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Shake-up looms in insurance sector

BY FIDELITY MHLANGA

THE Insurance and Pensions Commission (Ipec) has lined up a plan to consolidate struggling pension funds to protect contributors.

The sector has been held back by Zimbabwe’s long-running meltdown, which has recently been magnified by rampaging inflation and carnage on the value of the domestic currency.

Experts say the slowdown has seen Zimbabwe’s insurance sector lag behind regional peers like Kenya, whose pension funds now preside over assets worth about US$16 billion, compared to Zimbabwe’s US$2,3 billion.

The two countries’ assets were valued the same in 1996, according to Cuthbert Munjoma, Ipec director for pensions.

However, apart from the domestic economic crisis, Munjoma said the regulator was worried that cost structures in some pension funds were unsustainable, and consolidations would be important to maintain a stable sector.

“We have put focus on efficiency in the administration of pension funds,” Munjoma said during the Zimbabwe Association of Pension Funds conference in Nyanga recently. “The commissioner has highlighted the issue of managing expenses and there are various initiatives that we are putting in place, including revisiting administration models. We did an inspection last year, focusing on expenses and the findings were that some of the cost structures were not sustainable.

“It speaks to the administration models. So as a regulator, part of our priorities in 2022 (will be) to cause a consolidation of pension funds, particularly those that can’t sustain their cost structures.

“We are putting a lot of measures that are meant to protect members, including issues to do with the quality of trustees. At the end of the day there will be something which is reasonable.”

The pension industry is made up of self-administered funds, insured pension funds and stand-alone funds.

The Ipec director said crucial to the stability of pension funds would be the establishment of a stable macro-economic environment.

Zimbabwean pension funds hit a crisis point back in 2009, when the country abandoned the domestic unit and adopted a multi-currency system to manage hyperinflation, which had reached 500 billion percent in 2008.

The country’s pensions slipped into crisis again in 2019, when funds dried up further after the economic crisis returned to haunt the sector as Zimbabwe tried to salvage the economy by introducing a new currency.

Munjoma said a report on the sector commissioned by the government in 2015 emphasised the importance of maintaining a stable economic environment.

“If we consider findings of the Justice (George) Smith enquiry, which investigated this industry for the 20-year period 1996 to 2016, there was a role of government and emphasis was on the need to ensure that there is an enabling macro-economic environment as well as economic growth. If you profile our industry, it was possibly comparing well with the likes of Kenya in 1996,” he said.

“Right now, if you check the pension assets in Kenya, [they preside over more than] US$16 billion. For us, we are just US$2,3 billion. So, there is that need to foster macroeconomic stability. As an advisor to the government in line with our statutory mandate, we are emphasising this point. We need basic regulatory infrastructure.”

Munjoma said the regulator also intended to publish in its reports insurance companies who would have been fined for non-compliance with set rules and guidelines.

“As a regulator we also intend to publish these penalties in the annual report to say such a fund has been fined these amounts and these were the reasons. If members see that some of the funds are going towards the cost of penalties, I think it can be a good source of ensuring compliance,” he said.

Commenting on the remuneration of trustees, Munjoma said the regulator cannot prescribe what they must be paid, but the quality of oversight from a trustee who is not being paid well is different from the one who is paid.

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