The newly-appointed Insurance and Pensions Commission (IPEC) commissioner Grace Muradzikwa says Zimbabwe’s insurance industry has shown resilience despite the economic turbulence.
Muradzikwa (GM), an insurance industry veteran, told our business editor, Kuda Chideme (KC), in an exclusive interview that the industry was “safe and stable”. Below are excerpts from the interview.
KC: Congratulations on your latest appointment, which comes at a very crucial point in the history of the insurance sector and the country’s entire financial services industry. What is your assessment of the state of the insurance sector?
GM: Thank you very much for the congratulatory message.
The insurance and pension industry is generally safe and stable in spite of the challenging macroeconomic environment.
The industry has shown strong resilience in the face of business cycles that have been experienced since the turn of the millennium.
The industry has been registering good growth in terms of gross premiums written and assets.
I see massive potential for a rebound as government implements the Transitional Stabilisation Programme and foster macroeconomic stabilisation programmes that should spur strong performance of the economy, which underpins the insurance industry performance.
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Like any other sector of the economy, the industry has its own challenges, which I hope through collaborative efforts between government, IPEC as the regulator, and insurance and pension players, we will be able to come up with measures to navigate these challenges.
Currently, major challenges include low consumer confidence, assets/liabilities mismatches, inability to meet minimum capital requirements by some entities, unpredictable rising claims cost, loss of profitability and product relevance.
KC: The Justice Smith Commission made some comprehensive recommendations for the industry. Coming into office, which of these do you see as priority areas?
GM: The Justice Smith-led Commission of Inquiry made a plethora of recommendations on each of its 14 terms of reference, most of which are critically important for implementation.
The report proffered recommendations on key building blocks of an effective insurance and pensions industry.
It recommended reforms at macroeconomic or policy level, regulatory and supervisory reforms, as well as reforms at the level of insurance companies, pension funds, administrators and other industry service providers.
I must acknowledge that it is difficult to prioritise some recommendations ahead of others given that a holistic approach is required in implementing the recommended post-inquiry reforms.
Some recommendations would have to be championed at policy/government level, regulatory level (by IPEC) and at regulated institutions level.
As a commission, we also have a statutory role of advising government on insurance and pension matters, at the same time we are expected to guide and supervise the industry.
As such, the commission has to play a catalystic role to ensure that the broad reforms are timeously implemented through stakeholder involvement.
The commission has already categorised recommendations in thematic areas, of which various insurance and pension stakeholders have a stake in implementing the recommendations of the Commission of Inquiry.
The elephant in the room is the issue of compensation, which I would prefer calling “asset re-distribution”.
What is critical for me is to bring closure to the issue given that the industry has spent too much time discussing history and it is high time that we look into the future to reposition the role of the insurance and pensions industry in socio-economic development.
I have already started engagements with captains of industry to establish common understanding on the way forward.
It is high time that we bury legacy challenges, stop the blame game and discussing history and move into the future.
Recommendations to do with improving the regulatory and supervisory capacity of IPEC are also of critical importance.
With support from the newly appointed IPEC board and the parent ministry, that of Finance and Economic Development, the commission will undoubtedly continue to enhance its supervisory capacity in tandem with international benchmarks espoused by the International Association of Insurance Supervisors and the International Organisation of Pension Supervisors, of which IPEC is a member.
Reforming legislation governing insurance and occupational pension schemes is one of the priority areas.
I have already engaged the Finance and Economic Development minister (Mthuli Ncube) to ensure that the Insurance Bill Pensions Bill and IPEC Bill are prioritised so that they undergo the necessary approvals by Cabinet to facilitate introduction in Parliament.
Priority recommendations for the insurance and pension players include addressing the industry-wide challenge of data integrity, identified corporate governance deficiencies, risk management processes and improving disclosure on entrusted funds to ensure fair treatment of customers.
KC: There is a general perception that the country’s insurance sector is under-regulated. Do you share the same view?
GM: I am not sure what creates the misconception that the insurance sector is under-regulated.
The trend in the world of financial sector regulation and supervision is that regulators and supervisors have adopted what is referred to as risk-based supervision.
Effectively, it means supervisors can relax supervisory requirements or enhance them depending on the risk posed by the supervised entities.
Normal supervisory requirements can also be applied in instances of moderate risk of non-compliance.
Risk-based supervision is premised on the notion that a one-size-fit-all approach to regulation and supervision stifles development of the industry by limiting innovation and the ability of those managing regulated entities to effectively exercise their fiduciary responsibilities.
Risk-based supervision places more emphasis on evaluating the capacity of the financial institution’s understanding of and managing risks that institutions are exposed to in their operations taking into account the nature and size of their business and obtaining environment.
In light of this, the perception that the sector is under-regulated may be misplaced given that the commission is implementing a risk-based approach to supervision.
Too much regulation is uncalled for in instances where risk of non-compliance is low.
Regulators also have to strike a balance between giving supervised entities room to manage risks and ensuring accountability. Eventually, it is a balancing act.
KC: Over the past years, a number of insurance firms have folded due to poor corporate governance. How do you intend to inculcate a culture of good corporate governance and ethical conduct in the sector?
GM: It is important to note that the largest number of failed insurance companies was witnessed in 2010 alone, when licences of 70 insurance companies were cancelled.
The main reason for such wholesale cancellation of licences was under-capitalisation.
Most of the insurers had been established prior to dollarisation and were small entities with small market share.
During the hyperinflation period, it was difficult to assess their capital adequacy positions on a continuous basis.
On dollarisation of the economy, most of the undercapitalised insurers were exposed as their shareholders could not afford to inject capital immediately after dollarisation as the capital was denominated in US dollars.
Furthermore, the commission had just increased minimum capital requirements, which appeared too steep for some smaller insurers.
