HARARE – Zimbabwe’s insurance industry has been urged to tread carefully when dealing with clients as a way of boosting confidence in the fragile sector.
The southern African country used to have a vibrant insurance industry in the 1990s, but confidence plummeted in the aftermath of hyperinflation, which wiped out people’s life savings and is now struggling to attract new customers.
Zvinechimwe Churu, a principal director in the Finance ministry, said insurance firms should not lose sight of the fact that the primary purpose of insurance and pension is to settle claims and pay pension benefits as and when they fall due.
“It is not about lining your pockets and accumulating a big investment portfolio for your respective institutions. While investing in properties may be ideal, let it not be at the expense of policyholders and pension scheme members,” he said.
Government on its part — through the two-year economic blueprint, the Transitional Stabilisation Programme — is working on increasing insurance penetration ratio from the current four percent to 20 percent by year 2020.
Other measures also include reviewing some of the stringent insurance industry licensing requirements, including for brokers and underwriters and public sector pension reforms, including rationalising and harmonising pension contribution rates for parastatals and local authorities.
Churu also expressed government’s concern regarding noncompliance with prescribed asset requirements by some pension funds and insurance companies, particularly funeral assurers.
“I urge non-complying institutions to support our economic turn-around efforts by supporting bankable projects of national importance, of which there are many such bankable projects. There is no justification for not participating,” he said.
This comes as Zimbabwe’s cash crisis is seriously affecting insurance companies’ operations. The rise of the informal sector has acted as a pipeline siphoning off money from the formal sector.
A shortage of money in the general economy has seen the rate of lapses increasing dramatically across all types of insurance cover as individuals and companies alike have faced challenges in channelling scarce cash flows towards servicing insurance premiums.
The sector is also dogged by negative public perception, as lack of appreciation of the purpose of insurance is driving people to believe that if they do not claim after purchasing insurance, they would have incurred a loss.
These sentiments are spurred by the events following the dollarisation of the economy where policyholders and pensioners saw themselves as being served a raw deal by insurers.
However, a recent report by Ernst & Young (EY) revealed that with customers asking for increased levels of customisation, product innovation is one of the best strategies for insurance companies to increase their market share.
“This also creates increased efficiency as companies can maintain reduced unit costs, offer improved services, can increase flexibility to pay increased commissions and generate higher sales,” the report said.