation and national development as it supports entrepreneurship and encourages investment through the provision of insurance services.

It also offers social protection, thereby easing pressure on public sector finance, enhancing financial intermediation, creating liquidity and mobilising savings.

To emphasise, insurance is one of the key pillars of the financial services sector, and is central to the realisation of Vision 2030, Financial Inclusion Strategy, economic development plans and other government development initiatives that are in line with the Sustainable Development Goals. Its role should receive as much emphasis as that of the banking sector.

As the economy expands and disposable incomes rise, insurable assets grow, thereby generating demand for insurance services.

A well-functioning insurance sector plays a crucial role in economic development not just at a macro-economic level but also in terms of the activities of individuals and businesses.

Given the importance of the insurance industry, its potential for growth, rapidly emerging trends in insurance services locally, regionally and internationally, it is essential to clearly understand the challenges and opportunities that arise in order to have a clear road map for developing the insurance industry.

All these can only be clearly articulated if the country had a National Insurance Policy. 

The National Insurance Policy thrust will therefore be aimed at addressing challenges that continue to hinder the development of the industry.

These include: low level of public awareness on insurance products and services; low penetration rate and coverage; concentration of insurance in urban areas; slow adoption of technology by the industry; low contribution of agriculture insurance in the overall insurance industry business; limited underwriting capacity of the insurance industry; gaps in the legal and regulatory framework; relatively poor financial performance by most of the general insurance companies, limited uptake of insurance by vulnerable groups such as MSMES and poor perception about the insurance industry.

The Ministry of Finance and Economic Development, which is in charge of developing economic and financial policies, should be at the forefront in developing the policy or just sending signals into the economy.

For the policy to be accepted and easily implemented, it must be developed through a national consultative process in line with national values and principles of governance contained in the constitution.

The Ministry of Finance and Economic Development should have a draft proposal and should alert the economy of having the draft.

The draft proposal may be regarded as a concept paper that the ministry, together with the regulator of insurers, the Insurance and Pensions Commission (Ipec), will use to consult the public and development partners. A committee working on the project therefore should be established consisting of representatives from the ministry, Ipec, central bank, and the Securities and Exchange Commission,  Department of Justice, Ministry of Health and Child Care, Ministry of Lands, Agriculture and Rural Development, representatives from Ministry of Women’s Affairs, Small and Medium Enterprises, the National Social Security Authority, Competition and Tariff Commission, Insurance Council of Zimbabwe, the media, economists with interests in insurance such as myself and representatives from insurance brokers.

A stakeholders’ forum should be held where more views will be collected. All this will have to inform the development of the situational and gap analysis report which identifies existing gaps and challenges, areas of improvement and prospects for growth.

After that, a second draft National Insurance Policy will be prepared and subjected to stakeholder engagement for their comments which will further enrich the document. This will help in having a policy document that is widely accepted and implementable. 

Having a National Insurance Policy will therefore assist in developing a safe and stable insurance industry which is vital for development and promoting confidence in the country’s financial system. Countries such as Kenya that have well-developed and stable financial systems are working on having these policy documents whilst other countries such as Morocco, Peru etc do have these documents.

The National Insurance Policy therefore will go a long way in building confidence in the financial services sector, mobilising savings, having a private sector-led self-financing economy and reducing the overall economic financing burden on the government.

*About the writer: Kaduwo is a researcher and economist. Contact [email protected] or call +263773376128