Short-term insurers in precarious situation

CLOUDINE MATOLA

 

The amount of unpaid insurance premiums rose dramatically  to ZWL$180.40bn  in June  this year from ZW$15.7bn reported in the same period last year,  putting  short-term insurers in a precarious situation and forcing them to settle claims for policies whose premiums have not been paid in full or after a claim has occurred, Business Times can report

The Insurance Council of Zimbabwe chairman, David Nyabadza said that policyholders were facing delayed claim settlement as a result of the premium debtors’ adverse impact on liquidity, which ultimately compromised service delivery.

Consequently, 61%  of claims received by IPEC for the period between January to June this year were attributed to  delays in claims settlement.

The crisis led to the enforcement of the no premium no cover policy through the gazetting of Statutory Instrument 81 of 2023.

Yesterday , Nyabadza said at  a joint press conference  that  20% of the industry’s total assets and 40% of current assets were held as  premium debtors.

“About 20% of the industry’s total assets and 40% of current assets were held as premium debtors,” Nyabadza said.

Sibongile Siwela, the director of IPEC’s Insurance and Microinsurance , weighed in saying the issuance of Statutory Instrument 81 of 2023 has been prompted by the rise in premium debtors.

“The SI was introduced to address the unsustainable high premium debtors within the books of short-term insurers which threatened the liquidity and financial soundness of insurers.

“According to the SI short term insurers and brokers dealing in short term insurance are prohibited from providing insurance coverage on credit. Insurance cover at the inception or renewal of a policy a shall be activated upon payment of the required premium,

“For the avoidance of doubts nonpayment of premiums and policy inception at renewal stage means the policy was never activated or taken up or the policy has lapsed respectively,” she said.

According to Siwela, section 5(a)(a) 1 of the SI 81 of 2023 stipulates that payment of an insurance premium in advance is a prerequisite for a legitimate insurance contract, and failure to do so will result in no coverage for an insurance risk.

She said, premiums may be paid directly to the insurer if one is directly insured or maybe paid to a broker if insured to a broker.

Siwela also said the provisions of section 5(a) (a) 1 exclude policies providing insurance for crops in terms of the farmers stop order at chapter 18 (11).

Vice Chairperson of the Insurance Brokers Association of Zimbabwe, Mariate Vengesayi, claims that the large number of premium debtors prevented insurers from developing technical reserves, which are helpful in the event of losses.

As a result, no premium no cover was introduced to allow insurers to build technical reserves.

“The insurance industry was offering cover on credit, this resulted in huge debtors’ books. Ideally insurers should be able to build technical reserves to enables or capacitate them to indemnify clients in the event of losses occurring,

“So, this has resulted in the coming up of no premium no cover such that they are enabled to build these technical reserves,” she said.

 

 

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