|Burnt down state bus in Zimbabwe. |
Fully funded re-insurance cover
could protect these public assets.
Zimbabwe used to be the “Cayman Islands” style darling of Africa´s insurance industry.
It boasted a life-cover premium market worth of $600 million at its peak in the 90s.
It even hosted the Insurance Congress of Developing Countries in 2014.
Now an astonishing decline has occurred: in 2014 Zimbabwe failed to pay a mere $100 000 premium to the multilateral financial institution, African Trade Agency (ATI), to cover its exporters in case of encountering cross-border business risks.
An economy beset by vanishing dollars, out-of-luck citizens who sometimes attempt to fleece insurance agencies, means Zimbabwe´s re-insurance sector has entered a “save-our-souls” zone.
Liquidity and lack of money
Insurance, re-insurance is a double-edged sword in Zimbabwe, arguably Africa´s most stressed economy.
In 2000, the country had three indigenous reinsurance companies and one foreign branch. In 2017, there are now seven local players.
Still one foreign branch remain.
Insurance, re-insurance players have to find a footing in an economy where the de-facto currency, the US dollars, is rapidly vanishing.
It is being replaced by a domestically limited currency labelled “Bond note.”
In the same breadth, insurers must have stashes of ready US dollar cash daily to meet customer demands.
For insurers and re-insurers, the elephant in the room is a lopsided economy that has chopped off 60% of its industries, halved down down 40% of its agricultural output since 2001.
Worse, according to World Bank figures, the economy sent 80% of its citizens into biting unemployment.
Zimbabwe´s commercial banks are mandated by gobbling cash crisis to dispense only $US80 a day to clients while re-insurance firms may need to access $US100 000 dollars a week to trade efficiently.
“Workers are idle, at home, earning no incomes are barely able to settle insurance fees for cars, education or health let alone afford a new coat of paint for their homes. This is a stinging blow to the revenues Zimbabwe’s life re-insurance sector,” Thomas Sithole an actuary and Zimbabwe´s most famous insurance blogger who runs the site Acturial Lense.
“70% of Zimbabwe´s economically active population is not insured,” reveals analyst Delphine Maidou, CEO of Allianz Global Corporate & Specialty (AGCS) Africa
The situation more unbearable for Zimbabwe´s re-insurance industries because the bigger chunk of the country´s economy has skidded into uncharted waters.
This is what the African Development Bank calls “informal economy.”
These are your street food vending entrepreneurs, backyard furniture manufacturers, and small scale gold diggers, small trade cosmetics importers – exactly the kind of business folk who will balk with suspicion on hearing the word “insurance” for their limited trades.
“As insurance and re-insurance, we follow the fortunes of our clients. When their business is going down we cannot grow,” says Grace Muradzikwa, one of the country´s top insurance experts and a top executive at Nicoz Diamond, Zimbabwe´s leading multi-product insurer.
The country´s remaining 6, 3 million Zimbabwe citizens still in active employment, are working in this “dark economy.” This places Zimbabwe´s insurance and re-insurance companies in dire straights.
“Zimbabwe´s dark economy is responsible for siphoning off about $4 billion yearly from the formal sector where insurance companies trade,” says Thomas Sithole the actuary.
“The messiest challenge is for re-insurers in Zimbabwe to design products that match the income profiles of participants in the dark economy. This is a sector where your timber, shoe or corner food traders have no registered addresses, bank accounts, water bills let alone company tax compliance papers. How do you insure such against fire, theft or floods and expect them to pay monthly premiums of say $50 is the million dollar question.”
Zimbabwe is a tricky destination for investors to park their money. Corporate information is scarce, when available it is unreliable.
A weak legal system makes debt collection difficult, endemic corruption means political elites can seize private properties and assets – and now a currency confusion means normal transaction like the global Visa MasterCard – are limited.
In 2016, Zimbabwe ranked a lowly 31st out of 53 countries across Africa in Fitch BMI Research’s latest investment operational risk index.
Trade sanctions imposed by Australia, the EU and US in early 2002 makes the country an unattractive destination foreign re-insurance companies to do business in Zimbabwe.
A world-record 500 % inflation bill ravaged the balance sheets of the country insurance and re-insurance sector and rendered clients savings worthless heaps of cash.
The country´s non-life insurance sector where re-insurance companies sit has failed to recover up to today.
