eBusiness Weekly
Tawanda Musarurwa
Zimbabwe’s insurers should work to improve internal risk assessment systems, especially due to the high risk levels of the current macro-economic environment.
Sector regulator, the Insurance and Pensions Commission (IPEC) is driving the initiative to ensure that players in the sector adopt Own Risk and Solvency Assessment (ORSA), an internal process undertaken by an insurer entity to assess the adequacy of its risk management and current and prospective solvency positions under normal and severe stress scenarios.
The Zimbabwe Integrating Capital and Risk Programme (ZiCARP) is the revamped Solvency Regime that IPEC is implementing for the Insurance industry.
An increasing number of pension fund dissolutions in recent years – for example – highlights the need for these entities to effectively adopt such systems.
ZiCARP programme director Tinashe Mashoko said ORSA will help the regulator in its oversight work as it will “provide IPEC with the insurer’s perspective of the capital resources necessary to achieve its business strategies and remain solvent given its risk profile, as well as insight into the risk management and governance procedures surrounding this process.”
The regulator will also be able to engage senior management and board of directors in risk management, capital management and continuous solvency monitoring.
The insurance industry, like most businesses countrywide, has been struggling due to the negative effects of a raft of monetary and fiscal policy changes over the last couple of years, especially from 2019.
Inflationary pressures ensuing from various changes in monetary policies on the use of the foreign currency resulted in insurers struggling to preserve value of claim reserves and balance sheets.
This mismatch has prevented insurers from realising appropriate returns from an earnings and solvency perspective.
The Covid-19 pandemic has also contributed to a difficult operating environment.
The local short-term insurance sector is particularly blighted by prevailing inflationary pressures.
“Policyholders failed to keep up with the erosion of sum insured of assets resulting in their under-insurance. Insurers responded by applying the average clause when paying claims leading to an outcry from policyholders,” says Insurance Council of Zimbabwe (ICZ) executive officer Tendai Karonga.
The average clause means that in the event of the risk insured against happening, insurers undertake to compensate fully for assets insured at the correct value commonly termed replacement value for which the correct premium has been paid to the insurer.
“Under-insurance generally undermines the principle of indemnity because an insured has not paid the fair premium into the pool for his or her risk unless the average clause is applied. Payment of full compensation to such an insured would be unfair to other contributors to the pool,” adds Mr Karonga.
The pensions sector has not been immune either.
“Whilst we do not know for certain the level of future impact the pandemic will have on the pensions industry; we anticipate some negative consequences in the short to medium term,” said Zimbabwe Association of Pension Funds (ZAPF) director general Sandra Musevenzo.
“We anticipate that more employers will default on pension contributions. Especially those in industries that have been more heavily affected by the pandemic such as tourism and hospitality.”
By adopting ORSA, at the firm level, companies will benefit from regular assessment of the adequacy of their risk management systems, regular assessment of current and future solvency positions, and alignment of risk management with business strategy and capital requirements.
