Stability anchors insurance sector rebound
Zimbabwe’s insurance sector rebounded in 2023 driven by the stability in the economy and the success of the multi-currency regime, according to banking sector research by Morgan & Co (Morgan & Co.).
According to the company, short-term insurance and reinsurance industry premiums recovered markedly to around US$400 million in the year.
Morgan & Co. believes the recovery benefitted from the increase in US dollar flows in the country which has driven the turnaround in both the short-term insurance and reinsurance sub-sectors. Motor and fire insurance remain the largest drivers of short-term insurers’ business.
The premium revenue in Zimbabwe’s insurance market stood at $253,6 billion (US$634,1 million) in 2022 with the short-term insurance sector accounting for US$326 million.
During the quarter to June 2023, short-term insurers wrote a total of $18,01 billion in gross premiums, accounting for 35 percent of the total business written.
The balance of 65 percent of the business was written in foreign currency.
“Short-term insurance and reinsurance rebound has been driven by USD premiums have recovered significantly to circa US$400 million and currently account for roughly 60 percent of total premiums in the sector,” Morgan & Co. in its report.
“In 2024, we expect the slowdown of the general economy to drive slower growth in the short-term insurance industry,” the stocking broking firm noted.
However, the amount of unpaid insurance premiums rose dramatically to $180,40 billion in June this year from $15,7 billion reported in the same period last year, putting short-term insurers in a precarious situation and forcing them to settle claims for policies whose premiums have not been paid in full or after a claim has occurred.
The crisis led to the enforcement of the no premium no cover policy through the gazetting of Statutory Instrument (SI) 81 of 2023.
Insurers say the new legislation was introduced to address the unsustainable high premium debtors within the books of short-term insurers, which threatened the liquidity and financial soundness of the insurers.
“According to the SI short-term insurers and brokers dealing in short-term insurance are prohibited from providing insurance cover on credit. Insurance cover at the inception or renewal of a policy shall be activated upon payment of the required premium,” said Danmore Chakona, an insurer.
However, they noted that in 2023, long-term insurance has been lagging behind the short-term sector, and this might be the case going forward.
Morgan & Co. said premiums in the long-term insurance industry had lagged behind the short-term insurance sector largely on the back of lagging US dollar premium contributions and low confidence.
“Further, the economy’s dollarisation has driven an increase in wages and salaries paid in cash which has left little for the long-term insurance to tap into,” they said.
The long-term insurance sector is expected to suffer from the extensive impact of previous issues including value erosion due to inflationary pressures.
“We anticipate the sector’s performance to remain depressed until confidence-building measures such as a clear compensation framework for 2019 losses are in place as well as an increase in consistent and proven avenues to preserve and enhance the value of policyholders’ investments,” the research read.
On the issue of value erosion in the long-term insurance sector, the Insurance and Pensions Commission (IPEC) in October 2023, gave players in the insurance and pensions industry until the end of December 2023 to submit compensation plans for policyholders and pensioners who lost value when Zimbabwe scrapped it domestic currency in 2009 due to inflationary pressures.
According to IPEC, these plans must include the list of eligible policyholders and pensioners and the compensation amount for each.
Plans are that beginning by March 2024, policyholders who lost their savings should start receiving compensation.
“Liable insurer or pension fund to submit compensation plan to IPEC, including the list of eligible policyholders or pension fund members and the compensation amounts by December 31, 2023,” IPEC said in October.