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Reform pension, insurance sectors

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Pension fund membership and insurance policyholders can now make reasonably fair assessments of whether or not insurance companies and their regulator should be held to account for lower-than expected pension and insurance entitlements — thanks to the media efforts.

Apart from the largely flawed defensive stance taken by the Zimbabwe Association of Pension Funds, the conduct and/or “body language” of insurance companies and the Insurance and Pensions Commissioner (Ipec), their regulator — in the face of the allegations — has apparently been one of reticence, essentially.

There is no question that it is written all over their “actions” they had a direct part in prejudicing pensioners of their entitlements. The involvement of Afre’s First Mutual Life in funds misappropriation by Patterson Timba at ReNaissance Financial Holding (RFHL), is only a tip of the iceberg in a huge pension and insurance funds scandal that may open up fully when it is too late.

It is, however strange the same management and mal-practices that saw pensioners being prejudiced are still being applied to what remains of pension and insurance funds.

To date, the same insurance business management can still look for new money from unsuspecting members of the public by soliciting for more pension contributions and selling more insurance policies.

Apart from the announcement of the Ipec board chairperson at the Africa Insurance Organisation conference that Acts would be reviewed, there has been no direct response to refute the allegations made by the pensioners — another instance of reticence, but nevertheless lending support to pensioner allegations.

The alleged collusion could be far worse than apparent when it is considered at least 90% of pension funds in Zimbabwe, are managed in insurance companies that are “privately” owned by three or four larger holding companies and in a loose regulatory framework, that is already being discredited by pensioners. Most of them are a result of the spate of demutualisation of mutual life insurance companies in Zimbabwe.

Empirical evidence that privately owned (proprietary) insurance companies are operationally more efficient and provide higher returns to their policyholders than mutual set-ups, fuelled this demutualisation. Evidence in Zimbabwe that the latter is actually the case is however lacking.

Objective and comparable transparent assessment of insurance company investment performance, relative to the company’s obligations to pension fund members and policyholders and incorporating the expenses the insurance companies run in managing pension and insurance funds is evidently lacking.

Transparent and comparable reporting by insurance companies in the key areas of performance in underwriting and investment activities; operating and other expenses; the level of capital held relative to the risks taken, has become something of a laissez faire in the insurance industry in Zimbabwe.

The demutualised companies have progressively exhibited a corporate character where their business practices are maintained as black-box issues and there is a veiled desire to maintain this state of affairs as manifested by the defensive stances they have taken in the past.

Indeed the Institute of Chartered Accountants of Zimbabwe has in the past raised its concerns about the comparability of accounting numbers published by insurance companies in Zimbabwe.

The run up to the crisis at Timba’s RFHL, and Afre, where First Mutual Life Assurance is the largest and only company of significance in the Holding, saw several news items about potential irregular management in this holding — but the “professionals” and the authorities either turned a blind eye right up until the pension and RFHL crisis and/or they were just not competent enough to notice the gravity of the irregularities, and/or they stuck to the code of silence.

With no obligatory performance measurement, the public will only notice when a crisis befalls. In the process loss of value for pension fund membership and policyholders is perpetuated — hence the low values that every pensioner is crying foul about.

There is nothing to stop the other holding companies from doing the same away from public scrutiny.

The obscurity in insurance business management is exacerbated by a lack of adequately competent insurance business analysts who can objectively assess insurance business performance for the benefit of all stakeholders including pension fund membership.

It turns out that while the grounds to move to proprietary insurance business management is empirically correct in economies with effective transparent insurance business regulatory and supervisory frameworks, in Zimbabwe this looks like this was a strategy to bring pension and insurance funds under black-box management and to enable looting.

In sum it is a tolerant pension and insurance legislation that has allowed a monopoly pension and insurance management.

The monopoly management has in turn impeded transparency, accountability, competition, innovation and efficiency in the two industries.

Nothing short of drastic measures will be required to undo the current repressive pensions and insurance management culture.

About the Author
Martin Tarusenga is a board member of Zimbabwe Pensions and Insurance Rights, email, martin@zimpirt.com; telephone; +263 (0)4 883057; Mobile; +263 (0)772 889 716

Opinions expressed herein are those of the author and do not represent those of the organisations that the author represents.

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