CONVERSATIONS from the insurance industry have over the years pointed to the fact that life assurance products have been failing to captivate the policy holders, with the funeral assurance business becoming the backbone of the sector.
Naturally, life assurance is a crucial component of financial planning and security, providing individuals with the assurance that their loved ones will be protected and financially supported in the event of their untimely demise.
Traditional life insurance products include term assurance, endowment policies, pure endowment and whole life.
But the Insurance and Pensions Commission (Ipec) half year report shows that these products accounted for only 8,2% of business written by life assurers during the period.
As at June 30 2023, the number of agents for the life assurance sector declined from 1 425 reported as at March 31 2023 to 1 305.
The regulator noted that the decrease in the number of agents is pointing to the shrinkage of life business in the market.
Ipec said the industry was facing challenges in generating new life business and the commission was engaging the industry and other key stakeholders to explore ways of revitalising the sector.
“The two main products driving the growth of GPW (gross premium written) were the funeral assurance and group life assurance business, which constituted 84% of the total premiums,” it said.
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“In terms of business composition, 68,1% of the total GPW was generated from the funeral assurance premiums, which has become the backbone of the life insurance business.
“Traditional life insurance products, which include term assurance, endowment policies, pure endowment and whole life, accounted for only 8,2% of business written by life assurers, majority of which are legacy products.
“Legacy products are dying in the market as policyholders are reluctant to take up more products of such nature.”
This has raised questions to say, as life assurers deviate from traditional whole life insurance cover to funeral business, is it sustainable or is it a momentary strategy?
Experts, who spoke to the Independent said it would seem that this traditional approach was no longer viable for some reason and the only viable line of business was funeral insurance.
They added their voices to the fact that the increase in short tenure products including funerals and the decrease in long tenure products including whole life products was a reflection of the needs of the market, affordability and the macro-economic environment.
Actuarial Society of Zimbabwe president-elect Prosper Matiashe told the Independent that from an actuarial perspective, product design and pricing was informed by the customer needs of the target market, affordability, macro-economic factors and other technical variables.
“Considering the recent quarterly labour survey report as published by ZimStat, most adult citizens are either unemployed or earn low-income salaries. Therefore, insurance products that are affordable to most adult citizens fall into the microinsurance level,” he said.
“The products are characterised by low sum insured, short cover period and reviewability of premiums. Long tenure products which have higher sum insureds and more guarantees are expensive and unaffordable to most citizens.”
Matiashe said insurers could only provide long tenure products if there was reasonable certainty of the future macro-economic variables.
He said investment returns across asset classes and expense inflation were the key material issues that deter provision of long tenure products.
For example, he added that the Zimbabwe Stock Exchange had not yielded material real returns for long term and passive investors across the last 25 years or so.
“In the same vein, property market values against cost of construction aren’t necessarily yielding positive returns across medium to long term horizons. Therefore, life offices are limited in terms of their ability to guarantee value to their customers for long term products,” he said.
“Therefore, given the current environment, low-cost and short tenure products will grow and be in demand. Therefore, life offices will continue to respond to products with demand.
“In the long term, as the economy recovers, disposable incomes increase and the middle class thrives, long-term products including whole life will return in the market and will be successful and relevant.”
“Either way, it's up to the insurance industry to cultivate the right relationships which ensure that the need is addressed, if it exists.
“In the old days, insurance companies used to inculcate financial discipline in the population by promising to lend them money after their policies had been on the books for two years, five years etc.
“It’s obvious if one could pay an insurance premium for two years or five years, then that individual has the discipline to repay a loan.”
Maswera said there was an obvious collapse in trust because of the way the industry handled the various currency meltdowns.
He added that there was a perceived lack of transparency and unfairness in the way in which these meltdowns were handled by the industry.
“The fact that the earlier one in 2009 has resulted in the financial regulator prescribing compensation does not speak well of the way the industry handles relations with its clients and the population at large,” Maswera said.
“This is 14 years later and they are being dragged to a party they are not even interested in participating in. So, the sustainability I believe is in the failure of financial governance, the failure by industry to give convincing explanations to people who lost value during the financial meltdowns of February 2009, February 2019 and May 2023.”
He said it was difficult to see how industry could side-step these deal breakers without at least owning up and taking steps to convince the population that they are well meaning and do their business with integrity.
The insurance industry, Maswera said, was not like other industries in a number of ways.
“Insurance is sold, not bought. This is a loaded statement. Insurance companies used to invest a lot to cultivate markets, pay brokers huge amounts in commissions to sell policies and they were always careful to ensure that the market perception of them is positive,” he said.
“It would seem that this traditional approach is no longer viable for some reason and the only viable line of business is funeral insurance instead.
“And since everyone has now abandoned the deeper pool of traditional life insurance to pursue the smaller puddles of funeral insurance, it's only a matter of time before competition destroys value,” Maswera he added
Market watchers agree that long-term business remains key in mobilising funds for long-term investments, which is critical for financing national projects, including infrastructure development in the country.
