eBusiness Weekly
Business Writer
Insurance and pension management companies emerged out of a prolonged hyperinflation period that lasted up to the end of year 2008 with assets worth more than US$3,8 billion intact and should have been able to meaningfully compensate policyholders and beneficiaries, Business Weekly can reveal.
This is contrary to the impression the firms wanted to present that values were wiped out during the hyperinflation era, which decimated the country’s local currency leading to the forced adoption of the United States dollar (US$), resulting in policyholders and beneficiaries receiving what has been described by many as pittance.
In a presentation at a stakeholders meeting on the Commission of Inquiry compensation framework organised by the Insurance and Pensions Commission (IPEC) recently, former commissioner with the Commission of Inquiry (Commission), Brains Muchemwa, said the two concerned sectors had amassed assets worth US$3,7 billion prior to 1999 and a further US$100 million between 1999 to 2008 plus an estimated US$1,27 billion between 2009 to 2014.
“In all fairness, it is inconceivable that the entire insurance and pension industry could have generated only US$100 million over a 10-year period to 2008, argued Muchemwa.
“This is in light of the fact that total contributions to Life companies, NSSA and Pension funds averaged US$280 million per year in the period 1996 – 2000.”
He said the Commission had resorted to the use of a deductive approach as it encountered serious problems of data inconsistency and inaccuracies for the 1999 to 2008 period.
Using the deductive approach, “assets that survived hyperinflation and crossed over to the dollarisation period were therefore US$3,8 billion in December 2008,” said Muchemwa.
It is on this basis that the Commission argues that beneficiaries were prejudiced and recommended that they should be compensated in US$ or its equivalence.
Zimbabwean pensioners and insurance policyholders suffered significant prejudice when
Zimbabwe’s currency converted from the ZW$ to the US$ following unprecedented and prolonged periods of hyperinflation during the period 2007 to 2008.
The material prejudice suffered by policyholders resulted in Government appointing a Commission of Inquiry led by Retired Judge Justice George Smith with a mandate to establish the extent of prejudice, if any, to pension fund members or to insurance policyholders or the beneficiaries of such persons.
The terms of reference also required the Commission to establish an appropriate basis for compensating pension fund members or policyholders, where it was established that Pension Fund members or insurance policyholders had been materially prejudiced.
Findings by the Commission pointed out several shortcomings that it said characterised the conversion processes and approaches employed by life assurance companies.
According to another former commissioner Tapuwa Maswera in his presentation, life insurers failed to index premiums and benefits and this failed to recognise the difference in purchasing power across monetary regimes.
“This resulted in the prejudicial transfer of value from old to new generation policyholders, as well as from policyholders to shareholders of the insurance entity; the creation of contingency reserves emanating from different conversion and allocation exchange rates at dollarisation.
This, Maswera said, disenfranchised policyholders of their assets in that the reserves were channelled towards expenses for other policies, such as paid-ups, as well as towards those who remained in the pension scheme.
Another shortcoming highlighted by Maswera is the unilateral alteration of policies (insurance contracts) by insurers such as decisions to make policies paid-up, wholesale cancellation of policies, as well as switching of products
“This resulted, in some cases, in insurers expunging liabilities to the detriment of policyholders,” he said.
The Commission recommended that the currency to determine compensation is the US$ notwithstanding that some of the contracts were entered into and subsequently concluded in ZW$.
“Consideration for use of the US$ was determined by the general stability of the currency as well as the fact that it has been the major currency of settlement since 2009,” Maswera said.
He explained that the recommended compensation framework is designed to achieve objective and transparent compensation.
“The primary objective is to ensure that prejudiced members of insurance schemes and pension funds get their rightful benefits whilst maintaining stability and confidence in the industry.”
The Commission recommended that the regulator, IPEC to obligate institutions to submit a compensation scheme within a year of a date to be specified by the regulator.
IPEC has since asked the affected institutions to submit compensation plans by end of today, 31 May 2019.
