ZIMBABWE’S Insurance and Pensions Commission (Ipec) has called on players in the insurance sector to be innovative to come up with new products that are suitable for the lower end of the market and grow income in the face of tight liquidity.
In its 2014 first half report for life and funeral assurers, Ipec said new products such as micro-insurance would enable reinsurers, for instance, to access the lower end of society and the informal sector.
Ipec said players in the funeral business should continue building on the momentum of growth through product innovation and embracing new concepts particularly micro-insurance whose framework is under preparation.
“The industry must compete on product innovation and service in order to ride meaningfully on improving business confidence,” said Ipec.
For the half year ended June 30 2014, life companies wrote US$126 million in net written premiums, a 5% growth from prior year.
For the period under review, the three biggest players — Old Mutual, Nyaradzo and First Mutual Life — controlled US$102 million, a figure representing 82% of net premium written.
For the half year ended June 30 2014, players wrote US$128 million in gross premium terms up from US$122 million in 2013.
Out of the US$122 million, 74% or US$95 million was employee benefits business compared to 75% or US$92 million in the same period in 2013 whilst 26% or US$33 million was individual lines business compared to25% or US$30million prior year.
“In an apparent show of liquidity challenges affecting the economy, new business uptake contracted to 8% or US$10 million compared to 16% or US$20 million same period last year whilst the balance of 92% or US$118 million was attributable to recurring business compared to 84% or US$103million,” reads the report.
More than 80% of the business continued to be made up of fund and funeral business, a similar trend with the first half of last year in what the industry regulator says may be a result of consumers concentrating mainly in products on a need basis rather than pure savings due to the current liquidity.
For the half year ended 30 June 2014, players paid US$66 million in net claims, a 7% growth from US$61 million reported in the first half of last year.
Ipec said industry players generally reported timely settlement of claims despite some companies having claims aged beyond 61 days.
“The commission will continue to engage players in order to rectify this status quo as it is unfair to policyholders and poses serious reputational and legal risks to the companies concerned,” the report reads.
The regulator said life industry reported premium debtors of US$7 million against a gross premium written of US$128 million.Consequently the average premium collection rate was 95% which Ipec says is considered reasonable given the generally low disposable income in the economy .
For the half year ended 30 June 2014, management costs accounted for 35% or US$36 million of total costs compared ton 29% or US$27million prior period, claims being 61% or US$64 million compared to 67% or US$61million in 2013 whilst the commissions made up the balance of 4% or US$5 million. In 2013 commission accounted for 4% worth US$4 million.
The above numbers resulted in the combined ratio rising from 75% reported in the comparative period last year to the current 83% mainly due to rising operational cost.
Ipec said reinsurance uptake by players continues to be on the low side. The commission encouraged the industry to prudently reinsure for various reasons including but not limited to capitalisation initiatives, technical expertise, new product innovation and risk spread .
In terms of numbers, the two re-assurers, Baobab Re and FMRe, wrote US$4 million in net premiums from US$3 million realised in the same period last year. For the half year under review, total costs incurred were US$4 million.
Of the US$4 million worth of costs, claims accounted for 49% or US$2 million, while commission made up 26% or US$1 milliion and expenses making up the balance.
Ipec said players are encouraged to prudently manage their costs to promote viability.
Baobab Re controlled 68% of the market in net premium terms whilst the balance was underwritten by FM Re.
Ipec said there are signs that the life assurance industry is growing although at a rate lower than costs.
“Other challenges continue such as capitalisation, premium debtors and low prescribed assets compliance rate. Various rehabilitative measures by the commission continue to be employed involving industry and Ministry of Finance and Economic Development,” he said.
The funeral assurance industry wrote US$19 million, in net premiums, 98% of which was recurring business, up from US$16 million in 2013 while total costs grew by 10% to close the first half of the year at US$14 million.
Ipec said funeral assurance players reported US$5million in operating profit down from US$4million last year while the expense and combined ratios were reportedly 49% and 73% respectively compared to 60% and 79% in the first six months of 2013.