Policy holders prejudiced billions of dollars

HARARE - Insurance and pension industry players did not keep consistent and reliable asset values during the pre-dollarisation period, resulting in ordinary Zimbabweans failing to assess risks and ultimately investing their hard-earned money down the drain.

This was revealed by a commission of inquiry set up to probe the process used to convert pensions and insurance benefits following dollarisation of the economy in 2009.

A nine-member commission chaired by retired judge Justice George Smith was set up after many Zimbabweans who saved for their old age were offered meagre sums as low as $6 for their life savings and pensions by the country’s bankrupt government.

Zimbabwe’s central bank had paid the meagre amounts to all those who held Zimbabwe dollar bank accounts and pensions when it abandoned its domestic currency in 2009.

In its investigation into the value, nature, type and quality of assets owned by insurance companies and stand-alone pension funds, the commission discovered that financial statements, valuation and the regulators reports were in shambles.

“The insurance and pensions industry does not maintain robust systems to keep records of assets, investment returns and liabilities, yet the nature of the industry requires robust information communication technology to facilitate the assessment of risks and processing of accurate financial records,” the commission’s report reads.

“In consequence, insurance companies, pension funds and administrators have been providing compromised and in some instances prejudicial services to pensioners and policyholders.

“While the incomplete and inconsistent asset data submission to the commission could have been genuine failure to maintain the data required, the possibility of the motive to conceal incriminating information remains.

“Either way, this is a reflection of negligence and poor corporate governance on the part of service providers and the regulator. This problem has been compounded by the absence of legislation that prescribes the minimum period for which insurance and pension records should be maintained,” the commission said.

“An investigation into the asset build-up revealed that the industry lost billions of dollars in excessive expenditure and bad investment decisions. Just for the period 2009 to 2014, the industry committed over $2, 9 billion in administration and other expense to the detriment of asset growth in support of pensioner and policy holder benefits.”

Of prejudicial services to pensioners and policy holders, the commission cited Old Mutual Life Assurance, the biggest life assurance company, which did not provide assets supporting insurance liabilities for the period 1996 to 1998 and 2000.

In addition, Old Mutual could not provide values of pension assets for the period 1996 to 2000, 2006 and 2008.

First Mutual Life Assurance, which was the second largest insurer in 1996, did not provide commission with total asset figures for period 1996 to 2003.

ZB Life Assurance did not submit pension funds’ assets for 1996 to 2001, citing the absence of records, resulting in understatement of total assets.

Doves Funeral Assurance and Moonlight Funeral Assurance also failed the data integrity test.

“While data integrity was an industry-wide challenge some players could have been concealing critical information necessary for determining prejudice as well as compensation,” the report said.

The commission also noted that industry players expropriated shareholding that was supposed to accrue to local policyholders.

This happened as the industry’s regulator, the Insurance and Pensions Commission turned a blind eye.

Meanwhile, the Zimbabwe Pension and Insurance Rights Trust (ZIMPIRT) has slammed the recommendations of the commission.

ZIMPIRT general manager and a former commissioner of the probe Martin Tarusenga,  who resigned at the tail end of its compilation citing government interference said the compensation framework was inadequate.

“With regards to the compensation framework in Chapter 7, our initial take is that it is very qualitative, without much of quantitatively
tested cases using data submitted by the public for the many products distributed by the several insurance companies and pension houses,” Tarusenga said.

“This is how models, including this compensation framework, are tested for their validity. Large quantities of data submitted by members of the public should have been run through the recommended compensation frameworks (model) for each product to check that the incumbent compensation framework for the product produces consistent expected results.

“For some pension and insurance products, the compensation frameworks appear to be specified inadequately and or incorrectly, in most cases without justification for the model for example as derived from underlying operational principles and practices.

“The report reads like someone was dictating to a secretary what to write. There are other many areas of the report that look inadequate, potentially rendering the report unusable in practice for the many intended purposes as specified in the terms of reference.”

Tarusenga, however, noted some positives in the 423-page report for pensions held by March 31, 2009.

In its favour, he said the report was a first confirming large-scale mismanagement of pension and insurance funds in Zimbabwe, and requiring urgent correction in order to curb continued pensioner destitution.

He said they were still going through the report thoroughly to check how the report affects their members, with a detailed commentary
likely to be issued shortly.


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