THE Insurance and Pensions Commission (Ipec) has warned insurance industry players to strictly adhere to regulatory requirements to safeguard policyholders, amid a growing shift away from long-term insurance products towards annually renewable plans.
The regulator said it had observed an increasing number of insurers offering policies that are renewed on an annual basis rather than traditional long-term contracts spanning several years, a trend most pronounced in funeral assurance and group life insurance.
Ipec cautioned that while the product redesign may be commercially driven, it raises regulatory red flags over whether such offerings continue to provide adequate consumer protection as envisaged under the Funeral Directive.
“A notable trend in the life insurance industry is the shift from traditional long-term products towards predominantly renewable annual policies,” Ipec’s Life Assurance Sector report for the first nine months of last year reads.
“This change is especially clear in funeral assurance and group life assurance policies currently available. This practice raises regulatory concerns about its compliance with the Funeral Directive’s objectives, particularly regarding the level of policyholder protection.
“As a result, the industry is strongly encouraged to strictly follow the rules set out in the Funeral Directive,” it added.
Meanwhile, the commission reported a sharp decline in the life assurance sector’s profitability, with profit before tax (PBT) falling by nearly 80% to ZiG1,68 billion during the review period, from US$309,82 million recorded in the comparable period last year.
Converted at the average official exchange rate, the ZiG-denominated profit translates to US$63,09 million. Ipec attributed the steep decline largely to market corrections following the introduction of the ZiG currency, which ushered in a more stable operating environment after a period of heightened inflationary gains.
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“This marks a substantial 79,64% decline from the US$309,82 million reported in the same period last year, mainly due to market corrections following the introduction of the ZiG currency and the subsequent stabilisation of the operating environment,” it said.
The sector is also grappling with persistently high policy lapse rates, which continue to undermine growth and profitability.
Ipec said Nhaka Life recorded a lapse ratio exceeding 10%, mainly due to policyholders’ financial constraints and changing insurance preferences. The regulator urged the insurer to conduct a detailed analysis of the cancellations to better understand the underlying drivers.
The sector also continues to struggle with policies lapsing after sale. Policy lapses are mainly attributed to affordability issues and changes in policyholders’ circumstances.
