Failure to Fulfill Obligations Immoral, Says Insurance Boss

Feb 15, 2010 (Zimbabwe Standard/All Africa Global Media via COMTEX) -- THE Commissioner of Insurance, Manett Mpofu says players in the industry would be "immoral" if they fail to honour their obligations to policyholders.

Mpofu's remarks came against a background of reports that policyholders were being told to start all over again as their contributions were eroded by the hyperinflation of 2007-2008.

"We are aware of the turbulent environment we are emerging from but it would border on the immoral side to simply tell policyholders that their money paid as premiums over a number of years simply disappeared into thin air," she said.

Mpofu was the guest of honour at a function last Friday where Nyaradzo Funeral Assurance awarded certificates to 178 policyholders with paid up policies.

Nyaradzo became the first company to achieve such a feat since independence.

Besides making insurance firms respect the contracts entered into with policyholders, Mpofu's remarks will force policyholders to demand their dues.

Mpofu said the recovery of the insurance industry hinges on companies meeting their end of the bargain.

"If we are perceived to be reneging on our promises, then the recovery and restoration of confidence we are hoping for in our industry will simply remain a pipe dream," she said.

In the hyperinflationary period of 2008, a number of firms were demanding fuel coupons as premiums.

But following the introduction of multi-currencies last year, a number of funeral assurance companies were telling policyholders to start afresh.

Observers say in the era of multiple currencies, insurance firms should live by the covenants entered between them and policyholders.

Other than the confidence crisis dogging the sector, the insurance industry is also suffering from low disposable incomes, which has seen policies being regarded as a luxury.

But with capacity utilisation peaking up in industries, analysts see an uptake in policies by companies and individuals.

Zimbabwe's economic decline over the past few years have resulted in a slow down in economic activity, low industrial capacity utilisation, undercapitalised business operations, high unemployment, and therefore suppressed demand for goods and services.

As a result of the economic depression, the first half of 2009 has seen most insurance customers deliberately opting to limit their spending on insurance to only their strategic assets, at minimum levels of cover.

The awarding of the certificates means that policyholders will no longer pay monthly premiums.

Phillip Mataranyika, the Nyaradzo chief executive officer, said the company had lived up to its commitment made when it opened its doors to the public in 2001: living up to its promises.

Mpofu said funeral companies should take a leaf from Nyaradzo and avoid treating clients as commodities.

She said the companies must show compassion.

The insurance sector spent the better part of 2007-2008 locked in government bonds giving returns of 340% per annum at a time annual inflation had breezed part 231 million %.

Prescribed asset ratio is the proportion that long and short-term insurance companies are required by law to invest in government guaranteed bonds and Treasury Bills whose interest rates are generally unattractive

The prescribed assets ratios were waived in July last year to give the industry breathing space and build the base to underwrite more business.

In his 2010 budget, Finance Minister Tendai Biti reintroduced the prescribed assets ratio citing the improvement in the economic environment.

Pension funds are supposed to have 7.5% of their portfolio in government bonds while long term and short term insurance companies should invest 7.5% and five percent respectively.

Mpofu said the insurance and pension industry should support government and business to raise funds through investing in prescribed assets.