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Martin Tarusenga
Some of the very alert readers of these articles on pension and insurance matters have keenly noticed the working of the single initiative of Finance Minister Patrick Chinamasa to roll out programmes to restore public confidence in the pension and insurance industries, while the Government functionary assigned to this role, the Insurance and Pension Commission plays a relatively passive, secondary role.
These programmes include the pending Commission of Inquiry and the review of legislation adversely affecting efficient pension and insurance service provision.
The readers have further been quick to note and comment that the problems bedevilling the two industries have all occurred right under the nose of IPEC.
The problems include the failure by insurance companies to address public/subscriber complaints about low inconsistent benefits from pension and insurance contracts, the irregularities associated with demutualisations of the late 1990s and early 2000s, the general loss of money by the economy in its entirety by the insurance/pensions industries.
IPEC’s actions, or inactions in the face of these mishaps in the two industries have all been too apparent, and suggestive of an organisation without a proper specific comprehensive brief and without accountability measures.
With the Finance Minister (rather than IPEC), actually co-ordinating in these programs, in particular engaging pensions/insurance service consumer groups including the unions, public debate has been set off on a number of questions, not least whether IPEC should not be declared redundant, what IPEC’s typical business day is like by activity, how much of public funds are directed to fund salaries and other IPEC expenditure, and what public/social returns these funds are generating for the public (especially considering IPEC failures), and what may have caused these apparent IPEC failures and inefficiencies.
Informed debates in this regard will require examination of the objectives for which IPEC is set out to achieve, the effectiveness of IPEC’s “job description” and the effectiveness of the effectiveness of the functionary organisational structure that is meant to deliver on achieving the objectives.
Trivially, the objectives set out for any functionary serve to define what should ultimately be realised (especially materially and measurably) by the functionary, and more secondarily to direct what the most efficient organisational structure will achieve the objectives.
The Act of Parliament establishing IPEC, the IPEC Act, does not provide for such statutory objectives, instead delving more on what appears to be an outline ‘job description’ for IPEC in Section 4 of the Act on Functions and powers of the Commission.
This may be a major weakness of IPEC which may have led to the problems cited earlier and hence the slump in public confidence. Progressive pensions/insurance environments elsewhere in the world provide for statutory objectives to be achieved by the regulators and supervisors.
The UK regulator for deposit-takers, insurers and major investment firms for instance, (known as the Prudential Regulatory Authority (PRA) has the primary statutory objectives to promote the safety and soundness of the firms it regulates, focusing on the adverse effects that they can have on the stability of the UK financial system; and an objective specific to insurance firms, to contribute to ensuring that policyholders are appropriately protected. PRA’s more secondary objective is to promote effective competition in the markets for services provided by PRA-authorised firms.
PRA also contributes in achieving the Bank of England’s financial stability objective of protecting and enhancing the stability of the UK financial system, and likewise supports the objective of the monetary policies to maintain price stability in the United Kingdom.
The Financial Conduct Authority of the same country works closely with the PRA, where the FCA has objectives to ensure that consumers are treated fairly in their dealings with insurers.
On the other hand the UK Pensions Regulator statutory objectives are set out in the legislation as those to protect the benefits of members of occupational pension schemes; to protect the benefits of members of personal pension schemes (where there is a direct payment arrangement); to promote, and to improve understanding of the good administration of work-based pension schemes; to reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund (PPF); to maximise employer compliance with employer duties and the employment safeguards; among others. The websites for these institutions provide details of the statutory objectives.
It is here submitted that efficient provision of pension and insurance services in Zimbabwe can be achieved only if the regulators administering the reviewed Acts understand what their statutory objectives and hence duties are, that they (regulators) will regularly be assessed for their performance in achieving these statutory objectives, and that they will be disciplined for not achieving the statutory objectives.
There will be no incentive for the administering regulator to ensure efficient provision of pension and insurance services in Zimbabwe if the latter conditions are not in place — this is much like in any employment situation.
Taking into account the role of the financial services sector, and the financial system overall, and taking into account that the incumbent pension and insurance services are an intrinsic part of the financial services sector, the IPEC Act should provide for statutory duties of the Insurance and Pension Commission in keeping with the latter financial services sector roles including that to promote public savings of disposable income through pension and insurance savings vehicles, up to performance targets set by the Finance Minister and in line with national economic growth targets.
This will include regulating the management of such savings through pension and insurance vehicles such as to protect consumers of these products, to maintain confidence in the pension and insurance service provision, to maintain orderly pension and insurance markets, and finally to ensure that the incumbent pension and insurance service provision achieves its secondary roles including the role to provide efficient mechanisms for the pooling of (Pension and Insurance) funds to undertake large-scale indivisible enterprise; to provide efficient mechanisms to transfer economic resources through time and across geographic regions and industries; to provide effective methods to manage uncertainty and to control risk; to provide methods to correct and mitigate instances of asymmetric-information and incentive problems when one party to a financial transaction has information that the other party does not.
- Martin Tarusenga is General Manager of Zimbabwe Pensions & Insurance Rights, email, [email protected]; telephone; +263 (0)4 883057; Mobile; +263 (0)772 889 716. Opinions expressed herein are those of the author and do not represent those of the organisations that the author represent
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