The recent past has seen increased numbers of publications and adverts on the subject of pensions and insurance by pension scheme management and insurance companies.
The publications and adverts have largely been framed as educational, but clearly aimed at regaining the confidence of the public.
The strategy comes against a background were many people, in particular pensioners, are unhappy with insurance firms, having been paid far less than what they paid into the companies.
It seems advisable for insurance companies to appreciate how bad reputation is corrected via relating and transacting with pensioners honestly, transparently, with accountability and in good faith.
This is an established good corporate governance practice that one hopes insurance companies would have grasped through their various corporate governance associations.
If this is not put in practice in this particular crisis, they are otherwise running an even higher risk of further miring their already bad reputation.
Quite a few members of the growing membership of the Zimbabwe Pension and Insurance Rights Trust (ZimPIRT) have both called in and telephoned angrily to understand why insurance companies are allowed to so project themselves positively when they can’t honour their obligations to them.
Of course they can reason that the high expenses they run in publishing and advertising, among other glaring expenses, could be used towards paying back. IPEC, as the regulator of the pensions and insurance industry is also indirectly being questioned why they allow the publication of apparently misleading information.
Once insurance companies have appreciated this simple corporate governance practice, it is further advisable for insurance companies to further appreciate that pensioners are not daft.
While they can’t pinpoint exactly how much, they have a good (gut) measure of how much they put in pension funds over their membership periods, in real terms, and how much they should get out when they retire — most importantly they can tell when they have been cheated.
This fact about pensioner expectations, is so well-known in the pension and insurance industry, that experts in the industry elsewhere in the world have a coined a technical term for such expectations — policyholder reasonable expectations (PRE). PRE is a guiding principle for professional and competent insurance companies.
Guided by this PRE principle, and by others, insurance companies in Zimbabwe should then desist from making benefits payable under pension schemes a matter of debate, in which they believe they are the authority.
Benefits payable under pension schemes are very simply determined by the rules of respective pension funds.
Pension scheme rules broadly specify the benefits either as deriving from a very straight forward arithmetic formula or as benefit amounts regularly payable from a member’s retirement, from an accumulation of the contributions that they made over their membership period, together with those made by the employer on their behalf, as part of their pay package.
These pension benefits should be paid for as long as they are alive — nothing less, even then, it should be expressly stated in the rules of the fund.
An undertaking by an insurance company to manage a given pension fund, contractually obliges it to deliver as per these rules. In legal language, the insurance company has a fiduciary duty to so deliver.
Underlying this insurance company undertaking, are several management contracts between the company and pension scheme, drawn out such as to ensure that the benefits are so delivered.
Key among such contracts are administration and investment management contracts. The key message and contractual requirement underlying these contracts is that the administration and investment management functions must be executed competently and professionally to deliver — no excuses.
In particular the contract terms highlight the need for management to appreciate the long periods after which benefits will mature, the potential for the precipitation of mishaps (risks) that may dissuade benefit payment over these periods, and hence the need for management to be competent and professional in anticipating and controlling such risks.
Risks that are well known to bedevil pension funds include the risk that benefits funded by worthwhile member contributions become worthless as purchasing power of a currency falls (inflation risk), foreign currency exchange rate risks, equity investment risks and interest rate risks.
Competent and professional management have, the world over, extensively studied these risk phenomena and developed techniques to competently and professionally anticipate and control the risks, such as to ultimately meet pension benefits without excuses and with accountability.
The essence of insurance company publications and adverts reported earlier have been to excuse themselves for a dismal pension fund management failure.
More specifically the communication from insurance companies to the growing ZimPIRT membership has been to blame inflation, to inform members that they used some formula that is not in the rules to calculate benefits that the members are now very unhappy with and/or to stop pension payments unilaterally.
The former stance blaming inflation is of course an excuse and unprofessional — it demonstrates their incompetence. The evidence coming through is that insurance companies dispensed with risk control reports and therefore did not engage the established risk control techniques.
The second on arbitrary pension formula is fraudulent. There is evidence of more fraud, where insurance companies paid lower withdrawal benefits to pensioners, when they should have paid higher retirement benefits, where insurance policy contracts were varied to worthless ones, unbeknown to policyholders. Of course pensioners can see right through this.
Martin Tarusenga is board member of Zimbabwe Pensions and Insurance Rights. Opinions expressed herein are those of the author and do not represent those of the organisations that the author represents