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Insurance is all about spreading risks

NICOZDIAMOND MD Grace Muradzikwa (GM) says insurance is all about spreading risks as insurance companies follow the fortunes of their clients. Businessdigest chief business reporter Paul Nyakazeya this week spoke to Muradzikwa about the short-term insurance sector.

PN: The average life assurance / pension fund investor feels robbed / done out of their savings. What role has your sector played in this erosion of value and loss of savings?

GM: It is important for the people to appreciate that the insurance industry is broad and it encompasses short-term insurance (property & general), life assurance, funeral assurance, pension funds, medical insurance and loss adjusters.
I shall comment on the short-term insurance sector in which our company operates. Short-term insurance companies offer policies that cover one’s assets such as buildings, vehicles and large equipment and plants.
The phrase “short-term” refers to the period of insurance which is usually one year. In response to escalating inflation levels in the economy, a number of short-term insurers started to offer quarterly and in some cases monthly policies. We continued to pay claims in hard currency soon after the dollarisation of the economy.
The hyperinflationary environment and subsequent dollarisation affected all sectors of the economy and the insurance sector was not spared.

PN: How has been trust levels among your clients and do you see your business and the sector recovering?

GM: During the hyperinflationary environment, most companies in various sectors of the economy lost trust among their clients.
It is however pleasing to note a gradual improvement in trust levels in the insurance industry since the adoption of multi-currency system in Zimbabwe. Our clients are now becoming more particular with whom they are insuring with. Although pricing is still a major factor in making a decision to choose an insurer, more and more clients are looking at credibility of the insurer, promptness in honouring claim obligations, quality of service delivery and size of the balance sheet as some of critical factors in choosing an insurer.
The performance of the insurance industry is positively correlated with the performance of the whole economy. Although insurance industry statistics are not yet out, general consensus in the industry is that the multi currency environment has managed to alleviate some challenges facing the insurance sector. Some level of normalcy is back in the industry. Like any other novelty economic policy, new challenges are expected and it is how one reacts to those challenges. As an industry, we believe that the current challenges are not insurmountable and requires co-operation from all key stakeholders.

PN: What strategies do you have in place to improve the situation?

GM: For the insurance industry, there is need to invest heavily in awareness campaigns and redirect our efforts in creating innovative products that meet ever-changing clients needs. The Insurance Council of Zimbabwe (ICZ) has a special committee tasked to look at public relations and I happen to be chairing this important committee. We hope that our efforts at industry level will help earn back the trust from our valued clients.
Most insurance companies had their balance sheets eroded by hyperinflation and the sudden switches to the use of hard currencies meant that a number of players had to and are still to recapitalise their balance sheets. This will also go a long way in rebuilding trust.
The industry is also agreeable to implementing “best insurance management practices” which is also important in restoring trust levels.

PN: Since the dollarisation of the economy, what has been the impact on the insurance sector. What challenges, if any, are you facing?

GM: The introduction of multi currency trading environment in February 2009 meant that insurers had to quickly adjust their way of doing business and seize on the opportunities provided by the new trading environment.
The challenges facing the insurance industry, although not insurmountable, include the following, liquidity constraints and low disposable incomes resulting in our clients taking minimal covers of insurance or no insurance at all.
The other challenges are rising incidences of insurance fraud thereby pushing claims cost, cost structures not aligned to revenues, stiff competition creating pressure on profit margins
Recapitalisation challenges due to lack of liquidity in the economy and the inability to attract foreign investors to inject new capital. Depressed performance of financial markets exerting pressure on investment income and slow economic recovery with some businesses operating below capacity or completely shutting down.

PN: The perception out there is that underwriters are quick to receive money from their clients but very slow to react when it comes to meeting their end of the bargain in times of need. The question is: what is the incentive of insuring if one is not  able to enjoy the benefits of the insurance?

GM: The insurance industry is a highly regulated industry with the sole objective of protecting policyholders and the public. The Commissioner of Insurance, mandated by the government to regulate the insurance industry, sets minimum standards that every insurer should comply with. Our clients are always advised to seek professional advice on the capacity of the insurer to pay claims, reputation of the insurer and quality of service delivery before selecting their insurer. Claims paying ability ratings awarded by international rating agencies are also important.

PN: Due to the hyperinflationary environment, some clients didn’t see the benefit of insuring, what has been the response now. What is the trend in terms of claims?

GM: Our clients are slowly responding to the call to insure their assets, although they are still facing challenges such as low disposable incomes, liquidity constraints and uncertainty over economic policies. It is disturbing to note that claims costs have been escalating since the adoption of multi-currency. Incidences of insurance fraud are on the increase. The costs of insurance fraud to the economy and the policyholders themselves in the form of high premiums charged are huge. It is in the interest of everyone to work collaboratively to protect honest customers from the undesirable effects of insurance fraud.

PN: Corporate clients are said to have been slow to adjust to the new environment as compared to individuals, what does this mean to corporate underwriters like Nicoz?

GM: It is true that most corporate clients are facing enormous challenges. Some companies are either downsizing or completely shutting down. Some are also failing to replace old equipment due to liquidity constraints. Naturally, such companies will only purchase minimal insurance covers. For NicozDiamond, we target all categories of customers and we have a vibrant direct business department that caters for individual clients. Also our banca-assurance arrangements with reputable banks ensure that we reach out to individual clients.

PN: Clients are now more critical when it comes to deciding whom to deal with. Do underwriters have the capacity to pay at this moment. Furthermore, do they have good balance sheet sizes to support good reinsurance programmes?

GM: The observation that “clients are now more critical when it comes to deciding whom to deal with” is true.  Most clients are relying on claims paying ability ratings awarded by international rating agencies such as Global Credit Rating (GSR) of South Africa. An insurer with strong claims paying ability and a “healthy” balance sheet provides peace of mind to clients that the insurer will be able to honour their claim in the event of an insured event occurring. 
Some clients are also demanding to know claims paying ability of reinsurers an insurance company is using for its reinsurance program. As NicozDiamond, we ensure that we place reinsurance with reputable reinsurers.

PN: Insurance companies have tended to rely on investment income with very little being recorded from underwriting income, is this likely to change this time around from what the industry has experienced in the first five months?

GM: It is important to understand the sources of investible funds available to insurance companies. Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The size of investment income is therefore directly influenced by the underwriting performance of the insurer. An insurer making underwriting losses will be forced to liquidate investment assets in order to honour claims obligations.
During the hyperinflationary period, most insurers had positive investment income. However, in the new dollarised economy, there are limited investment vehicles and the performance of the Zimbabwe Stock Exchange market (ZSE) was affected by the indigenisation and uncertainties regarding the implementation of the Global Political Agreement (GPA). Going forward, we are going to see depressed investment performance.

PN: How is the issue of capitalisation being handled and will all companies be able to capitalise?

GM: Direct insurers are required to meet the minimum capital requirements of $300 000. The commissioner of insurance has been notifying members of the public through the press of those companies complying with minimum capital requirements. NicozDiamond is one of the few companies in Zimbabwe that successfully recapitalised in the year 2009 through a rights offer.

PN: What have been NicozDiamond’s major highlights in 2010 and what can shareholders expect this year?

GM: The results of NicozDiamond will shortly be released to public. At the moment, we are still in the “grey period”. We are going to respond at an appropriate time.

PN: What percentage is your market share?

GM: We are waiting for market statistics for 2010. However, we believe that we are still the largest in terms of business supported by our balance sheet. Our focus for 2010 was mainly to rebuild a strong balance sheet through profitable growth.

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