Insurance firms continue to bleed

HARARE - Zimbabwe's insurance sector continues to make losses despite raking in millions of dollars every year due to deteriorating economic conditions, a new report has shown.

A third quarter survey conducted by the Insurance and Pensions Commission (Ipec) revealed that life insurance firms recorded a 46 percent decline in profits from $69 513 in the nine months to September in 2015 to $37 750 in the same period this year.

This was despite the insurance companies having wrote net premium of $257 million in the period under review, which was six percent growth from $243 million last year.

“Total costs were $219 million resulting in a combined ratio of 85 percent, a 14 percent growth from the same period last year,” Ipec said.

The insurance regulator noted that total assets regressed by two percent from $1,557 billion last year to the current $1,527 billion reflecting investment losses by players due to the challenging operating environment characterised by low liquidity.

This comes as the country’s  insurance sector has been ravaged by an accelerating economic decline, with statistics indicating that long-term insurance has a penetration rate of less than 4,1 percent, one of the lowest in the region.

The industry’s growth is coming under increasing pressure from shrinking disposable incomes, which have been affected by company closures, high unemployment and a tightening liquidity crunch.

Market experts say companies that have survived the deteriorating operating environment have shifted focus to more pressing survival needs than paying insurance premiums.

“The decimation of the industry, which intensified following the switch to dollarisation in 2009, has deepened, with quarterly cancellations in the life business averaging 37 percent in the past two years,” said an insurance expert with a local financial institution.

“The development portends gloomy prospects for the struggling economy, as it demonstrates worsening hardships for the few who could still afford insurance cover to cushion themselves against the adverse financial consequences of premature death for dependents in the absence of government social safety nets,” he added.

Information gathered by the businessdaily shows that the crisis that saw the demise of more than 6 000 firms between 2011 and 2015 has undermined the insurance industry’s vital role for mobilising savings for the economy, whose ripple effects have already been dire.

The Organisation for Economic Co-operation and development (OECD) says life insurance assist economic development in general and development of financial markets in particular.

Bolstered by their ability to pool financial resources through policy holders, insurance companies are able to amass large quantities of funds that are important in supporting investment and national economies.

But the spate of policy cancellations has now piled more pressure on the industry in which smaller players are already on the receiving end.

Meanwhile, Ipec has urged insurance firms to invest in prescribed assets, treating customers fairly and ensuring that insurers start effective ground work to prepare for the imminent introduction of a solvency directive currently under consideration.

“Insurers are further encouraged to embrace effective risk management systems, corporate governance, effective pricing models and effective ICT systems to ensure sustainable and profitable business growth,” the insurance regulator added.

Comments (2)

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lloydcadenna - 5 December 2016

Insurance companies destroyed the confidence in the individuals by becoming the leaders in burning during the hyper inflation. In fact they created the hyper inflation as they became the big players in the black market. Then when the multi currency was introduced they robbed the public by paying out insignificant amounts in USD. I changed jobs in 1998 and got my pension pay out of ZWD 720 000 which in terms of the law I was to transfer into a pension fund and I did as such. This amount could have bought 3 or 4 low density houses then. In 2010 when I enquired how much I would get I was told +-USD9000 after tax. Now I could not buy a good second hand car. Would you blame me for not believing in insurance any more?

Jemedzo - 7 December 2016

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