Since the country dollarised under the unity government last year, government and business have set out to accelerate the pace of economic recovery through foreign direct investment, credit and market deals.
The net effect of this effort is a general improvement in the economy’s capital stock and potential for higher national output. But there is something missing.
The recovery sweat has brought about new risks and increased demand for instruments to protect the accumulating new assets as well as the human resources driving the systems.
A cursory glance at our insurance sector exposes the key missing link Zimbabwe’s short-term insurance penetration rate is estimated at only 2,1%, meaning that 97,9% of economic assets are without protection.
The economy’s short-term risk is only insured to the tune of $76,7 million, against an estimated gross domestic product (GDP) of about $5,5 billion. It is alarming to imagine that this is the extent to which the economy is exposed to loss.
Players in the sector do not talk about this when they approach clients for business.
The regulator, the Insurance and Pension Commission (IPEC), this year withdrew licences from firms with weal balance sheets.
The long list of ailing firms revealed the extent of problems in the sector, which has not seen any new investment since last 12 months
Furthermore, a 2009 report on Zimbabwe’s short-term insurance industry by IPEC showed that the few insured assets have been protected against two dangers only – traffic accidents and fire.
Traditionally, the motor class has always been the industry’s largest insurance category. Last year, it contributed 40% to the gross premium written (GPW) by the short-term insurance industry.
Fire was second and contributed 32% to GPW, which was only $68,6 million.
What this means is that, companies and individuals in Zimbabwe only think of covering their motor vehicles as well as protecting assets such as machinery and buildings against fire.
The cover is mostly in the form of third-party treaties.
Farming, health, hail, aviation, marine, bonds, hire purchase, bonds/guarantees, engineering and other risks are grossly neglected.
In fact, most companies dropped these at the onset of the economic crisis to cut costs.
The little recovery to date has not improved the situation as insurance cover is still considered a luxury and not a necessity.
This is precarious for a country rated second in southern Africa after South Africa in terms of industrial installation.
As things stand, there is very little sense in concentrating on increasing the level of industrial installation without increasing financial commitments to insure or protect the assets.
It is not a secret that most firms in the country cannot bear the risk of loss with their balance sheets. They are too weak even to fund working capital requirements adequately.
The failure of these companies to transfer the risk of loss to the security-giving industry means they are exposed to huge losses.