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FLA banks on innovation, regional expansion

ZIMBABWE’S insurance industry is emerging from a 10-year recession that dampened confidence in the sector. Fidelity Life Assurance (FLA), one of the sector’s key players, lost significant ground during this period.

The company (FLA) now has 12 000 policyholders from a record 289 000 in 2004. FLA subsidiaries include Fidelity Funeral Assurance; Fidelity Life Asset Management; Fidelity Life Medical Aid Society; Fidelity Actuarial Consultants and Vanguard Life Assurance (Malawi).

Last year’s liberalisation of the economy has brought hope to a sector which is not really a top priority in this part of the world. But reduced contribution from investment income, increased competition and tight premium collections are some of the factors affecting the sector.

Our senior business reporter Bernard Mpofu last week spoke to FLA managing director Simon Chapereka in Harare on the state of FLA and the insurance sector.

Mpofu: What market share does FLA account for?
Chapereka: There have been varying figures in terms of market share. They range from 8-10% according to statistics based on a survey carried out in 1997. But we are currently compiling statistics from the Life Offices Association.

Mpofu: Large corporates with low claims ratios have tended to have self-managed insurance funds as a cash outflow plugging strategy, especially on the short-term insurance. Where does this leave you as an organisation?

Chapereka: Our business is anchored on risk management. The bigger the pool, the less the risk exposure. It is more beneficial for people to belong to a larger pool because the burden can be spread on a wider base. This outflow plugging strategy is a short-term solution. In any case that is not the core business of these companies; therefore the experience to manage that risk is limited.

Mpofu: How many policies have you written to date this year? How does this match last year’s figures?
Chapereka: All I can say is that I do not have those figures off hand, suffice to say that business has grown by 96% in the last year. We now have 14 financial advisors and we have managed to re-open our Harare and Mutare branches which were closed in 2007.

Mpofu: Why did FLA close operations in Angola?

Chapereka: We had a three-year management contract in Angola. It came to an end and it was not renewed. More specifically, the client was given a better offer by a South African company. The SA company offered to inject US$20 million into the Angola company as capital and they would provide management service at no charge. In our case, shareholders only managed to give us US$1,7 million to recapitalise our subsidiaries. This meant that we could not compete.

Mpofu: How profitable is it to embark on regional operations, especially after the introduction of multi-currencies in Zimbabwe?

Chapereka: Our model for regional operations was that we went into that market via management contracts, offering technical skill, not capital. We were successful in that regard. We went into those markets to mitigate our country risk. The money we generated from Kenya, Zambia, Malawi and Angola was able to keep us going in Zimbabwe.

Mpofu: How much did these operations contribute?

Chapereka: I can only say it was a significant contribution at that point. We believe that there are still profitable opportunities out there. We are still looking for opportunities as they have the ability to enhance the return of our policyholders.

Mpofu: Analysts contend that the current capital thresholds have intensified competition. How sustainable are these thresholds?

Chapereka: We have seen that one or two life offices closed down because they could not meet the capital thresholds. Some asset management companies have closed down. The same can be said for funeral assurance companies. With higher capital levels, you are able to write more business and hopefully become more profitable.

Mpofu: With most employers offering low basic salaries and top up allowances which are not pensionable, how do you continue to survive?

Chapereka: We have looked at other business opportunities, specifically for FLA. This has seen us diversifying into medical services, asset management and funeral assurance as well as regional operations.

Mpofu: What is the current average underwriting capacity?

Chapereka: It is estimated to be around 10% and it is at par with the international average.

Mpofu: Independent statistics show that at least 58% of Zimbabwe’s labour force is informally employed; which products have you introduced to cater for this market?

Chapereka: We are actually promoting that sector through our consumer lending business because we want it to thrive. If they are successful, they will be able to take insurance products like medical aid and life assurance policies.

Mpofu: Who is borrowing money from you?

Chapereka: Small to medium enterprises and ordinary people.

Mpofu: What are they using the funds for?

Chapereka: It’s a combination of reasons. Firstly people’s salaries are not sufficient. More so some may borrow to fund their enhancement projects.

Mpofu: How do you match the interest rates being offered by rival micro finance institutions?

Chapereka: We believe that we are on the lower end of the market. There are some lenders charging as high as 25% and others as low as 6% per annum. Ours is on the lower end of the market.

Mpofu: At what tenure?

Chapereka: Between three and six months.

Mpofu: Some may argue that your sector would be the last one to recover should Zimbabwe’s economy improve. Do you agree?

Chapereka: I don’t agree because when you employ a person there is need for an insurance policy. Our fortunes are determined by what is happening in the economy just like anybody else.

Mpofu: Earlier this year, you said liquidity problems and anxiety over Zimbabwe’s indigenisation policy resulted in FLA incurring a negative investment income. Do you think that the recent amendments to the indigenisation and empowerment regulations will inspire confidence on the ZSE?

Chapereka: I think the indigenisation drive in our country is not anything new. What is peculiar about Zimbabwe is the manner which we have implemented things. That is where the problem is. We believe that the amendments have addressed some concerns for existing and potential investors.

Mpofu: Who is Simon Chapereka and what drives him?

Chapereka: I am a family man, a Christian and results oriented.

Mpofu: What areas have you scored the most since your appointment in 2003?

Chapereka: I think the hallmark of my career has been the diversification of the company, product innovation and regional expansion. We are the first life assurance company to be ISO certified. We are the only company that brought a 2010 soccer World Cup product, an investment product.

Mpofu: How did the market receive this product?

Chapereka: When we introduced the product five years ago, it ran into the same problems which the economy went through. Some investors were unable to continue subscribing. However, those who are able to maintain and top up subscriptions received a reasonable return.

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