The state agency Zimbabwe Insurance and Pensions Commission admits, “A slowing down in the growth of business written in the non-life insurance sector has generally been witnessed in tandem with the slowing of Zimbabwe´s economy.”
Fast turnaround solutions should be holistic. “Zimbabwe´s public perception towards the insurance industry is at an all-time low,” says Thomas Sithole the actuary.
“Cash back schemes, no claims discount, profit share schemes – these are perfect incentives that can be quickly introduced to lure back Zimbabwe´s traders and workers into buying re-insurance products. Solutions must be urgent.”
The country´s giant re-insurance firms have been battling their feet to remain afloat in a diseased economy.
One way they have done so is through local reinsurance players consolidating into strong global groups as Zimbabwe cannot sustain a closed insurance market.
“In Zimbabwe there has been considerable risk transfer, for capital substitution for reinsurance players. Risks are too large, too complex or too risky for the direct writer to entirely retain to its own account,” reveals David Chinyemba, managing director of Pan African Reinsurance Brokers, one of the country´s top brokers
“Roughly at least 15-20% of cases that are settled by insurance companies in Zimbabwe are fraudulent claims. Insurance fraud is now an infection,” says Grace Muradzikwa, the insurance guru.
"The sad thing is some us insurance operators are even aware of the various methods used to perpetrate but are powerless to respond" reveals Baobab Insurance director, Tarupiwa Tarupiwa, one of the country most prominent operators.
In a startling incident in 2014, court processes were initiated after claims that top officials at the country state owned airline had fleeced the taxpayer of millions of Euros after entering into fraudulent repeat re-insurance schemes.
Insurance fraud costs up to $9 billion a year according to ABI figures, but in Zimbabwe the data is absent – or if partly available, woefully inaccurate.
Insurance scams in the country can take sinister dimensions. In one such scam, participants acting from the United Kingdom to Zimbabwe, stage managed a car crash in 2015 and burnt a stolen corpse to swindle $70 000 dollars from an insurance firm.
“The bitter truth is insurance and re-insurance players have come to the odd acceptance that scams and fraud are inevitable and part of trading woes. It cannot be helped.”
As Zimbabwe´s economy plunges, offenders are tempted to stage insurance scams because the risk of capture by verification technology is low, rewards are tantalizing and insurance claims assessors are reactive.
“An exodus of qualified actuaries to South Africa, EU or Australia has left insurance firms staff with claims assessors who work manually where technology measurers are needed,” says Thomas Sithole.
“The first port of call is for all insurance and re-insurance industry players in Zimbabwe to design a common database that flags scam offenders.”
Cellphone banking chips away Zimbabwe insurance
“Mobile banking has crippled banking in Zimbabwe,” declared the South Africa Broadcasting Corporation in May 2016. The casualties list, no doubt, includes Zimbabwe´s re-insurance sector.
The figures and glaring, almost depressing for insures, says the Reserve Bank of Zimbabwe.
The country´s mobile telephone banks sliced away $6, 1 billion in customer transactions in 2015 leaving traditional banks and insurance firm to fight for a reduced $3, 5 billion bone.
Zimbabwe´s populace, smarting from a 2008 world-record inflation that gobbled their entire life savings are wary of the word “bank” “insurance.”
They prefer to keep their meagre savings on their cellphone, where at the punch of a finger they could wire money in seconds.
“The cellphone is the bank,” says banker Norman Mataruka, a senior executive for currencies supervision at the central bank.
“There are 35 000 mobile money agents in far flung parts of the country where banks and insurance companies don’t reach.”
This sounds a gradual death knell for Zimbabwe´s brick-and-motor banks and related insurance offices.
This tough new competition is terrific to handle for Zimbabwe´s re-insurance companies.
“Non-life expenses reached up to a frightening 42% of income in 2016, 42 per trading quarter! Such high operating expenses are not sustainable as nearly half of the net earned premiums (net of reinsurance) are allocated to service the operational costs of running the insurance company,” warns Thomas Sithole the actuary
“There is an urgent need for insurers to embrace technology and automation. Starting point will be to curb damaging expenditures and digitalize inefficient markets.”
In conclusion, it doesn’t need a rocket scientist to see where the country´s risk protection industry is headed.
One can bet that unless Zimbabwe´s fundamental ease-of-doing-business problems are addressed, insurance and reinsurance companies will continue to battle a storm of bankruptcy and gobbled earnings.
ABOUT THE WRITER: Ray Mwareya is a journalist at INPERSPECTIVE MEDIA and GroundUP News.