Expert calls for compartmentalised system in Zim’s insurance sector

Tapiwa Maswera

POST the 2009 loss of value that affected insurance companies and pension funds, a commission of inquiry was launched. A consulting actuary, who sat on the commission, Tapiwa Maswera (TM, pictured) recently told businessdigest that one of the greatest laws of the inquiry was that insurance companies separate pension assets from insurance assets. This saw the regulator instituting the asset separately in expertise. Our senior reporter Melody Chikono (MC) discussed these and other issues with Maswera, who said it was important to create  wealth at the member level. Find below excerpts of the interview.

MC: Can you start by explaining what you mean by moving economic value?

TM: If you are going to be moving the economy in value forward in time into the future,you need to know, who you take it from and who you are taking it to. If you are taking it from one person to go to a different person,then you are not doing much, you are failing.  So what that means is that you need a legal framework.That then protects your rights to the economic value that you have moved forward. You need more rules, that is why you have rules in the pension fund, the policy document and all that. The problem that we have here in Zimbabwe is nobody has been able to go and sue an insurance company on the basis of a policy document. Nobody has been able to go and sue a pension fund on the basis of the rules. So we need to find the rules that deliver not just the rules that take contributions, take premiums but then donot make sure that the benefits are paid commensurate with the premiums paid.

MC: Are you saying  nobody has been able to sue an insurance company or a pension fund on that basis to date?

TM: Nobody because the existing laws do not clarify whose money it is and they donot give you your own pot of money that you can follow and say this one put his hand into my pot.

MC: So in brief, what kind of laws do you think are needed?

TM: The gaps are such that you need what I would call compartmentalisation which would be to say that you, as a member, have got your own pot of money and your own pot of assets. When you contribute, you then go to your service provider and say I put in another contribution, where is the asset for this?

When an asset is taken out of your pot, you then go and say what did I get for this asset that you took from me? So it is a compartmentalised system where you are actually holding, for example, somebody offers you water, so you know what you got for your water but at the moment, everything is just being held together. You just know you have water but you donot know how much water you have in there. You just think you are still participating, but you are not in the game and you are being phased out of the game. So the valuation part has to do with the fact that it’s the valuation system that allocates value. In other words, we got to be able to then say you contributed today, you are going to get your money in 30 years’ time and we then have to say the money you gave us  is worth so much in 30 years’ time and we make sure you get that. Then when we grow it and make sure that the growth is also allocated to you. What is happening now is that you can buy assets and those assets are taken from you before you can reach retirement and there is  no money for you and that's the problem.

Also, the bigger problem  is that money is our riskiest asset. You could get to retirement with some assets  but when you get there, they convert your assets into cash and when they do that, the cash then whittles down and you lose your money.  So you need to be very clear even when you are a pensioner. You need to know that you have assets there and those assets are the ones that will deliver value to you.

How those assets are managed is where we need to be talking to, otherwise, because they have shown they cannot apportion these assets, they cannot give them properly and equitably, therefore it is a problem. That is what valuation should do. Remember I talked about the issue of governance.

If you are in a mutual dispensation, nobody will take money out of the fund except to pay benefits. So all you need to make sure of is that there is enough money to pay benefits. Allocation in the fund doesn't matter,you just look at the fund in total. But unfortunately, if some people are taking money out of the system and they are the same people that are doing the valuations and all sorts of other things,you now have a very different set up altogether.

MC: You spoke about retirement. What can you say about the available retirement plans, if not, what should we do?

TM: Yes, we do have pensions. The problem is all those pension funds operate on the assumption that cash is your safest asset.

 In Zimbabwe, that is not true. As long as we continue to operate on that principle we get to retirement, even if we have given you assets, we then convert all those assets to cash or that is what we tell you. So we just continue to give you cash and then you lose your money.So we need to be very clear when you retire that please, donot convert money into cash otherwise it is going …very quickly.

 MC: Can you explain further?

TM: I was saying that we had a mutual dispensation under which your industry is customer centric. Your policyholder appoints the board of the insurance company. The board then appoints the CEO and all the other officers. So the officers of the insurance company or the service provider are working for the policyholders. When you then introduce a shareholder, he or she (the shareholder) also appoints a board. But now, nobody is reporting to policyholders.Everybody is reporting to shareholders. The problem is when there is a conflict between shareholders and policyholders.

MC: You also touched on clear communication models.

 TM: Remember you put money aside.  You want to know how your money is working. So in this instance, I said you must buy assets. You must know what assets. It is not enough to know that 20% is in property, you must know what property.

Then you also need to know when they knock out a property out of your portfolio, you need to actually go and say, okay, you took this asset, what did you sell it for and what did you replace it with? So that is the essence of reporting.You need to have the information that allows you to actually know what they are doing with your money.

That is the communication part. There is no benefit statement in Zimbabwe. Most benefit statements are confusing.So you want a benefit statement that can talk to actually say  look, this is what is yours.

You have bought so much, you are due so much and this is what your pension can give you and this is how we are going to dispose of them so that you get the pension.

MC: How can pensioners make use of the inflation-busting pension’s model?

TM: It is basically creating a pension model that works in an inflation environment. So that means that you have to get assets that move economic value forward. If you put money into cash and whatever, obviously, that is not inflation-busting.  If you put money into property, you have got to put it into property that will deliver value.  If you are putting in a white elephant, an office building that is not going to work very well in the future. If you are putting money into manufacturing you know exactly what is being manufactured is going to have value in future. So you basically need to identify assets and the value they carry in the future because if those assets do not have value in the future you have got a problem.

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