The Insurance and Pensions Commission (Ipec) says it will withdraw licences of companies undercutting premiums to protect the integrity of the industry.
By Fidelity Mhlanga
Ipec head of prudential supervision Pupurai Togarepi on Tuesday said the insurance regulator would soon pounce on companies undercutting premiums as it was a danger to the industry.
“We are going to withdraw licences on companies undercutting premiums. We are going soon to those in the business of undercutting and they will lose their licenses,” Togarepi said.
He further said he would convince Ipec commissioner Mannet Mpofu to get rid of third-party insurance and go for comprehensive insurance.
Premium undercutting is the practice where an insurance company secretly offers clients unrealistically low premiums in order to gain a competitive advantage.
The motive of undercutting is usually to increase the business portfolio, but this invariably depletes the insurer’s reserves, making it difficult for them to honour claims in some cases.
Research shows this creates conditions where sound insurance operational practices give way to short-sighted and unconventional approaches to procuring business, with its attendant dire consequence being compromising the integrity of the industry in the end.
Togarepi said the modern approach expects Ipec to ensure the insurance industry gets stronger, resilient through increased financial discipline, disclosures and management efficiency.
He said that it was important that Ipec benchmarks the soundness, management and compliance of insurers to best practices.
“We are gradually migrating from regulation to supervision because there is need to continually monitor the financial condition of insurers as their risk profiles are rapidly changing: risk-based supervision approach.
“Insurers are monitored by regulators based on how much capital they have relative to their risk-based capital requirements,” he added.
Togarepi was speaking at the Insurance Institute of Zimbabwe winter school on Tuesday held under the theme “Going back to basics with a dynamic new mindset”. It started on Monday and ended on Wednesday in Nyanga.
Ipec, according to Togarepi, relies more on market discipline and full information disclosure to protect customers to ensure that there is transparency and full disclosure for consumers to choose good players.
In the first quarter of 2016, non-life insurance firms registered a 38,95 % decline in profit after tax, writing a lower volume of business due to economic slowdown.
According to Ipec’s report, for the quarter to March 31 2016, the non-life insurance sector’s total profit after tax was pegged at US$2,39 million, down from US$3,92 million during the same period of 2015.