Interview: A bright future despite challenges in the insurance industry

Tendai Karonga, Managing Director of the Zimbabwe Insurance Council

By Melody Chikono

The insurance industry has always been the target of the country’s economic challenges, with many people losing confidence in the sector.

As a result, the use of insurance policies has been low for some time. But the chief executive of the Insurance Council of Zimbabwe (ICZ) Tendai Karonga (TK)who spoke with NewsDay Senior Business Reporter Melody Chikono (ND)said the industry was doing all it could to restore public confidence.

ND: What are the major challenges facing the insurance sector at the moment?

to know : It’s two things: the value that was lost in repos in 2009 and 2019 and the attempt to maintain value as we go. Those are the two main things that concern us; not just the insurance industry, but the whole economy.

ND: On the question of compensation for those who lost the value of their policies years ago, why is it taking so long to be resolved?

to know : This is not a one way solution, all bodies need to sit down and agree on the way forward as this plays a crucial role in building the confidence of people in the sector.

The issue of trust within the insurance industry is closely related to pensions, I mean the pensions that people look forward to when they retire. Is it meaningful or can it be made meaningful? Over the past decade, pensions have not been meaningful.

Thus, retirees are now wondering if it is wise to really invest their money in pension systems.

They want to know if they will get the full value of their pension. At present, the economy fails to maintain the value of the currency due to its inflationary tendencies.

People’s confidence is therefore badly shaken because it does not provide a valuable pension to live on after retirement.

You may ask why the loss in value? Well, it’s a question for the Ministry of Finance to say all the measures and policies they put in place to restore stability to the economy.

ND: Beyond economic issues, what other key operational challenges do insurance companies face?

to know : Well, it’s linked to the economy, but downstream, it’s disposable income. People have low disposable income right now, so their take up of insurance policies, in general, is low and that also affects what is called the penetration rate.

In other words, how many insurance activities are carried out in the country? So it all depends on the economy and inflation. For this reason, we have a low utilization of insurance activities. COVID-19 has also affected insurance take-up. So it’s those two issues: the economy and the pandemic.

We are now also seeing signs of recovery as there is a feeling that the pandemic is fading. The government is positive about the measures it is taking.

You have to give him some time before you can judge. I know it’s hard because negative effects are everywhere in our daily lives, but let’s look at the efforts they put in place.

ND: In light of these challenges, what can you say about the future of insurance in Zimbabwe?

to know : The future of insurance is bright once we resolve the issues of economic stability. There is also the policy of the African Continental Free Trade Area, where all trade barriers will be removed and therefore there is an opportunity to develop the Zimbabwean insurance industry regionally and continentally.

We must prepare for the competitiveness that will come with the opening of free trade. We need to attract investment in our insurance industry. While all the elements we have discussed are correct, we must point out that the most important element is the economy.

ND: What is the penetration rate of local insurers in the region?

to know : Traveling to the region is a good thing to do and companies need to prepare and build their capacity.

A number of our insurance companies are in the region, in Botswana, Swaziland, Zambia, Malawi and Uganda. That’s what we’ve done, but what we need to do is step up the growth of our capacity.

ND: What have you done to ensure that there is an improvement in the uptake of insurance policies in Zimbabwe?

to know : One of them is to campaign for the insurance industry. We have sought to increase our ability to locate most insurance risks and we believe we can do this by providing agricultural insurance.

We note that people at the bottom of the scale are unaware of the benefits of insurance policies and how to insure their crops.

We host webinars to educate this part of our farming community to better understand and use insurance. The use of insurance policies is low in the informal sector.

We have to do something to impress this category so that we can increase the insurance business.

When you have higher levels of insurance, it fuels the economy and we are able to invest in infrastructure.

ND: There are emerging issues like climate change, what is your comment on insurance and climate change?

to know : Currently, we are trying to set up pools to deal with climate change and other catastrophic disaster risks.

The Insurance and Pensions Commission (Ipec) is in discussion with the World Bank on how to regulate climate change, and it is therefore in preparation.

There is a continental body that provides insurance on such disasters. They paid us $10 million for Cyclone Idai, if I’m not mistaken.

We are in the process of putting together a package as ICZ and the government are working on it as well as Ipec.

Maybe people don’t talk about it, but we can’t know for sure when it might be regulated. You cannot introduce a cover when it cannot be adjusted.

These two initiatives are therefore taking place at the same time. But there is already the African coverage in which the government participates.

ND: What has been the uptake and issues with the yellow card in Zimbabwe?

to know : There haven’t been many issues about this one, people just come and get it through their third party.

However, it has been affected by travel restrictions related to the COVID-19 pandemic and the introduction of the Kazungula border post.

Our border post was deemed inefficient. There has been some effect on volumes and business, but we understand.

One of our staff is at the Beitbridge border post looking at the improvements that have been made and how the business is progressing. But, indeed, the yellow card was affected by both of these issues.

To a lesser extent, the people of the Democratic Republic of Congo do not always accept our yellow card. The secretariat is looking into the matter as they are members of the Common Market for Eastern and Southern Africa.

ND: Prescribed assets have been a problem. What are the concerns around them on the insurance side?

to know : It all comes down to the performance of the economy. If we had single-digit inflation, the idea of ​​prescribed assets wouldn’t be such a burden.

In some jurisdictions, it is not necessary to control it. People would just rush to get government papers because coupon rates are higher in a stable environment.

That’s why you see in South Africa that all the infrastructure development is done with money from the insurance and pensions industry. It’s the stability of the economy, especially when it comes to single-digit inflation. Here you know the feedback is positive.

So we don’t need prescribed assets in an environment like this, but if we needed to, we would take all the investment instruments because the returns would be indexed and higher than inflation. So it all comes down to economic fundamentals.

For now, the industry should speak with one voice when we engage on this issue. We don’t want fragmented views. So, in order to reduce the economic impact on the insurance industry, we must unite our voices.

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