tawandamusarurwa
Nixon S. Chekenya
ALTHOUGH still a recent development in the Zimbabwean market, microinsurance has been in existence since the 1980s, having been introduced to help the bottom-of-the-pyramid households in developing countries break away from the poverty trap.
It has been considered the next revolution and is gaining increasing attention owing to its potential impact on alleviating poverty and addressing risks and vulnerabilities faced by low-income households in developing economies.
Existing regulatory frameworks in Zimbabwe’s insurance industry in general and microinsurance in particular are encouraging of business given the underlying economic conditions in the economy.
The National Association of Insurance Commissioners of the United States describes insurance regulation as “that part of state regulation that protects consumers by ensuring that insurers meet their contractual promises through various requirements such as insurer licensing, broker licensing, insurance policy regulation, financial regulation, market conduct, and consumer protection services”.
This regulation can take various forms including:
- a) State/federal regulation
Government enacts enabling Acts leading to a statutory authority to regulate the sector. In Zimbabwe, the Insurance and Pensions Commission (IPEC), created in 2000, through the Insurance and Pension Commission Act (Chapter 24:21), prosecutes its mandates through the Insurance Act ((24:07) and Pensions and Provident Fund Act (24:09). Subsidiary legislation is also derived through regulation by the Minister of Finance, Economic Development and Investment Promotion and the Commissioner of IPEC may issue circulars, directives or guidelines to guide the industry.
- b) Judiciary system
Court judgements are key in the regulation of microinsurance in that they can aid in the constitutionality of insurance contracts in general and microinsurance contracts in particular, interpretation of microinsurance contracts, and checking on the legality of actions taken by state regulatory agencies.
- c) Self-regulation
This is an arrangement in which the microinsurance industry players voluntarily agree to adopt and implement mutually agreed upon codes of conduct, practice and ethics which govern their conduct.
In Zimbabwe’s street lingo, these are commonly referred to as “gentleman’s agreements” and are generally non-binding in nature.
The rationale for microinsurance regulations stems from conventional wisdom that the operations of players in the insurance industry must be regulated to protect the interests of policyholders.
Traditional insurance contracts are structured in a take-it-or-leave-it fashion, otherwise known as contracts of adhesion. This strengthens the need for insurance regulators to safeguard the interests of policyholders.
Regulation in Zimbabwe’s microinsurance industry may serve several purposes, including:
- To address market failure
- To address market irrationality by firms and society.
iii. To compensate for inadequate consumer education about insurance contracts.
- To address supply inefficiencies.
- To foster public safety.
- To build and foster the public’s confidence in the industry.
Regulation of the microinsurance industry, just like regulation of any market, is a noble idea which comes at a cost.
It is a double-edged sword.
This regulation can either promote or impede the industry’s growth, thus directly or indirectly impacting on the welfare of society. A healthy mix of regulatory requirements and incentives for microinsurance players is likely to yield optimal gains.
*Nixon Chekenya is a lead research fellow & teaching assistant at the Department of Agricultural & Applied Economics (W. Davis College of Agricultural Sciences & Natural Resources)
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