GOVERNMENT recently reviewed upwards prescribed asset thresholds across the insurance sector. Before then, the sector has been struggling with various issues, a situation which has, in turn, eroded its viability. The problems affecting the sector have been two-fold: general in nature and sector-specific. Business reporter Melody Chikono (MC) caught up with Insurance Council of Zimbabwe (ICZ) chairperson Musa Bako (MB) to understand issues affecting the viability of the short-term insurers. Below are the excerpts:
MC: What critical issues is the ICZ grappling with?
MB: The critical issues that we are dealing at the moment are: (1) the issue of debtors. We are in discussion with the Insurance and Pension Commission (Ipec) that we have a situation that will deal with the issue of debtors, with a view to drastically reduce if not eliminate them. We discovered that because of what happened in our economy, clients are no longer able to pay all their premiums at once and the credit period that we give is overtaken by time. I will give you an example: if someone pays their premiums monthly and give them, say, 15-day credit, they then extend that credit period and when a claim occurs they end up complaining to the ministry or the regulator that their claims haven’t been paid. As insurers, we will be saying they haven’t paid premiums which make their claims invalid. We are working on what we call “no premium, no cover”. In other words, for cover to commence, the premiums have to be paid in one way or the other either to the intermediary or the insurer.
Number two: Because of what is happening with issues of foreign currency and parallel rates, we also have been hit very hard this year particularly as an insurance industry because prices are escalating on the Real-Time Gross Settlement (RTGS) and now claims are overpowering the income and companies are making technical losses. So we have decided to come up with rates that address that situation. We have tried to re-rate our motor book because that’s where most of our losses are coming from. We are contemplating a situation where we have control of the value chain, insofar as the panel beating side of things is concerned. A lot of middlemen are bringing spares from outside the country and charging very high prices for them and most companies are making losses.
So I would say, for now, those are the major issues we are dealing with. Things like automation and so on. One can call them routine, but to me they are the major issues.
MC: How big is the debtors’ backlog?
MB: It varies from company to company. It’s a pity that the reports that we get from Ipec do not have that detail in terms of the debts, but what we know is if we were to write-off debtors from insurance books, the premiums will reduce by a factor of 45% on average.
MC: Is the insurance industry going to be charging premiums in forex eventually?
MB: Well, the situation right now is that the US dollar and the RTGS are rated 1:1, but obviously the way of obtaining forex is a bit tricky. So what we are doing as insurers is to try and interrogate the value chain to see whether we can charge forex for those who want to be compensated in forex, but we were also expecting government to say something about currency reforms in the budget. Yes, we know that there are certain insurance companies, those that provide medical insurance and you choose whether your policy covers you in US dollar or RTGS. This is not an industry or ICZ approach; it’s left to individual companies.
MC: What can you say is the future of short-term insurers if the current economic situation persists?
MB: What I must say is that the short-term insurance follows the fortunes or misfortunes of the economy as the standard rule. So if the economy keeps on the way it is, there are going be insurmountable challenges to the insurance industry. We have been always reacting to what is happening because of shortages and when government make certain pronouncements which hit us directly and we react. It has also diminished our ability as the industry to create proper savings for the economy. Therefore, if the economy continues like this it’s going to be very tough.
MC: What is your comment on issues of policy compliance and capitalisation around short-term insurance?
MB: It is an issue that we are discussing with the regulator. There are haircuts that the regulator is putting on capital. We had made suggestions and the regulator made certain changes, but we are in continuous discussions with the regulator. Yes, it has affected a number of companies, particularly the debtors’ issue where your capital is written down because of excessive debtors but also when you get to pay levies they will include debtors.
So we think if we do the “no premium, no cover” that I talked about we will get somewhere. In terms of compliance as an insurance industry, we do comply. If you look at the insurance report, most insurance companies are way above the prescribed assets ratio. The investment climate for us hasn’t been the best, but generally insurance companies are compliant but we are in constant touch insofar as that is concerned.
MC: What can you say about the underwriting capacity of the short-term insurers at the moment?
MB: It could be higher, we are battling with that. We have been working with our reinsurers to try and capacitate them as much as possible. We are also working with Ipec to increase local capacity. You know very well that our country risk, that is the way Zimbabwe is perceived in terms of risk, is very high and therefore when we do seek cover outside it’s expensive and on the other hand it’s difficult for us to get the foreign currency to pay for the retrocession cover which compromises our ability to enhance underwriting capacity. So it could be better, we are not happy with the capacity that we have because we have to churn out a fair amount of insurance premiums outside which also calls for the payment of premiums in nostro, which is not a good thing to do.
MC: What is the ICZ’s outlook in the coming year in terms of programmes you are implementing to address your challenges?
MB: As ICZ we are looking at a situation where we engage our customers and our stakeholders. We are looking at a situation where we grow as an industry and a situation where we control the value chain. We are working on a programme right now to make sure that whatever we are charged by panel beaters is the proper amount but it’s a programme which is still in its infancy.
Our vision is to make sure that we’ve got a say in the value chain. We don’t think that the amounts we are being charged by panel beaters are the fairest. We think that if we get ourselves involved in that area we will drive down our costs. So as a claims control strategy we are looking at shaking up the value chain and interrogating it to the core.
MC: What is your comment on the level of fraudulent claims in the country?
MB: As an industry we are dealing with fraudulent claims, but there is a bureau which we are calling the insurance crimes bureau, where we share information locally and regionally on claims crimes, which would have happened, so that we make sure we get information about this. We are at an advanced stage and we are putting in place an information technology system so that we share information on claims. It will also help us to deter claims which are fraudulent before they come up for payment in the system. I know that individual companies are also looking at other IT-driven initiatives to make sure that they reduce fraud. This is across the board from motor, health house insurance and so on to make sure we cut down on fraudulent claims.
There is also liaison with forensic investigators to make sure that we stamp out fraudulent claims.
Worldwide it is estimated that fraudulent claims are almost 50% of the claims that are paid because they happen either in manufacturing (claims that never happened) or inflating those that are genuine.
In Zimbabwe it’s actually higher, it could be more that 50%, but what we have done is to collect scientific data on it. It must be said, though, that in an economy which is not performing well, fraudulent claims tend to be higher and we are aware. Some are easy to detect, but I would want to believe that we are paying quite a number of fraudulent claims.
We think the IT system will be in place by end of first quarter 2019.
MC: What is your comment on the review of the prescribed assets requirements by government and how is it going to impact on short-term insurance companies?
MB: The effect of increasing prescribed asset requirements is obviously that short-term insurance companies are going to have to tie their liquid resources in relatively long-term government paper. This then leads to a situation where insurance players will find it challenging to meet their short-term obligations in terms of claims settlements. That said, our members have always worked closely with government in mobilising resources for national development and we see this relationship carrying on into the future.