Insurance industry bombshell... as govt muscles in on third-party business

According to a document exclusively obtained by the Zimbabwe Independent, government has moved to take over third party insurance business, putting the industry at risk of collapse.

ABOUT eight insurance firms are facing collapse and a further 933 in related industries are in peril as a direct result of measures introduced in Finance minister Mthuli Ncube’s 2024 budget, which experts say wipes out 77% motor insurance premiums from private sector players.

According to a document exclusively obtained by the Zimbabwe Independent, government has moved to take over third party insurance business, putting the industry at risk of collapse.

The paper, which was submitted by the Confederation of Zimbabwe Industries (CZI) to the Treasury recently, disclosed that 32% of insurance sector revenues would be redirected to government, pushing out operators from the lucrative third-party policy market.

Revenue inflows into government have been depressed, and the Treasury chief tried to extend his broom to all corners of the economy, to bolster tapering fortunes.

Last week, he backtracked and reviewed some of the measures which CZI said would put 40 000 jobs at risk and leave thousands of firms on shaky ground.

But he did not specifically address government’s plan to veer into the third-party business. However, Ncube imposed a new 20% annual levy on statutory motor insurance as part of the measures.

In its report, CZI warned that a fresh levy would immediately drive some operators into ‘insolvency’.

“The move to take over the third part motor vehicle insurance will have unintended consequences to the insurance sector,” CZI said in its 12 – page report, which is titled ‘CZI 2024 National Budget Response Paper’

“Over the years the industry has established a strong distribution network and intertwined structures which includes 20 insurers, 28 insurance brokers, and 893 agents. All this value chain will be negatively affected by a government takeover of the book.

“The move will wipe 77% of motor insurance premium from the industry and 31,87% of market insurance revenue. This will cripple the industry’s contribution to National Development Strategy 1 in the key areas of economic growth and employment. At least eight insurance companies will close shop, and this will lead to loss of confidence in the industry and lead to loss of jobs across the industry,” CZI added.

Warning government to stay away from insurance, the paper said Zimbabwe’s southern African peers had left insurers to run third party insurance, while they administer road accidents (RAF) funds.

Still, these funds have struggled, the report noted, citing South Africa’s RAF, which recorded a R28,8 billion deficit last year alone.

“The budget introduced a motor insurance statutory levy of 20% of each dollar of premiums paid pursuant statutory motor insurance policies, with claims ratios 75% and below. The government already collects 20% of foreign vehicle third party insurance premiums. The funds are mainly used by the civil protection unit to help accident victims that are not insured. However, computation of the introduced levy will start from January to December 2023, which will negatively impact insurance companies since 80% of the Road Traffic Act policies for 2023 have already run their course. The levy was not budgeted for and imposing the levy in retrospect will affect the solvency of insurers,” the paper added.

Starting January 1, 2024, the measures compelled millions of informal sector players – estimated by the IMF to be making up 60% of Zimbabwe’s economy – to register with authorities in order to start paying taxes.

“(A sustainable taxation system) should be comparable with the region. VAT is already a great tax and avoids the pitfalls of sales tax. In other words, we are already taxing the informal sector which has a very small value add. We should promote the growth of the formal sector where more value is.

“The total expenditure for 2024 is expected to be about ZW$58,2 trillion, to be financed from an expected revenue of about ZW$53,9 trillion, with a targeted budget deficit of ZW$4,3 trillion (1,5% of GDP (gross domestic product). The budget deficit is less than 3% of GDP, which is in line with Sadc targets.

“However, the concern is largely that despite the economy being 80% dollarised, the 2024 National Budget was prepared in ZW$ rather than the USD. Thus, there are huge possibilities that the expected revenue and expenditure mix are not realistic, given that no one can adequately anticipate currency volatilities to be witnessed in 2024,” it noted.

The Treasury chief disclosed last week that following weeks of backlashes, he was forced to ask CZI to undertake study detailing the extent of damaged likely to be inflicted by policymakers’ missteps.

He toned down his demands, saying in a statement the new measures would be important for the economy.

“The (CZI) committee undertook an impact analysis on the implementation of some of the measures introduced through the 2024 budget, in particular with regards to tax compliance on route to the market, mitigation of consequences of the sugar on health through a special surtax, and a few tariff lines that were omitted on exemption from Value Added Tax, in order to cover the whole value chain that includes cotton and soya seeds to cooking oil,” Ncube said two weeks ago.



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