adminBlessing Bonga Business Reporter
LACK of confidence has continued to be the biggest factor that is hampering the majority of Zimbabweans from taking up insurance as a critical component of their businesses or individual lives.From an insurer’s perspective, it has become an almost insurmountable task to regain the public’s confidence in the insurance sector as many believe the transition from the use of local currency to the multi-currency regime short-change them after most policyholders got what they deemed “peanuts” after the conversion of their contributions from the Zimbabwean dollar to the United States dollar.
Reports say that over the past two years or so the insurance industry was realising about US$150 million in turnover compared to around US$600 million in the 1990s while the hyper-inflation experienced around that time and before was largely blamed for the developments.
Ever since the adoption of the multi-currency regime in February 2009, the insurance sector has seen a steady improvement in terms of performance and it is therefore critical to ensure the general populace is well educated on the need to have insurance apart from what is popularly known as “providing peace of mind.”
In the recently presented 2014 National Budget statement, Government fully recognises that the insurance and pensions industry plays a critical role in mobilising savings and providing future security for beneficiaries.
Statistics in the statement also show that the industry’s total assets grew by about 20 percent from US$2,99 billion in December 2012, to US$3,6 billion as at September 30, 2013, a positive development towards the resurgence of the industry. The growth has largely been driven by life assurance and pension fund assets.
In what should engender public confidence to taking up insurance the Insurance and Pensions Commission set minimum capital requirements based on the class of business which requires all players to be fully compliant by June 30, 2014 and by September 30, 2013 all classes had compliance levels of more than 85 percent while some have already fully complied.
Champions Insurance managing director, Mr Nathan Chikono said the insurance industry follows the performance of the general economy thus improvements registered so far in the domestic economy are very positive.
“If our clients are hurting because of the prevailing liquidity crunch the insurance industry naturally feels the pinch as we compete for the same dollar with all other competing needs for cash including salaries.
“However, I must hasten to mention that though things are slow, as an industry we are still better off than we were during the pre-dollarisation decade,” he said.
Mr Chikono added that an improvement in terms of insurance subscribers also has positive implications on players in the industry as this places them in a sound financial position to ensure clients get the financial benefits that come with insurance.
“Insurance works on the law of large numbers and so by focusing on growing the numbers you create self-sustaining pools for each class of risk accepted and the bigger the pools the safer an insurer becomes notwithstanding the potential catastrophe level, but usually catastrophes are not a big problem for insurers as we have adequate reinsurance protection for them.”
“Size matters in this business, but it’s not just the volume of premiums, but also the actual numbers of clients making up that gross premium. Having a few clients that give you huge premiums is not necessarily a good thing, but having a large number of homogeneous clients can insulate you from the misfortunes in one sector of the market,” he added.
Some of the far reaching benefits that insurance comes with that could be understated include its ability to accelerate the economic growth, its ability to help reduce inflation, encourage savings, promotion of credit facilities and provision of return on investment.
In advancing economic growth of the country, insurance provides strong protection against potential loss of property and capital to produce even more wealth thereby providing protection against different kinds of loss caused by risk.
Insurance accumulates the capital from the insured and utilises the funds for the development of the country. Insurance can also help to reduce the inflationary pressure as it collects money as premiums which controls over supply of money and also provides sufficient funds for production so as to narrow down the inflationary gap. This way it reduces the impact of inflation.
India provides a good example as it has been observed that about 5 percent of the money in supply was collected in the form of premiums.
In country that has and or prints its own currency the share of premiums contributed to the total investment of the country was about 10 percent. The two main causes of inflation, namely, increased money supply and decreased production are properly controlled by the insurance business that involves providing insurance service based on needs.
Life insurance particularly encourages savings since the insured has an obligation to pay a premium regularly while they cannot simply withdraw before expiry of the term of the policy. This therefore encourages the habit of regular and systematic saving through premiums and after a certain period, it would be a part of the savings for the insured person.
Insurance also provides credit facilities since the insured person can get a loan by pledging the insurance policy while the interest will not exceed the cash value of policy charged by insurer.
In the event that the insured person dies, the policy can be used for settling of the loan with interest while businessmen can also take loans on the basis on insurance documents from financial institutions as well.
Life Insurance also provides profitable investment as individuals who are unable to handle their own funds can invest in life insurance policies while endowment policies, multi-purpose policies and deferred annuities are certain better forms of investment.
The elements of investment, including regular saving, capital formation and return of the capital along with certain additional return are perfectly observed in life insurance.
Online Reporter