Insurers, pensions to use own funds for compensation

Business Reporter

Insurers and pension funds will use their own resources either from their reserves, profits or proceeds from disposal of assets, to compensate policyholders and pensioners whose benefits were eroded following the rebasing of the Zimbabwe currency at the height of hyperinflation between 2006 and 2008.

The Reserve Bank of Zimbabwe slashed 10 zeros from the local currency in August 2008, for the second time in two years, in an attempt to bring relief to consumers amid ravaging hyperinflation. This was after the central bank had earlier looped off three zeros in mid-2006 to lessen the burden on consumers to carry huge piles of cash.

The debasing of the currency had an effect on the values of the policyholders and pensioners when the country eventually abandoned its currency in a bid to stem inflation, for a basket of foreign currencies, commonly known as dollarisation.

The Government commissioned an investigation in 2015 into how pensions and insurance benefits were paid out following a big outcry from pensioners and policyholders.

The commission of inquiry, chaired by retired Justice Smith, confirmed a “huge” loss of value to policyholders and pensioners and recommended compensation for the losses.

Justice Smith’s commission established that while policyholders lost value during the conversion period, they had also lost value throughout the investigation period between 1996 and 2014.

Thousands of insurance policyholders and pensioners have been hoping and holding out for additional pay-outs after receiving insignificant amounts as low as $0,08c after several years of working.

Some of them got zero values owing to lack of benefit inflation-indexation and currency debasing. The loss of value has left many people, after years of hard work, poor and have been expecting compensation.

According to the regulations to be used during compensation and which have already been approved by the Cabinet, insurers will compensate from their own funds or from their appropriate 2009 reserves. In the event that they fail to pay from their appropriate reserves, insurers will be required to impose a 15 percent levy on profits until the compensation liability has been extinguished, according to the regulations.

The commission will ensure that every insurer who fails to compensate policyholders explore all possible sources of funding including and “not limited to all subsidiaries created and funded using policyholder funds.”

“The commission shall probe the history of profits and retained earnings of each insurer and the insurer’s subsidiaries, vis-à-vis, their technical liabilities over the investigative period.  It shall be the sole responsibility of every insurer to ensure that they compensate and in no circumstances shall there be negative compensation.

“Every insurer shall ensure that any source of funding used for compensation shall not in any way have an adverse effect on the existing policyholders,” says the regulations.”

Compensation shall be in the official currency of use within Zimbabwe.

As for pension funds, prejudiced pensioners will be compensated from the fund’s appropriate 2009 reserves or any other available reserve. For self-administered and stand-alone funds—whose reserve is not adequate for compensation; or without the reserve they shall compensate through a compulsory 10 percent levy on its assets.

Insurers administering insured funds will levy 10 percent of the Bonus Smoothing Account (investment portfolios offered by life insurers that provide a guarantee on the money invested into the portfolio and the returns passed on to investors in the form of bonuses declared by the insurer) of their guaranteed fund.

Pension funds and insurers will be required to submit their proposed compensation schemes to the commission within 90 days from the date when the regulations become operational. The compensation schemes will at a minimum include an actuarial report clearly showing policyholders and pensioners to be compensated, the compensation amount and the proposed sources of funding. It should also show a detailed schedule of policyholders their respective compensation payouts, signed board resolutions confirming implementation of the regulations, communication strategy with policyholders and pensioners, the regulations say.

Submission will be assessed by the commission before approval to proceed with the compensation. In assessing the compensation scheme, the commission will ensure rights, benefits and interests of policy owners and pension fund members under policies are protected while maintaining the solvency of insurers and pension funds. The commission will also promote a compensation scheme that aligns to the findings inquiry. It will, within 30 days of receiving each insurer’s compensation scheme, furnish such insurer or pension fund with a response to the proposal. The regulations also spell out the formulas to be used to calculate the prejudice for different policy and pension products.

These include policies for cash accumulation policies, unit-linked policies and funeral policies.


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