Tapiwa Maswera Correspondent
The contractual savings industry works only within a viable financial ecosystem.
It is the job of the Government to craft a viable ecosystem. This is done through a Financial Services Policy.
A Financial Services Policy balances the interests of all the stakeholders that operate in the financial eco-system. Without a sound Financial Services Policy, it is impossible to build a viable Financial Services Industry.
A Gory Example
Wild dogs are one of the most efficient African predators. Targeted prey rarely escapes. Prey is chased around until it is too tired to run. When it stops, they tear its flesh until it falls. The prey is eaten while it is still alive. It’s a gory spectacle of blood, opportunism and selfishness. I do not know of any tribe that chose a wild dog as a totem. Their behaviour is anathema to human sensibilities.
Collaboration, Bonding and Cooperation
They live in packs of six to 20. They hunt in a very organised, cooperative and collaborative manner. Before a hunt they have a ceremony that bonds them for a common purpose. They initiate each hunt by vocalising until they are excited. When prey is identified, the lead dogs run close to the prey.
Others follow behind. The ones following behind take over the chase when the lead dogs are tired. This cycle repeats itself over and over again. They collaborate flexibly.
Choosing a weak limping or wounded victim
Wild dogs choose their prey very carefully, usually a weakling: a limping, wounded, old or a young animal.
They generally do not target the strong and virile. It makes them a conniving, devilish and opportunistic species in the eyes of human beings. Their hunting habits make them very difficult to love. It is difficult to see how an animal that has no social graces can be worthy of our attention.
Loving Family Units
And yet they have redeeming features. Wild dog packs are close knit socially cohesive units. The social bond between pack members is very strong. After a successful hunt, they go back to their den to feed their young. They regurgitate the meat of the animals that they ate alive for their puppies. It’s done in such an intimate and loving way, it’s difficult not to admire the way they interact socially.
Treating the customer fairly
The contractual savings industry does not have too many happy customers. Most potential customers feel that taking out an insurance policy puts them in the same position as a helpless animal chased and eaten alive by wild dogs. Happy customers are the bedrock of any successful industry. Defaulting to the predatory instincts of wild dogs destroys the business habitat. Many pensioners and former policyholders live in poverty today. Many died in squalor. They lost all their savings. According to the commission of inquiry established to investigate the loss of value by pensioners and policyholders, the insurance industry gouged on the assets that survived hyperinflation. And they were supposed to regurgitate, but to date, there is no indication that they will.
Threat of Extinction
Despite their hunting prowess, wild dogs face the threat of extinction. Less than 5 000 exist in the wild. Too much hunting success by predators can destroy the ecosystem. Our financial ecosystem is no longer sound. The business model of the contractual savings industry is supposed to be simple.
You take in insurance premiums and pension contributions. Value is created in the form of the real returns earned on the money invested. This created value is what is supposed to be shared between the customer and the service provider.
Confusing inflation and investment returns
In an idealised world, there is no inflation. The service provider can only maximise his returns by creating value for the customer.
Inflation makes things a whole lot more interesting for the service provider. And a nightmare for customer.
The customer’s money can no longer buy what it used to. To level the playing field, the investment returns must first be used to compensate the customer for the value lost to inflation. Only the investment returns earned over and above inflation — the real return — constitute the value created. This is the part that must be shared between the customer and the service provider.
Profiting from the customer’s misery
To some in the contractual savings industry, inflation is a wonderful opportunity. It creates conditions that make it unnecessary to create value for the customer. Instead inflation itself becomes the value created for the customer. This way of looking at things pits the customer against the service provider .
Instead of being partners in a value creating venture above, the service provider becomes the hunter and the customer the prey. And like the wild dogs, the wounded customer is eaten alive. It’s a nightmare for the customer. Value creation for the customer is no longer necessary. The froth of inflation suffices.
How Government benefits from inflation
The Government is a beneficiary of inflation. Inflation devalues Government’s domestic debt. Hyper-inflation writes it off. An insurance company that invests in bonds sees its assets lose value because of inflation. A short-term insurance company that is invested in cash will see their cash lose value.
Pension funds which invest in long term bonds see their value eroded. And all along the Government itself sits on the other side of this misery, benefiting at the expense of its citizenry. This behaviour emboldens opportunistic service providers to raid customer accounts.
Reviving the non-banking financial services industry
Creating a success story out of our mauled contractual savings industry is a matter of designing a viable and sustainable financial ecosystem. This is what a Financial Services Policy is about. It takes vision and transformational leadership. It will also take a big change of heart. The Government should not join opportunistic service providers who fleece their customers like a pack of wild dogs. Savers are the salt of the earth. Our country needs them.
The fabric of our contractual savings industry is torn. Our financial ecosystem is dominated by predators. The seeds for economic revival lie in mobilising savings. This can only be done by directing more value to customers. That can only happen when we have a viable and sustainable financial ecosystem.
We need a Financial Services Policy that maps out and balances the interests of all stakeholders. The predatory wild dogs that dominate our financial ecosystem are on the prowl.
Our contractual savings industry is limping. And we know that when they eat customers benefits alive they will not regurgitate. The time to prevent carnage is right now.