EDITORIAL COMMENT: Insurance industry must regain public trust

insurance

Pensioners and policy holders whose savings went up in smoke when the Government ditched the hyperinflation-hit local currency and introduced multiple foreign currencies in 2009 must be pleased that they will recover some of their money.

Millions of pensioners, workers who were contributing pensions or had insurance policies and other people who had savings on the eve of dollarisation were condemned to poverty and emotional anguish the moment the Government demonetised the Zimbabwe dollar in February 2009.

Many had built their savings over a long time, well prior to the hyperinflationary period of 2005 to 2009 and were expecting to harvest their money at some point. At the stroke of the pen, all the money they had as savings with insurance firms and pension funds became worthless. It was as if they never had any savings yet their pension funds and insurance companies had invested their contributions into various vehicles, among them real estate from which they continued to draw incomes at the prevailing market rates.

One does not need to be an expert in the discipline of pensions management or insurance to note that this was extremely unfair.

However, there is redress coming to the dispossessed after nine years of waiting.

The Commission Inquiry into the Conversion of Insurance and Pension Values from the Zimbabwe Dollar to the United States Dollar appointed in August 2015 to investigate the sector and quantify the possible prejudice to policy holders has recommended that the pensioners and insurance policy holders must be compensated for the loss of savings due to dollarisation and hyperinflation.

The Government published the report of the commission’s findings in a gazette on Friday.

The body conducted investigations covering the period of 1996 to 2014, looking into the operations of life insurance companies, pension fund administrators, stand-alone pension funds, funeral assurance companies, the guardians’ fund, Government’s pension system and the National Social Security Authority (NSSA).

“Notwithstanding the unsound practices in the industry the commission is of the view that a fair and just compensation framework can be implemented to compensate for the loss of value suffered by policy holders and pension fund members over the investigation period,” said the commission in its 432-page report.

“In the recommended compensation framework, the commission assessed the asset and capital structure of the industry in evaluating its capacity to compensate for loss of value. The commission was satisfied that the industry has reasonable capacity to make good and compensate policy holders and pension fund members for loss of value.

“The commission stresses the very high expectations from members of the public on the findings of the commission with regard to compensation. The loss of value has impoverished policy holders and pensioners and there is an expectation that the findings of the commission will remedy this. Government is, therefore, urged to implement the recommended compensation framework as a matter of urgency, in order to alleviate the plight of impoverished policy holders and pensioners.”

It further said that the Government should establish an independent body to revisit the de-monetisation process and establish fair compensation for losses incurred by policy-holders.

The wait was quite long for people who are desperate and were dispossessed of what is rightfully theirs, but is worth it.

It is good that the commission did not just recommend compensation without considering the capacity of the industry to pay. It was going to be catastrophic if the commission had made this recommendation and the Government proceeded to enforce it when the insurance and pensions industry lacks the capacity to pay compensation.  This would have resulted in the industry collapsing soon after paying the monies.

We have no doubt that the Government will do as recommended first by setting up of the independent body, as recommended by the commission of inquiry, which will work out the quantum of compensation to be paid and procedures for the payments to be made. We suggest that the proposed body discharges its mandate in a fair and just manner taking into cognisance the need to ensure that, on one hand, policy holders are happy with what they are going to be paid for their savings and on the other, the industry’s viability will be preserved.

Our insurance sector might need to be told, as a matter of fact, that people generally mistrust them.  The commission of inquiry has actually intimated this when it says there are “unsound practices” in the sector.

The public views the industry as out to make money out of their hard-earned cash while presenting flowery prospects for benefits accruing to policy holders. Take for instance the requirement that a NSSA member or their beneficiary must claim grants or pensions within a five year period, failure to which the money would be forfeited to NSSA. How does it happen that someone who works hard from their youth to pensionable age are denied their savings because of a procedural matter that they did not file their claim within five years of retirement?

This mistrust was worsened by the public’s horrific 2009 experience which rendered them paupers after having entrusted their money with insurance firms and pension funds.

For this reason and more we feel that the commission’s recommendations present an opportunity for the insurance industry to lay a foundation for greater public trust in its operations.

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