daniel chigunwe
Nelson Gahadza
Senior Business Reporter
The insurance industry says the introduction of Statutory Instrument 81 of 2023, which removed the provision of insurance on credit, will improve the industry’s liquidity and capacity to settle policyholders’ claims on time and drive economic development.
The SI was introduced to address the unsustainable high premium debtors within the books of short-term insurers, which threatened their liquidity and soundness.
Insurance and Pensions Commission (Ipec) director of insurance and microinsurance, Sibongile Siwela, told a media briefing yesterday that the short-term industry had been providing insurance cover on credit, resulting in rising premium debtors.
“Insurance cover at the inception or renewal of a policy shall be activated upon payment of the required premium.
“For the avoidance of doubt, non-payment of premiums at policy inception or renewal means the policy was not taken up or the policy lapsed, respectively,” she said.
She noted that in terms of Section 5AA of the SI, “the receipt of an insurance premium shall be a condition for a valid contract, and there shall be no cover in respect of an insurance risk unless the premium is paid in advance.”
The joint press conference, in addition to IPEC, was addressed by the Insurance Council of Zimbabwe (ICZ) and the Insurance Brokers Association of Zimbabwe (IBAZ).
According to ICZ chairman Mr David Nyabadza, premium debtors increased to $180 billion as of June 30 2023 from $15,07 billion in June 2022, and based on the gross income written by June 2023, 20 percent of the premium income was held in debtors.
In addition, he said 20 percent of the industry’s total assets and 40 percent of its current assets were held by premium debtors, which had many repayments, among other liquidity challenges and the ability to pay claims.
“From an economic development perspective, we were unable as an industry to meet our prescribed asset requirements because, generally, you cannot use debtors to transact.
“As a result, the role of the short-term industry contribution to economic development was heavily hampered,” he said.
Mr Nyabadza said from a client perspective, the SI is a welcome development, as 61 percent of complaints handled by Ipec for the period January to June 2023 were attributed to delays in claim settlement and premium payments.
He said financial institutions should come up and provide premium financing so that the insurance business runs smoothly.
Mrs Mariate Vengesayi, the deputy Chair of the Insurance Brokers Association, said ideally, insurers should be able to build technical reserves that enable and capacitate them to indemnify clients in the event of losses occurring.
“So, this resulted in no premium, no cover, such that they are able to build these technical reserves; hence, insurance will no longer be issued on credit; premiums must be paid upfront for cover to be issued.
“Failure to remit premiums will give insurers the right not to meet claims; hence, we urge our customers to comply so that they are not exposed in the event there is a claim,” she said.
According to Mrs Siwela, to contextualise the magnitude of the matter, debtors were ranked second highest after fixed assets on the total assets held by the industry.
She noted that premiums may be paid directly to an insurer if one is directly insured or may be paid to a broker if insured through a broker. However, the provision of Section 5 AA (1) excludes policies providing insurance for crops in terms of the Farmers Stop Order Act (Chapter 18:11),” she noted.
Meanwhile, Ipec said there are ongoing engagements with financial institutions to avail insurance premium financing to assist policyholders in timely paying premiums.
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