Insurance companies struggling to meet minimum capital requirements

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The president of the Insurance Institute of Zimbabwe (IIZ), Edward Gomba
  • Call for government to review new capital requirements

  • Call for IPEC to extend the deadline

The government recently reviewed the minimum capital requirements for short-term insurers and funeral assurers from US$1,5 million to US$2,5 million and for life assurers, from US$2 million to US$5 million. However, the macro-economic challenges being faced by Zimbabwe have resulted in some insurance companies struggling to meet the proposed capital requirements.

BY Tafadzwa Chidoori

Speaking to The Independent, the president of the Insurance Institute of Zimbabwe (IIZ), Edward Gomba said that a number of macroeconomic challenges were affecting the ability of insurance companies to meet the new capital requirements.

According to Gomba, Job losses as a result of company closures were affecting the bottom line of all insurance companies, as witnessed by the reduction in premiums collected and an increase in lapsed or cancelled policies.

Due to the job losses and retrenchments “The majority of the customers were lost because they went to the rural areas and some had no disposable income to maintain their policies,” said Gomba.

Mr Gomba also lamented how the low level performance of the economy was affecting the quality of new business written.

“Indeed, new business was there, but challenges came when payment was needed. This naturally then affects the business conversion rate but increases the lapse, cancellation, and NTUs ratios (not taken up: a percentage of insurance policies that have been rejected),” said the IIZ president.

Vis a Vis the macro-economic challenges and the liquidity crunch which the nation is facing Mr Gomba appealed to the Insurance regulators to, “reconsider and match economic, environmental issues, and reality on the ground with regulation issues for the purposes of nurturing the industry for growth.”

The Insurance industry over the years has been shrinking with the insurance penetration rate reducing from a high of 6% in 2004 to just 1.5% in 2017.

Insurance companies have cited an increase in unemployment rates a reduction in disposable income and a general mistrust of the insurance industry by the public as reasons for the low uptake of insurance products. This together with the liquidity crunch currently being faced by the country; and the general economic decline has made it difficult for some insurance companies to meet the minimum capital requirements.

“Such steep hikes under these current economic challenges might have undesirable consequences which might impact badly to the insurance industry

“Our operating environment is getting tougher by the day because our clients are now failing to maintain their policies. Further increases in this challenging macro-economic environment would have dire implications to the industry,” warned Gomba.

“So my plea would be for our regulator to still consider extension of the deadlines,” said Mr Gomba.

The IIZ president believes that the current difficulties are a temporary setback for the insurance sector and is optimistic that there will be growth in the sector, as such, “We want to plead with the government for support us during these trying times and we will definitely support the government initiatives for the betterment of our nation at large,” pleaded Gomba.

The insurance industry in the past has been a key driver of Zimbabwe’s economic development, stimulating billions of dollars in private investment and infrastructural development.

Insurance is interwoven into virtually every sector of the economy; an unstable and unsound insurance industry will cause the government and consumers to suffer financially.

Commentators in the past have advised insurance companies to merge for them to meet the minimum capital requirements and provide some stability and soundness in the insurance industry in Zimbabwe.

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