‘Let us relook at the Zim insurance business model’

By Melody Chikono | Jan. 19, 2024

Ipec actuarial director Robson Mtangadura

THE Insurance and Pensions Commission (Ipec) has been working to bring sanity in the industry amid many challenges. While it has many wins, it also facing challenges in some areas, specifically in the adoption of the prescribed asset status policy and last year’s “no premium, no cover” policy. Our senior business reporter Melody Chikono (MC) recently spoke to Ipec actuarial director Robson Mtangadura (RM, pictured) on Ipec’s plans to ensure more compliance regarding the two policies and other challenges facing the industry. Below are excerpts from the interview:

MC: Can you take us through the current challenges around pricing and affordability of insurance in Zimbabwe?

RM: As you are aware, in July, we launched our mortality tables.

One of the key findings from there was they said that there as a general improvement in mortality in terms of insured lives in Zimbabwe. What does that mean? It means less or fewer people are dying than initially expected. So, from a pricing point of view, it means the risk component of the premium is now lower than before. In terms of other loadings, I think that’s where we have got problems in terms of cost. I think there are a number of layers, of course, that are loaded on the premium products.

And some of these challenges, you then try to interrogate to see where the wheels are coming off. You find that generally, in Zimbabwe, we are reluctant to consider innovations around distribution of products so that we can then lower the cost.

Imagine a company that has a pool of agents that need to travel to rural areas to sell insurance products in this era in time. You need costs in terms of transportation, fuel, allowances, accommodation and everything else.

And all those costs end up being loaded on the premium dollar, especially from a distribution point of view.

So, I think our call as the regulator is to say let's relook at the business model and try to see if this business model is serving its purpose.

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One of the responses that we get from the market is large upfront cost in terms of investing in technology to lower the cost in terms of distribution. But again, gone are the days when you used to have physical infrastructure for you to benefit from these technologies.

We are encouraging our regulated entities to collaborate with existing companies, platforms, in terms of distribution so that at least they can possibly have access to those platforms at any level of cost.

Basically, my view is we need a complete mind shift in terms of our leadership and appreciate that we need to think outside the box for our insurers to remain relevant.

After all, our target market now are the millenniums (anyone born between 1981 and 1996), generation X (anyone born between 1965 – 1980), and stuff.

Those guys want services at their fingertips. Gone are the days when you see an agent moving around selling products. Who do you think will buy a product from an agent these days, in this day and time? So, I think basically those are some of the challenges that we are having in terms of pricing.

MC: Okay. Then can you shed more light on compliance issues in the industry? I think you highlighted some of them.

RM: So, I think let me start by talking about prescribed assets. As you may recall that around 2008-2009 when the country dollarised, I think a lot of monetary assets were lost for long-term investors, insurance companies and pension funds.

Fast forward 10 years down the line, we started to have concerns around possible loss of value again due to currency issues. Our view was we need to strike a balance between national development, mobilising resources for national development, and making sure that we protect policy orders.

Through a wide consultation, we managed to convince our principals, which is the government, to award prescribed asset status in terms of value of preservation investments, in alternative investments. In prescribed assets, as long as those investments meet the set criteria in terms of national development, in terms of real returns for police workers and staff.

To, date we have approved a significant number of those projects. Our discussion now is that we cannot continue to have a discussion around the possible loss of value in prescribed assets because no one is being forced to invest in market assets for those asset classes that preserve value.

So, when I mention reluctance to comply, I was trying low compliance. The first one was around quality of assets, which we hope we have addressed through the granting of reserve assets of this private equity and also alternative investments.

Then the other issue is around liquidity, which again is a fair suggestion or a fair point from the market, but again, we cannot cry for liquidity over the next 10 years. I think it's also a cause for portfolio restructuring. I think as long as where you are putting money creates value, the market needs to restructure their portfolios to make sure that they meet the requirement.

Because at the end of the day, we all want to have access to good health, we all want to have access to good schools, we all want to have access to clean water and energy.

Who do you think will come and invest for us if we as the insurance sector, who are responsible for mobilising resources are shunning away those investments?

