A PRICE war has erupted in Zimbabwe’s insurance sector, where players are reportedly undercutting premiums to throw competitors out of the game, according to several sources.
Surveys conducted by the businessDigest this week showed that as a result of the race to for business in an increasingly difficult terrain, several players had resorted to selling unprofitable and unviable products.
The result has been serious threats to the stability of companies and shareholder value, according to an analysis by the Actuarial Society of Zimbabwe (ASZ).
It is a repeat of another price war that rattled the industry during the first phase of Zimbabwe’s economic crisis between 2000 and 2008.
Back then, the turf was claimed several players across the insurance value chain.
Combined with general economic turmoil, policyholders lost claims worth billions of United States dollars, which have not been repaid.
When an insurance provider undercuts another provider, they are providing inferior lower rates or premiums in an effort to win over customers.
In an interview with businessDigest this week, ASZ president Tafadzwa Chiduza, said economic turmoil in Zimbabwe had pushed insurers to abandon laid down business norms in order to survive.
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The insurance sector significantly depends on actuaries for the computation of several things, including premium levels that policyholders have to pay.
“It is common knowledge that in this stressed environment insurers start doing cash flow management where they don't care much about following principles as they struggle for survival,” Chiduza told businessDigest.
“Hence they offer huge discounts. This creates a vicious cycle as most products are not scientifically priced but based on stiff competition and market forces,” Chiduza noted.
The ASZ chief, however, could not provide statistics on the levels of delinquency roiling the sector.
He said such statistics were not usually in the public domain, and difficult to put together.
Chiduza said insurers were reeling under incessant pressure from macro-economic challenges such high inflation, high interest rates and currency instability.
It is on the currency front that businesses across industries have found the going tough.
Zimbabwe’s currency lost over 70% of its value last year alone, as the market lost confidence and tilted towards the US dollar.
Experts says at least 20% of the currency’s value was further eroded during the first quarter of this year, further complicating the situation for companies.
Chiduza said economic turmoil had subdued efforts by business leaders to ensure viability.
“A more specific risk includes increased competition leading to price (premium) undercutting by insurers thereby selling unprofitable and unviable products. They risk diminishing shareholder value in the medium to long term. In some instances, they threaten the capital and solvency position of financial institutions,” he said.
Insurance Council of Zimbabwe (ICZ) public relations and marketing manager Ringisai Batiya said the organisation was reviewing its code of practice and conduct to deal with such practices.
“ACZ raises pertinent underwriting practice issues suggesting that they have empirical evidence to that effect,” Batiya told businessDigest.
“Insurance companies’ financial statements are reviewed by members of ACZ and therefore, ACZ has intermittent knowledge and understanding of the operations of insurance companies.”
Batiya said ICZ had a code of conduct and practice that all members should comply with. She said sector players could submit complaints through ICZ’s compliance and complaints committee if they lose business due to premium undercutting.
But she noted that so far, no such complaints had been received by the ICZ.
“The compliance and complaints committee is yet to receive such a complaint,” Batiya said this week.
“However, if that is the case, the assertion by ACZ to the effect that such practices in the medium to long term raise risks is correct.
“We review our code of practice and conduct every five years and the same is currently under review and we are set to complete the review by the end of April this year. Sanctions and penalties regarding such practices will be incorporated in the code,” she added.
Batiya said the ICZ would reach out to ACZ on the matter, with a view of taking "corrective action.”
Insurance firms fall under the purview of the Insurance and Pensions Commission of Zimbabwe (Ipec), which had not responded to businessDigest’s questions yesterday.
South Africa’s competition commissioner was last year forced to open investigations into the alleged collusion and potential price fixing in that country’s insurance sector.
The sector was shaken by dawn raids carried in August 2022, with large players including Bright Rock, Discovery, FMI, Hollard, Momentum, Old Mutual Insure, PPS and Sanlam among those hit.
