A TOTAL of 356 055 insurance policies lapsed during the final quarter of last year, as markets struggled to keep pace with a deteriorating economic crisis, according to an industry report.
In its report for the year ended December 31, 2022, the Insurance and Pensions Commission of Zimbabwe (Ipec) said the multiple lapses translated into a 17,3% lapse ratio.
The report said 2022’s lapse ratio was higher than 10% reported during the comparable review period in 2021. It means there were more crisis – inspired casualties in Zimbabwe’s insurance industry during the period.
And experts were this week worried that deteriorating lapse rates would have far reaching implications on the industry’s incomes and shareholder value. The report indicated that 2,1 million more insurance policies were under threat of lapsing during the review period.
“The increase in lapses indicates that more policyholders are failing to maintain their policies, a situation that may be linked to a volatile economic environment that was experienced during the greater part of 2022,” Ipec noted.
Zimbabwe's economy has been affected by high inflation, currency instability, power outages and volatile exchange rates.
Real gross domestic product growth crashed to 3,4% last year, compared to 8,5% in 2021, according to the International Monetary Fund. This was after the domestic currency depreciated by about 70% during the period, before falling by a further 23% during the first quarter of this year.
Annual inflation in December stood at 243,8% from 255%. The rate was the highest in Southern Africa. This resulted in a sharp decline in living conditions, in a country where 7,9 million people, or half of the population, experienced extreme poverty between 2011 and 2022.
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Zimbabwe Pension & Insurance Rights Trust (ZimPIRT) general manager, Martin Tarusenga said policies were lapsing because of the ‘deceptive’ manner in which insurance policies are sold in Zimbabwe.
"In particular, the insurance system would not have any intentions of honouring the terms and conditions of policies,” Tarusenga told the Zimbabwe Independent.
“Once policyholders realise this early policies lapse. Unfortunately, for the elderly who have been running policies since the 1980s and the 1990s, it’s a fight against insurance companies in question, which is often legal," he added.
He said ZimPIRT has evidence of insurance policyholders who have been denied their rights and were now being forced to take the legal route.
"While disposable incomes for saving in insurance policies are greatly diminished, the criminality of the insurance system, unfortunately aided by the regulatory authorities, has reduced public confidence in insurance policies and hence the take up rate," he said.
In the period under review, the life assurance sector reported a total of 114 802 not taken up policies, with a total nominal gross premium of ZW$274,9 million (US$409 687).
“The low GPW generated from new business reflects the volatile macroeconomic environment that prevailed during the period under review, which limited the uptake of new business due to low disposable incomes,” the report reads in part.
“However, there was a slight improvement from the third quarter which ended 30 September 2022, where new business was 10 % of the gross premium written (GPW), reflecting slight improvement in economic stability being witnessed in the economy since June 2022.
“In terms of business composition, 76% of the total GPW was generated from funeral assurance business which has become the mainstay of the sector.”
The report notes that traditional life assurance products, which include term assurance, endowment policies, pure endowment and whole life, accounted for a small proportion of business generated by life assurers.
This, according to the report, reflected a low appetite for traditional life assurance products by the market as confidence in the sector remains low.
“The commission encourages all life assurers to deploy customer centric product development that leverages on modern technology to redesign their products in line with customer expectations in terms of relevance and value preservation,” Ipec said.
Recurring business contributed about 88% of the GPW for the life assurance sector for the year 2022. The sector wrote foreign currency business amounting to US$23,2 million.
As at December 31, 2022, the number of agents for the life assurance sector decreased from 1 378 to 1 342.
During the reporting period, GPW by direct life assurers grew by 268% in nominal terms from ZW$16,5 billion (US$24,6 million) recorded the previous reporting period in 2021 to ZW$60,8 billion (US$90,6 million) during the current reporting period.
Based on inflation-adjusted figures, GPW increased by 7% to ZW$17,7 billion (US$26,4 million) for the period under review.
“The positive real growth is attributable to premiums adjustments in response to inflation developments as opposed to new business. Premium adjustments were above the December 2022 year-on-year rate of inflation of 243,8%,” reads the report.
The main drivers of growth in GPW were the funeral assurance and group life assurance business, which contributed 90% of the total premium, the report notes.
