HAS anyone ever wondered how much has been lost over the years, of money paid by the general public to insurance and pension fund industries in the form of insurance premiums and pension fund contributions?
It may not be difficult to fathom if one considers that hyperinflation does not seem to have adversely affected the ability, in particular, of insurance companies and pension funds to pay their dues to the public in any significant way.
Indeed insurance companies and pension funds could be said to be some of the richest institutions in Zimbabwe. Compare this with the paltry benefits that insurance beneficiaries and pensioners are known to have been receiving over the years from the same insurance companies and pension funds.
So where and how did they amass such wealth? It is simple â€“â€“ from money paid by the subscribing public over the very many years, to the insurance and pension fund industries in form of insurance premiums and pension fund contributions, accumulated with investment returns.
Can the general public claim ownership of these funds â€“â€“ and thus duly charge that they have lost money to the insurance and pension fund industry? Whether or not the subscribing public has lost money to the insurance and pension fund industries is easy to understand if the comparison is made between the said insurance and pension fund industry accumulated wealth against the paltry benefits that they pay to insurance beneficiaries and pensioners. Note here that the insurance company and/or the pension fund should in principle pay out benefits that are proportionate to the purchasing power of premiums paid-in, accumulated with investment returns on the pooled premiums less administration and other expenses. This is an internationally accepted insurance and pension fund management principle â€“â€“ it is only because the funds so generated should strictly be used to protect against adversities of life including old age infirmity, death and disability.
This is one reason why specially designed regulations are put in place world-wide to ensure that these insurance and pension fund socio-economic objectives are achieved with maximum certainty possible. Small wonder asset managers and the associated asset management houses that â€˜preyâ€™ on insurance and pension funds promise â€˜heavenlyâ€™ investment returns in order to grow their asset portfolios, but on the pretext that they are helping insurance and pension funds meet their socio-economic objectives.
But do the insurance and pension funds in Zimbabwe pay out the said proportionate benefits, and do the asset managers return what they promise? Investigations and research elsewhere, documented and otherwise, reveal a state of insurance and pension fund beneficiary contrary to promises made â€“â€“ destitute pensioners that have parted with good money to a pension fund over their working life time, insurance payouts that can barely buy a coffin, bread or anything bear witness to this. In sum it could be said that the subscribing public is being consistently short changed by the insurance and pension fund industries in Zimbabwe â€“â€“ or are they?
But how is this happening given that insurance and pension funds are regulated to ensure first that insurance and pension fund managers and related professionals only add value to the funds so generated and that the funds are used to protect against the said adversities of life. The management at the insurance and pension fund level, or the management at the asset management level or at the regulation level or all of them constitute the black hole.
A key and critical management competence at the insurance and the pension fund level and hence at the regulatory level is maintaining a correct balance of benefits due to be paid out to the subscribing public and the assets backing the due benefits, in a manner to ensure that benefits paid out are proportionate to the purchasing power of premiums paid accumulated with investment returns on the pooled premiums less administration and other expenses. Implied in this task is ensuring that the assets so backing the benefits perform such as to pay out benefits proportionate to the purchasing power of the premiums paid in. Insurance companies typically task actuaries to provide with advice in this regard â€“â€“ while the overall business policy to contract more of one type of insurance/pension fund policies or the other, remains with the insurance or pension fund.
It is astounding to observe that actuaries in Zimbabwe remain silent while the public is being trounced by insurance and pension fund management! Itâ€™s even more shocking to note that actuaries still present the aggregate of benefits to be paid out to the subscribing public relative to the premiums and contributions paid-in, in trillions, quadrillions, etc without any real terms comparative basis like the accountants are already doing. If inflation measurement in Zimbabwe has still got any credibility, the Zimbabwean dollar ten or twenty years ago when someone subscribed to an insurance/pension fund policy is probably twenty-five billion Zimbabwean dollars of today. The benefit that this subscriber will get or has already gotten as quoted by the actuary has probably not increased by anywhere near twenty-five billion for every dollar paid-in over the ten/twenty years. Has this actuary in Zimbabwe got any responsibility to the public?
What has the regulator done about this anyway? They have put in regulations to ensure more of the public money in insurance and pension funds are invested in government bonds to generate cheap government funds. The government bonds yield sub-economic returns well below inflation. So much for a competent and responsible insurance and pension fund regulator!
Turn to the asset manager â€“â€“ I do not know of any asset manager that are tasked to meet investment performance targets in keeping with at least the purchasing power of premiums and contributions paid in by subscribers over the years. I still have to come across headlines about an asset manager that has lost their job for not meeting some investment performance targets â€“â€“ once an asset manager in Zimbabwe, always guaranteed to be one. Specific investment mandates that tend to form part and parcel of investment management processes, together with regular consistent appropriate investment performance assessments are rarely talked about in financial markets of Zimbabwe. The entire line management of insurance and pension funds does not appear to appreciate that they have a responsibility to return proportionately to the subscribing public â€“â€“ rumour in fact has it that there is cartel-like approach by managers to apportion insurance and pension funds as their own funds?
l Tarusenga is Principal Consultant with Systemics Consulting; contact â€“â€“ Mtarusenga@aol.com, Tel: 091 889 716; 04 2931019