LIQUIDITY and stiff competition remains the biggest challenge for short-term insurers in Zimbabwe despite robust growth in premiums since dollarisation in 2009, an industry expert has said.
Report by Clive Mphambela
Tristar Insurance managing director Agripah Marangwanda made the remarks in an interview with businessdigest last week following the release of a market report by the Insurance and Pensions Commission (Ipec) which showed a modest 5% decline in profits after tax for the short-term insurance industry in the year to September 30, 2012, despite a 22% increase in gross premiums collected.
According to the latest Ipec report, gross premiums earned collectively by short-term insurance companies amounted to US$142 123 million up from US$116 047 million.
The increase in top line revenues did not, however, translate into an increase in net profits after the combined effect of claims, reinsurance and operating expenses left net profit at US$3 544 million, down slightly from the US$3 735 million recorded as at September 30, 2011.
“The biggest challenge insurers in Zimbabwe are facing is the liquidity issue,” said Marangwanda. “This stems from the position that most clients are requesting for extended payment plans on their premiums. On the other hand the same clients expect their claims to be paid in full when losses happen,” Marangwanda said.
He said the other challenge is the increasing competition and pricing pressures which have seen below sustainable rates being charged.
Marangwanda said this is also compounded by the fact that on some of the classes of business, premiums are generally low making the concept of pooling of risks ineffective.
He said insurance companies needed to subject themselves to regular actuarial valuations to determine, among other issues, liquidity risks, adequacy of pricing and the ability of the companies to meet future potential liabilities.
“Such actuarial reviews also look at the adequacy of the capital that the company holds versus the risks that the business underwrites.
This enables the insurer to actively manage risks and maintain a sound underwriting philosophy which does not only ensure that adequate premiums are collected but also that adequate reserves are put aside to meet potential liabilities.”
Marangwanda said in line with best practice, his company subjected itself to actuarial reviews twice every year.
“This is not a regulatory requirement but an issue which management feels is critical in ensuring proper management of risks. Over and above actuarial reviews, the business subjects itself to a credit rating review by the Global Credit Rating Company.The essence of this exercise is to assess the ability of the company to pay claims and this speaks to the issues of liquidity and it allows management to actively manage this risk to ensure that claims are timeously paid out when they do occur.”
In terms of pricing pressures, Tristar has managed to
distinguish itself by offering unique products which set it apart from the rest of the market, thereby doing away with pricing pressures.