Scandal rocks insurance industry

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The Commissioner of Insurance yesterday announced the closure of 18 insurance companies opening a can of worms. This follows revelations that regulators watched while corruption and illicit deals savaged the insurance, pension and providence industry, only reacting when “tuck-shop” operations failed to pay out claims to policy holders.
The deals — involving large government enterprises – suggest due diligence was not done in giving business to firms with no underwriting capacity. In the event of large claims small insurers have failed to honour them. Announcing the cancellation of 18 certificates of registration, the Commission for Insurance, Pension and Provident Fund yesterday said the firms had failed to raise minimum capital requirements and pay out claims as money could have been diverted to other purposes. “The 18 insurance companies whose certificates of registration were cancelled had failed to raise the necessary capital to continue operating. The insurance company de-registered on its own had failed to pay claims to some of its customers,” Commissioner Mannet
Mpofu said. “The move we have taken will reduce the number of players in line with the size of the economy in which they operate. It will also ensure the protection of the public as only adequately capitalised companies will be allowed to continue operating.”
Parastatals that have exposed themselves to risk of more or less the same magnitude by seeking cover from insurers whose shareholders have not committed even a hundredth of their balance sheet value in capital include Zesa Holdings and Air Zimbabwe.
A 2009 report by the Insurance Commission shows that the companies engaged by the state- owned enterprises are dependent entirely on the parastatals’ premiums for survival in the loosely-regulated market.
Air Zimbabwe, for instance accounted for about $300 000 of the $393 447 in gross premium written by its insurer (name supplied) last year.
This means that the company could also join the list of those that have been weeded out if Air Zimbabwe withdraws its business.
Worse, the national carrier is operating under artificial cover, which is likely to remain until the day disaster strikes because shareholders of the company only poured $22 181 into the business.
This means that the company’s capacity to underwrite the airline’s risk is by far weaker than its technical liabilities.
The same holds true for Zesa’s insurer whose technical liabilities, debts and claims, are larger than shareholder funds, bringing its underwriting capacity into question.
It is clear from the report that the crackdown, which cut the insurance sector to 48 players and glossed over these issues, should have looked at the balance sheets of the firms that purport to provide financial security to companies and households or at least raised minimum capital requirements to economically reasonable levels.
At present the threshold is $300 000 for insurance companies, $400 000 for reinsurers and funeral assurers and $500 000 for life assurers.
Whereas the companies that have gone bust were in business to insure assets worth millions, their own assets, which should serve as security to the portfolios under their management, could not add up to the value of a medium-density town house.
The list of companies includes Jupiter Insurance Company, Gallant Insurance Company, Brownstone Insurance Company, Asset Boost Insurance (Pvt) Ltd, Agricultural Insurance Company, Millenial Insurance Company Limited and Paul Mkondo Life Assurance Company Limited among others. National Foods and other heavily-capitalised public-listed companies have also tied themselves down to fly-by-night insurers.
Most of the certificates of registration were handed out in the last three years.