Insurance policies still payable in forex

Source: Insurance policies still payable in forex | eBusiness Weekly October 11, 2019

Insurance policies still payable in forex
IPEC commissioner Grace Muradzikwa

Kudzanai Sharara

In what might come as a huge sigh of relief, policyholders, who had acquired foreign currency-denominated policies, will be able to continue running them to their natural expiry without any prejudice, Business Weekly has learnt.

Following the introduction of SI 142/2019, which abolished the use of foreign currency in local transactions, the Insurance and Pensions Commission (IPEC) directed insurance firms to discontinue issuing policies in foreign currency.

The insurance firms were further directed to indicate the value of US$ or foreign currency denominated premiums that had not yet been remitted to risk carriers.

The firms were also tasked to submit nostro balances for US$ or foreign currency-denominated premium accounts as at June 24, 2019.

“Following the gazetting of SI 142 of 2019, which became effective on June 24, 2019, your members are being requested to do the following while the commission engages fiscal and monetary authorities: To stop issuing new United States dollar or any foreign currency-denominated policies.

“To submit to the commission, the current book of inforced policies, in excel format, showing policy number, name of policy holder, date of commencement, premium, sum assured/insured, name of broker, term of policy and status,” IPEC commissioner Grace Muradzikwa said in a circular to insurance players.

The move, however, caused an outcry as affected policyholders felt cheated and accused Government of policy inconsistency.

However, in its engagement with fiscal and monetary authorities, IPEC was given the go ahead to allow foreign currency-denominated policies to run their natural expiry.

“Policies that had lapsed as a result of SI142 and our letter of June 28, 2019 must be reinstated without prejudice to policyholders upon payment

of arrears,” said IPEC in Circular 13 of 2019 signed by Commissioner of Insurance, Pension and Provident Funds, Muradzikwa.

Unfortunately for some, the conditions set might result in their failure to pay their arrears of future premiums. The foreign currency must only be from free funds and not accessed from the interbank market.

“Insurers should, however, provide options for the policyholders to pay premiums for running policies using free funds or in local currency so that the policies do not lapse.

“No premiums shall be funded from the interbank market,” said IPEC in what might become a stringent measure for some.

Further, the insurance industry was also given the go ahead to provide insurance policies in foreign currency for international travel insurance, motor insurance for vehicles in transit, customs bond insurance, bank cash in transit and safari operators’ insurance.

Transfer of foreign currency-denominated insurance premiums that were in the insurance value chain’s pipeline should also be done through normal banking channels, said IPEC.

The regulator also said outstanding foreign currency-denominated claims should be processed in the respective currency as per contract through the banking system.”

Further, concessions were also given for applicants for externalisation of risks as guided by Section 72 of the Insurance Act (Chapter 24:07) and Circular 15 of 2017 issued by IPEC.

However, all new insurance policies for local assets whose risk is assumed locally, should be done in local currency in line with the provisions of the Reserve Bank of Zimbabwe (Legal Tender) Regulations, Statutory Instrument 142 of 2019.

Meanwhile, in order to guarantee the ability of local underwriters to settle claims in the currency contracted some industry players have sought and were granted permission to ring fence funds for offshore investments.

One such operator is Zimnat which was granted, by the RBZ, authority to ring fence funds related to its Diaspora Funeral Cash Plan (DFCP) policies for investment offshore.

The company said investments offshore, guarantees the ability of Zimnat as the underwriter to settle claims in the currency contracted.