The legislative framework guiding Zimbabwe’s insurance and pensions sectors is being reformed to match international standards to create a sound and vibrant industry.
The local insurance sector has over the years been dogged by a general lack of standardised insurance policies and products, unethical market practices and unfair trade practices, all reflective of weak or outdated insurance regulatory laws.
Insurance and Pensions Commission (IPEC) Commissioner Dr Grace Muradzikwa, told delegates attending an Association of Insurers and Reinsurers of Developing Countries (AIRDC)-Insurance Council of Zimbabwe (ICZ) workshop in the capital that a complete overhaul of the present insurance laws was required.
“IPEC is facilitating review of legislation, including the primary Acts, regulations, regulatory circulars and directives to provide a sound regulatory framework that anchors effective regulation,” she said.
The legislation review for the local insurance sector is underpinned by a reconstruction of the Insurance Act (Chapter 24:07) through the Insurance Bill.
But other key legislative reviews include the Pensions and Provident Act Bill as well as that of the Insurance Commission Act to ensure that they are aligned to international best practice.
Critically, the Pensions and Provident Fund Bill – as a case in point – is expected to foster better corporate governance practices within the industry while adequately providing the legal basis for a troubled entities’ resolution framework as well as increasing IPEC’s enforcement powers.
“Legislation is being aligned with international standards set by the International Association of Insurance Supervisors (IAIS), the international Organisation of Pension Supervisors (IOPS) and the Financial Action Taskforce (FATF),” added Dr Muradzikwa.
With respect to the insurance sector generally, the key market failures that warrant regulatory intervention tend to be serious asymmetric information issues and principal-agent conflicts that could lead some insurance companies to incur excessive financial risk and/or engage in abusive market practices that harm consumers.
In terms of the latter, for example, the Zimbabwean insurance sector is facing the major challenge of firms that are undercutting premiums, which has huge potential risks for those particular firms, but also hold systemic risks for the broader sector.
This was highlighted by AIRDC vice president Elizabeth Wyns-Dogbe in her address:
“Poor underwriting methods is one of such areas that has been identified as a threat to the survival of insurance companies and serious hindrance to service delivery.
“One of the widely used methods is the undercutting of premiums to increase market share of policies written.
“Unfortunately, the negative effects accruing to such behaviours have been devastating and resulted in a tainted image for the insurance industry.”