IPEC threatens to cancel irrelevant policies Zim to unlock insurance against extreme weather risk
ZIMBABWE’s insurance and pensions sector regulator, the Insurance and Pensions Commission (IPEC) has warned players in the industry that it will cancel certain products in the market, given inflationary circumstances that have rendered ineffective some traditional policies.
The industry has been struggling with attendant effects of a raft of monetary and fiscal policy changes over the last couple of years, but particularly from last year.
Some polices’ indicated benefits are generally not indexed for inflation post-retirement, (but) an increase in the inflation rate can reduce the contributor’s real benefits.
Long-term insurance policies and pension fund policies are among some of the worst affected by inflationary pressures in recent years.
IPEC Commissioner Dr Grace Muradzikwa recently said the regulator is currently involved in researching more suitable products, but added that firms should take the lead in this regard.
“We are actually researching on alternative products to level annuities. But of course the industry should drive this process.
“We will not hesitate to cause product termination, particularly those we view as irrelevant,” she told a pension fund managers engagement.
Although the country’s annual inflation rate is expected to close at around 300 percent for 2020 due to a number of measures implemented by both the fiscal and monetary authorities, in May 2020 Zimbabwe had recorded an annual inflation rate of 785 percent.
And those earlier inflation numbers hit players in the insurance and pensions industry hard.
Dr Muradzikwa said there are several indicators in the market that point to a loss of confidence in the capacity of the industry to offer products that can preserve value in the long-term, especially with regards to the pensions sector.
“We have seen an increase in non-pensionable allowances. Clearly, this is a vote of no-confidence, it can’t be anything else. It’s a vote of no-confidence and we need to consider it as such.”
“We have also seen an increase in early partial access to pensions, also pointing to the fact that pensioners feel that they are better able to preserve value by themselves.
“They are not seeing us able to preserve value for them,” she said.
Meanwhile, the sector regulator has said it strengthening its oversight role to ensure that the value of policyholders are protected in the long-term.
“In terms of regulatory interventions, we have intensified onsite inspections on guaranteed funds. We want to understand the structure of these guaranteed funds, the governance framework so that we can note areas of improvement,” said Dr Muradzikwa.
GERMANY’s state development bank KfW and the World Food Programme (WFP) have committed to contribute US$2 million each, to African Risk Capacity Insurance Company Limited (ARC) to support premium financing of insurance against risks caused by extreme weather events in Zimbabwe, Treasury has said.
Zimbabwe will contribute US$500 000 and this will unlock maximum insurance cover of US$20 million. The ARC provides capacity building on preparedness for climatic shocks, as well as insurance against risks such as droughts.
Following the Government’s participation in the ARC drought risk insurance policy, complemented by the United Nations WFP Replica Policy for the 2019/20 agricultural season, Zimbabwe received a total pay-out of US$1,75 million in June last year.
The pay-out assisted a substantial number of the country’s vulnerable households in selected districts, through disbursement of unconditional cash transfers to food insecure and labour-constrained households (chronically ill, older person headed households) in the worst drought-affected wards. According to the Treasury, a total of 77 767 households from Chivi, Binga, Bulilima, Buhera and Uzumba.
“Zimbabwe is committed to participate in the 2020/21 ARC programme,” said the Treasury.
“To relieve fiscal challenges that member states face in paying their premiums compounded by the effects of the Covid-19 pandemic, ARC has facilitated application of premium subsidy from KfW of German Government towards premium funding for the 2020/21 agricultural season.
“KfW of German and the World Food Programme (WFP) have committed to premium financing of $2 million each, to support Zimbabwe, while Zimbabwe will contribute US$500 000 towards premium financing. This will unlock a maximum insurance cover of US$20 million.”
With the support of the United Kingdom, Germany, Sweden, Switzerland, Canada, France, The Rockefeller Foundation and the United States, ARC assists AU Member States in reducing the risk of loss and damage caused by extreme weather events affecting Africa’s populations by providing, through sovereign disaster risk insurance, targeted responses to climate disasters in a more timely, cost-effective, objective and transparent manner.
ARC is now using its expertise to help tackle some of the other most significant threats faced by the continent, including outbreaks and epidemics.
Since 2014, 45 policies have been signed by the ARC Member States with US$ 83 million paid in premiums for cumulative insurance coverage of US$ 602 million, for the protection of 54 million vulnerable populations in participating countries.