THE insurance industry is optimistic that the new “no premium, no cover” policy will allow the sector to timely meet its obligations, as premium debt rose by about 1 097% to ZWL$180,4 billion.
The policy, promulgated through Statutory Instrument (SI) 81 of 2023, ensures that the receipt of an insurance premium be on condition for a valid contract of insurance. It states that there will be no cover in respect of an insurance risk unless the premium is paid in advance.
According to the SI, short-term insurers and brokers are now prohibited from providing insurance coverage on credit. Insurance coverage at inception or renewal of a policy shall be activated upon payment of the required premium.
This means that the non-payment of premiums at policy inception or renewal translates to the contract not being taken up or that the policy lapsed, respectively.
Insurance council of Zimbabwe (ICZ) chairperson David Nyabadza told a joint Press conference on Wednesday that premium debtors had increased from ZWL$15 billion in June 2022 to ZWL$180,4 billion by June 2023.
“The short-term insurance industry was providing insurance cover on credit, resulting in premium debtors increasing from ZWL$15,07 billion in June 2022 toZWL$180,4 billion in June 2023. Based on the gross income written by June 2023, 20% of the premium income was held in debtors,” he said.
“Twenty percent of the industry’s total assets and 40% of current assets were held as premium debtors according to the Ipec (Insurance and Pensions Commission)’s 2023 half-year report. To contextualise the magnitude of the matter, debtors were ranked second highest after fixed assets on the total assets held by the industry.”
He said insurers were providing cover to policyholders who had not fully paid their premiums, leaving insurers in a compromised position that forced them to settle claims for policies whose premiums had not been fully paid, after a claim.
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“In some cases, policyholders whose policy period has lapsed without a claim tend to be bad debtors that insurers have had to write off. Premiums from policyholders who pay premiums in full are in turn used to pay claims for the policyholders with outstanding premiums,” Nyabadza explained.
“The liquidity crunch resulting from premium debtors led to compromised service delivery with policyholders experiencing delayed claim settlements. 61% of claims received by Ipec for the period January to June 2023 were attributed to delays in claims settlement. Hence, the introduction of SI 81 will improve the industry’s liquidity and capacity to settle policyholders’ claims on time.”
Ipec director (insurance and micro-insurance) Sibongile Siwela said there were ongoing engagements with financial institutions to avail insurance premium financing to assist policyholders to timely pay premiums.
She said premiums might be paid directly to an insurer if one was directly insured or may be paid to a broker if insured through a broker.
“The provisions of section 5AA (1) exclude policies providing insurance for crops in terms of the FarmersStop Order Act (Chapter 18:11). Policyholders are advised to pay their premiums in advance in terms of the provisions of Statutory Instrument 81 of 2023 to avoid non-payment of claims in the event of the risk insured against occurring,” she said.
The vice chairperson of Insurance Brokers Association of Zimbabwe said insurance would no longer be issued on credit.
“The insurance industry was offering cover on credit. This resulted in a huge debtors’ book. Ideally, insurers should be able to build technical reserves that enable and capacitate them to identify clients in the event of losses. So, this has resulted in the coming up of ‘no premium, no cover’ such that they are enabled to build these technical reserves,” he said.
“I would like to mention, therefore, that insurance will no longer be issued on credit. Premiums must be paid up front for cover to be issued. Failure to remit premiums will give insurers the right at law not to meet claims. We would urge our valued customers to comply so that they are not exposed and inconvenienced in the event of losses occurring.”
