The Birth of the Road Fund will lead to the ‘Death’ of 8 insurers, warns Ipec

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The Insurance and Pensions Commission (Ipec) says that the introduction of the Road Accident Fund (RAF) will lead to the collapse of eight (8) short term insurers whose income is heavily dependent on Third Party Vehicle Insurance (TPI) business and will erode almost half of the short term insurance business.

The road accident fund RAF was conceived by the Ministry of Transport and Infrastructure Development as a mechanism to pool financial resources to be used in the event of major road accidents; amid concerns that insurers were leaving the burden of covering victims of Road Traffic Accidents (RTAs) to the Government.

Zimbabwe’s leading daily, The Herald reported last Friday that the setting up of the RAF, would erode $71 million of short-term insurers’ bottom line, and cause the sudden collapse of four insurers and gravely weaken another four.

“It is clear that four insurance companies would have to close down immediately (Champions, Clarion, Regal and Sanctuary). This is because their business is predominantly TPI with gross premium written of about 100 percent. Another four will be in serious financial problems (Allied, CBZ, Hamilton and Safel) because their TPI business constitutes 60 percent of their gross premium written,” said Ipec.

Third party insurance is compulsory in Zimbabwe under the Road Traffic Act. This cover protects the client (or insured/ policyholder) against loss or damage to Third Party Properties in the course of driving, and death or bodily injury to these Third Parties ONLY. It also covers any legal liabilities arising from the policyholder’s driving which results in any of the above mentioned accidents (bodily injury, death, or property damage) to third parties.

Third party motor insurance, which is predominantly structured around the RTA, recorded total premiums amounting to $71,38 million for the period May 1, 2016 to April 30, 2017. Premium generated from third party policies contributed 32,8 percent of gross premium while 42,86 percent of total premium is attributable to all types of motor insurance, including TPI,” IPEC said.

Given the amount of income the 20 registered insurers will lose, the possible collapse of 8 insurers, job losses and the negative perception this might cause to an industry which very few currently have faith in, the regulator has advised Government against setting up the Road Accident Fund. And says  the industry  and government should work towards exploring constructive measures to address the shortcomings of the current system.

“While short-comings have been noted in the operation of TPI, key stakeholders including the Ministry of Transport and Infrastructural Development, IPEC and the insurance industry are encouraged to explore constructive measures to address shortcomings,” Ipec said.

IPEC’s advice follows hard on the heels of the submission to Government by the composite body of Short Term insurers, the Insurance Council of Zimbabwe recently, against the establishment of the road fund.

ICZ argues that the RTF would be a duplication of the passenger insurance and instead of setting up a new fund the government should consolidate and refine the TPI system.

Ipec are in support of this view and are of the opinion that the country’s insurance industry has tested models, structures and skills to ensure sustainable funding of road accident disasters under the current Road Traffic Act framework.

“IPEC prefers maintenance of the status quo, but take specific measures to improve any real or perceived shortfalls,” IPEC said.

The regulator says the industry has already taken steps to plugin some of the loopholes that the RAF is supposed to solve and has already taken steps to improve the shortfalls of the current TPI system. IPEC said issues like the prevalence of fake cover notes, had been resolved through the issuance of electronic cover notes.

The commission advised that if a RAF was to be set up,  it should only cover bodily injury, funeral benefits and healthcare costs, but leave insurers to manage the damage impacted on property.

IPEC said a similar structure has been adopted in the region by South Africa while in countries like  Botswana, Namibia and Swaziland the RAF is funded via a fuel levy with the pitfall that it might result in increased fuel prices albeit the fact that they are already very high as compared to other countries in the region.

Other areas of concern are whether the government would have the capacity, experts and skills to investigate claims for both paying claims timeously and detecting and preventing fraudulent claims.

Source – The Herald

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