The insurance industry has shown remarkable resilience, but in recent years the sector has come under tremendous pressure from the ailing economy. In the 2015 national budget, Finance minister Patrick Chinamasa reviewed the minimum capital requirements for short-term insurers and funeral assurers from US$1,5 million to US$2,5 million. For life assurers, the capital threshold went up from US$2 million to US$5 million. The Zimbabwe Independent’s reporter Kudzai Kuwaza (KK) interviewed the president of the Insurance Institute of Zimbabwe, Edward Gomba (EG).
KK: The insurance sector is facing a plethora of challenges as shown by the collapse of companies. How is the industry faring, in light of cash shortages and other severe constraints?
EG: 2016 had some marginal growth, showing some reasonable resilience in the insurance industry, but all this happened under the economic challenges bedevilling our nation. These macro-economic challenges have resulted in some insurance companies struggling to meet the proposed capital requirements. Performance has remained depressed due to the economic challenges in our nation.
KK: Economic problems are affecting all sectors of the economy. For the insurance sector, what exactly is leading to company closures and job losses?
EG: We have seen most of our clients losing jobs due to several factors: Firstly, company closures resulting in job losses of our clients, hence affecting the industry’s premium collection and naturally then affecting the bottom line of all insurance companies. Secondly, retrenchments which again have affected premium collection ways resulting in policies lapsing or being cancelled by our customers. Thirdly, low level performance of the economy affecting the insurance industry quality of new business written. This naturally then affects the business conversion rate but increases the lapse, cancellation, and NTUs ratios (not taken up: a percentage of insurance policies that have been rejected).
KK: There have been complaints that the minimum capital requirements are suffocating insurance companies. Can a short-term insurance firm or a funeral assurance company, in this environment, manage to increase its minimum capital from US$1,5 million to US$2,5 million?
EG: In 2016, some companies actually struggled to meet the minimum capital requirements. I think this specifically speaks of the issues to do with macro-economic challenges and the liquidity crunch which the nation is facing.
I would want to appeal to our regulator to reconsider and match economic, environmental issues, and reality on the ground with regulation issues for the purposes of nurturing the industry for growth.
KK: If the companies fail to meet these minimum capital requirements, what is the likely outcome? More firms will close?
EG: The current increase in capital might bring more challenges to the industry if this is not well looked into. I pray that our regulator would extend deadlines for the new proposed capital requirements due to the current economic hardships prevailing in our country. Such steep hikes under these current economic challenges might have undesirable consequences which might impact badly to the insurance industry.
KK: Surely, from what you are saying, these minimum capital requirements could present serious challenges for companies in the insurance sector. Are you unhappy with these regulatory stipulations?
EG: To say I am happy or not, honestly, might be a difficult question to answer, but I have my views on the capital requirements issues.
My personal view on this issue is that after comparing Zimbabwe’s capitalisation levels with other countries, we must then use these capital level figures as guidance to come up with our own.
KK: Why must Zimbabwe seek guidance from neighbouring countries?
EG: Circumstances in Zimbabwe and the ones in our neighbouring countries are very different. I believe we should have our own way of calculating capital requirements. Please note that I am not saying let us reinvent the wheel, but I am saying we must, as Zimbabweans, use those models for guidance purposes, at the same time understanding our circumstances in coming up with these capitalisation figures and come up with our own models, industry by industry, that is, looking at (categories of insurance) short-term; life; funeral; re-insurance; brokers, etc).
KK: You said that insurance companies should be accorded more time to fulfil minimum capital requirements. Do you maintain this view?
EG: We still have some economic challenges so my plea would be for our regulator to still consider extension of the deadlines. Our operating environment is getting tougher by the day because our clients are now failing to maintain their policies. Further increases in this challenging macro-economic environment would have dire implications to the industry.
KK: How has the liquidity crunch affected the insurance sector over the last year?
EG: Liquidity crunch is a time when cash resources are in short supply and demand is high. It is also known as liquidity crisis and credit crunch. As we all know, most of our clients as an industry at the moment are now cash clients, naturally the shortage of cash resulted in some policies lapsing, some ended up being cancelled and those clients who had taken policies failed to pay their policies. All this affected the bottom line of the insurance companies.
Most of the business which made the industry appear as if there was growth was mostly repeat business in the insurance sector. Indeed, new business was there, but challenges came when payment was needed, resulting in more lapses, NTUs and cancellations.
KK: Zimbabwe has experienced a wave of company closures and retrenchments. How has this affected your sector?
EG: This has been a serious cause for concern in the industry. Our clients started to fail to pay their premiums.
This increased the cash business, which everyone knows is difficult to manage. Plenty of NTUs came our way.
Cancellations were also the order of the day.
However, as an industry we then began to come up with new strategies to capture the retrenched, though we did not return all of them. The majority of the customers were lost because they went to the rural areas and some had no disposable income to maintain their policies.
KK: Which type of insurance has the highest uptake and what are the reasons for this?
EG: Funeral business is the in-thing nowadays, for death is a reality. Surely as the sun rises and sets, death is a sure and real matter which no one can afford to ignore. This has made it the most popular and most sought after product worldwide.
KK: What is the outlook for the sector in 2017?
EG: The outlook is as per the Insurance and Pension Commission 4th quarter report and I quote: “Economic growth remained subdued. This is mainly due to persistent droughts, weak commodity prices on international markets and constrained competitiveness due to the strong United States dollar against neighbouring currencies. Disposable income for the general populace remained depressed with the active sectors hamstrung by liquidity challenges which inhibit key operations and procurement activities. This resulted in a constrained gross premium income growth.
“The outlook for 2017 is, however, more promising, with the International Monetary Fund recently estimating economic growth for Zimbabwe to be 1,7 percent. Growth in Zimbabwe is going to be underpinned by an expected good agricultural harvest, improvement in key mineral prices in international markets. The positive outlook in economic growth will likely improve the positive growth trajectory of the insurance industry into the future.”
KK: In light of all the challenges, is Zimbabwe’s insurance industry doomed?
EG: As an industry, we remain optimistic that growth is coming our way. We also have the hunger to grow the insurance sector, for I know that hungry people in business are unstoppable when they want results.
We want to plead with the government for support us during these trying times and we will definitely support the government initiatives for the betterment of our nation at large.