THE insurance sector, which has been hard hit by runaway inflation, is looking to invest in real estate and stocks to hedge against the erosion of insurance policies.
Zimbabwe’s inflationary environment is affecting all sectors of the economy and the insurance sector has been hit hard since pensions are losing value for the second time in a decade.
In an interview with the Zimbabwe Independent, the Insurance Institute of Zimbabwe (IIZ) president Ushe Mungaraza said investing in real assets will reduce the chances of losing the value of investment in the current inflationary environment.
“Given the current inflationary environment, allowing the industry to invest more in real assets like real estate and stocks will help preserve the value of investments and, in turn, the value for clients,” Mungaraza said.
Mungaraza said for insurance companies to remain afloat, they should invest in technology to reduce costs and innovation, citing the example of inflation-linked products that allow the value of sums insured to track inflation.
However, he said there has to be a balance between the liquidity needs of players and role of the industry in participating in funding national projects through prescribed asset ratios.
The situation in the country has seen a drastic reduction in the number of insurance students who sit examinations and attend short continuous professional development courses.
Mungaraza said value was lost upon conversion of asset balances, adding that they are now unable to deliver on United States dollar claims due to the introduction of the Zimbabwean dollar through Statutory Instrument 142 of 2019.
“The introduction of the Zimbabwe dollar was rather sudden and unexpected. Value was lost upon conversion on our asset balances. We have seen expenses growing way more than our revenue as many substances were effectively removed with the introduction of the Zimbabwe dollar,” he said.
The introduction of the Zimbabwe dollar as the sole legal tender in the country for all transactions has made it difficult for insurance companies to do business since some of their claims were denominated in the greenback.
“Starting October 2018, our members were writing business in forex. The introduction of the Zimbabwe dollar as the mono-currency meant we cannot deliver our promise in US dollars, ” Mungaraza said.
He said following the mono-currency regime, they are currently unable to issue travel insurance to locals venturing abroad, as this has to be underwritten by foreign partners, requiring cover and premium payment in forex.