So, I think those are some of the issues that we are working on as the regulator and our view is we have run out of patience. We do not think there are still excuses for the industry to comply and going forward, we are going to use all the regulatory sanctions that we have at our disposal to make sure that the industry complies.

MC: So, what are the real sticking issues on PAs (prescribed assets) despite these efforts, given that industry is still failing to comply citing various reasons?

RM: There used to be various traditional classifications of prescribed assets where you're looking at government bonds and monetary markets.

Now, we are saying, you, as a private investor, you want to invest in clean energy, you want to invest in building hostels for students, you want to invest in agriculture?

Do your financial projections and demonstrate to us the cost that you are going to incur, the revenue that you are going to bring in, and how we are going to make a protective value for policy orders.

And again, we also look at a governance structure around those investments and stuff. And, if that project meets a certain requirement, we can then approve your project to qualify as a prescribed asset.

So, the project, in most cases, you'll find, especially in horticulture, they are investing in exports and generating activities where they are investing in macadamia, blueberry exports, and getting real money, USD. That USD is then passed back to the investors. So, how can you argue to say government security and stuff?

MC: But then, does that have impact on the minimum requirements?

RM: The 10% rate, 15% rate, is a benchmark to say that of your total assets at least 10% of that should be invested in prescribed assets. The idea being we want you to mobilise the resources for long-term investment that benefits the nation.

So, you collect your premiums, your contributions as a pension fund, 10% of it invested in a project that is generating forex for the country so that you as an investor also benefit from those investments.

Invest those in green energy, invest in whatever activities so that is where the benchmarking is coming from. But we are not forcing anyone to invest 15% in monetary assets in this environment so there is no more reasons to fail to comply.

MC: Now, can you explain failure to comply to IFRS (international financial reporting standards)?

RM: On compliance issues around ZCAP and IFRS 17, I think this became effective on January 20, 2023, and our expectation as the regulator is we are going to get a full complete year submission as of December 31, 2023, complying with this framework.

And again, we said let's not wait for December 31 to address issues if they are in. So, what we have asked the industry to do is possibly on a quarterly basis, your returns and your submissions must demonstrate that you are implementing these standards so that we continue to work together.

If there are any challenges, we can then intervene and address rather than waiting for year end and start to realise that over 50% of our market is failing to comply with the capital requirements or are failing to produce the IFRS compliant numbers. We are also working very closely with the industry.

Then, on ‘no premium, no cover’, I think we have done that. As you are aware, that issues of premium data were becoming topical, contributing a significant amount of the overall insurers balance sheet, especially on the short-term side.

So, we have also come up with an SI (Statutory Instrument) that deals with that, and we have agreed to say come December 31, 2023, we do not expect to see data on the insurance financial.

MC: Can you clarify on how this policy works?

RM: How it applies in short term and long term is a bit different. So, if you look at short term, which is your (motor car), your agriculture, tobacco, insurance and stuff, those guys insure products at the start of the season.

I want to grow my 10 hectares of tobacco, for example, I’m expecting to incur this much and possibly sell them at this much. So, I want to insure now.

So, what was happening before is you get into an agreement and you promise the insurance company, you say you know what, upon selling my tobacco I'll pay you premium.

Then you sell your tobacco you don't pay because you did not incur any loss. So, for an insurance company, they make it difficult. The insurance period is over.

There's no claim, there's no premium. It's difficult for you to go back to the client and say, give me my premium. Because one of the key requirements of insurance is your premium must be paid up front.

So, we are saying, look around in terms of innovating how to deal with that. Going to the tobacco example, I think it's one of the key sectors that we need to ensure that we are protected in terms of insurance.

And what we are asking the insurance companies to do is make arrangements with the banks so that there is what we call premium financing, where instead of you, the insurance company, to offer that premium on date, the bank will take that responsibility because that money, when the farmer sells his product, is supposed to go into a bank account and the bank account can recover the money. Or else you also need to work with those financing companies who are providing input and stuff to load that cost of input.