It is these smaller insurers that mostly folded due to under-capitalisation as opposed to poor corporate governance.
To this end, only six companies folded over the past years due to corporate governance deficiencies.
In spite of this, the commission is working on improving corporate governance in insurance companies and pension funds.
The commission issued a risk management and corporate governance guideline for insurers in 2018 and Statutory Instrument (SI) 80 of 2018 to improve corporate governance in pension funds.
The proposed pension reforms announced by the Finance and Economic Development minister in the 2019 national budget statement are also aimed at enhancing corporate governance.
The commission will continue to enhance disclosure requirements for all insurers and market players to ensure accountability and fair treatment of customers.
The recommended legal reforms in the Insurance and Pension Bill will also go a long way in addressing corporate governance deficiencies.
To this end, enforcing good corporate governance in all institutions under the purview of IPEC is one of my priority areas.
KC: The introduction of the Zimbabwean dollar comes at a time when the regulator was concluding the conversions of policy and pension values into US dollars as instructed by the Commission of Inquiry. What happens to the process now?
GM: The commission is on course in implementing recommendations of the Commission of Inquiry Report.
The lessons drawn from the 2008/2009 currency changeover can still be applied on the recent conversions.
What is critical is to ensure equity and fairness in allocating assets that support liabilities of pension funds and investment insurance contracts.
It is important to note that most investments backing liabilities denominated in the defunct multi-currency are in real assets such as properties and listed equity, which have a self-adjusting value irrespective of the currency being used.
Conversion of policy or pension values to US dollars was simply meant to express value in a stable currency; otherwise, reference can be made to any currency when assessing the value of an asset supporting liabilities to policyholders and pension funds.
However, I must acknowledge that not all assets will automatically re-value if there is no policy guidance in the treatment of fixed income investments such as bonds and money market.
I believe government will make a pronouncement on how such assets can be treated to ensure policyholder/pensioner protection.
The commission also stands ready to proffer recommendations in this regard.
As I highlighted before, the commission is currently finalising the guidance to the industry in consultation with key stakeholders.
KC: In light of these recent developments. what then happens to policies that were on cover in the US dollar?
GM: The insurance industry will comply with the requirements of the law (SI 142 of 2019), meaning the issuance of new USdenominated policies should stop in line with the new policy measure.
Whilst section 81(2) of the Insurance Act [Chapter 24:07] gives the insurer and the insured the right to trade in forex, the commission is engaging the monetary and fiscal authorities to ensure policy consistency and smooth transition on contracts/policies that are already in force.
Fortunately, most of the US dollar-denominated policies are backed by international reinsurance arrangements given that there were limited US dollar-denominated investment options in Zimbabwe.
KC: Digital innovations are creating new and unforeseen opportunities and challenges for insurers and regulators alike. As regulator what thrust will you have on the use of cyber technology in the sector?
GM: Personally, I am techno savvy! I spend a lot of time with my grandchildren, who are millennials and centennials.
Therefore, I regard myself as a millennial by association. Indeed technology has brought opportunities and disrupted traditional insurance models.
As a new commissioner, I will prioritise advancing the E-governance thrust adopted by government as a way of facilitating ease of doing business and streamlining business processes.
IPEC has already installed a robust enterprise resource planning tool, which will facilitate e-governance.
I will insist on e-filing of quarterly and annual reports by insurance and pension industry players in order to move away from environmentally unfriendly manual-driven returns.
Automated systems will help to deal with the industry-wide challenge of data integrity and delays in production of timely information for all stakeholders.
During my tenure, I believe the commission will also move a gear up and adopt electronic surveillance as is the case with our fellow supervisors in the national payments space, banking and other foreign securities regulators.
With electronic surveillance, supervision will be done on a real time basis, something that will assist the commission to improve its oversight function on the sector.
I am committed to support digital transformation of the insurance and pensions industry, including adoption of blockchain technology, mobile insurance, cloud computing, the Internet of Things (IoT), advanced analytics, telematics, the global positioning system (GPS), digital platforms, drones, smart contracts and artificial intelligence, among others.
These technologies are providing new ways to measure, control, and price risk, engage with customers, reduce cost, improve efficiency, and expand insurability. The adoption of technology by the insurance and pension sector can also go a long way in advancing the national financial inclusion agenda and attainment of financial inclusion targets in the National Financial Inclusion Strategy (2016 to 2020).
As IPEC, we embrace the benefits that come with technology such as enhanced efficiency, speed transactions and financial inclusion.
However, the commission is also cognisant of risks and challenges associated with technology, for instance cyber risks, increasing regulatory complications arising from the breakdown of geographic boundaries, emergence of a global “shared economy” or market and consumer protection in a digital world.
KC: A fragile economic environment and subdued investment performance also remain high on the list of concerns for the sector. How do you intend to deal with this?
GM: Generally, it is the mandate of central government to provide an enabling environment for businesses to strive.
Being a new commissioner with statutory responsibility to advise Government, I will ensure that the sector improves on policy advocacy and advisory.
Currently, there are too many fragmented associations in the insurance and pension space.
Whilst the technical capacity is there within the insurance sector, I do not think the industry has done much in influencing government policy.
As such, I will recommend the establishment of an apex body for players in the insurance and pension’ space to improve on policy advocacy.
With regards to investment performance, the sector should be innovative and come up with new investment options as opposed to the traditional four asset classes namely property, listed equity, money market and bonds.
It is high time that the sector harnesses its huge resource endowment to spearhead implementation of public sector investment programmes such as roads construction, irrigation infrastructure and energy generation, among others.
The industry has to be forward looking in terms of the developmental agenda.
I will share my views with and also engage players in the sector to influence change of the traditional investment strategies given the need to unlock value from long-term savings from the sector.
