Unpacking ‘no premium no cover’ conundrum

In the realm of insurance, a premium refers to the payment made to an insurance company to secure coverage.

INSURANCE is a contractual agreement between an individual and an insurance company, wherein the individual agrees to pay a premium in exchange for coverage.

Failure to pay the premium results in the contract being unfulfilled, relieving the insurance company of any obligation to provide benefits or coverage.

It is crucial to recognise that this condition is applicable to most insurance policies worldwide.

However, it is important to note that there may be specific variations or exceptions depending on the type of insurance being referred to, as insurance policies can differ significantly.

In the realm of insurance, a premium refers to the payment made to an insurance company to secure coverage.

This payment is typically made on a regular basis, whether monthly or annually.

The premium serves as the means by which the insurance company can offer protection and financial assistance in the event of an unforeseen occurrence, such as an accident, theft, or damage.

By understanding the fundamental nature of insurance, individuals can ensure they fulfil their contractual obligations and receive the necessary coverage when needed.

It is essential to be aware of the specific terms and conditions of one's insurance policy, as these can vary widely depending on the type of coverage chosen.

In order to gain a comprehensive understanding, it is imperative to delve deeper into the specific regulations and practices within Zimbabwe's insurance industry.

Zimbabwe has its own distinct laws and guidelines governing insurance policies, which encompass provisions for premium payment deadlines, grace periods, and repercussions for non-payment.

It is crucial to refer to your individual insurance policy, as it should clearly outline the circumstances under which a policy may be cancelled or suspended due to non-payment of premiums. Moreover, the Insurance and Pensions Commission (Ipec), the regulatory body overseeing insurance in Zimbabwe, can offer additional insights into insurance practices and policies within the country.

Background of SI 81 of 2023

The perplexing issue of No Premium, No Cover continues to pose a challenge in Zimbabwe. While insurance principles are generally universal, specific regulations and practices may differ across countries.

It is a common practice for insurance companies worldwide to require policyholders to fulfil their premium obligations in order to maintain uninterrupted coverage.

However, if a policyholder fails to meet the required premium amount, the insurance company reserves the right to suspend or even cancel the policy, leaving the individual without coverage.

Zimbabwe's insurance industry is currently grappling with a significant challenge posed by the growing number of premium debtors. 

This has become a major concern for insurers in terms of credit risk management.

According to a report released by Ipec, outstanding payments by policyholders, known as premium debtors, account for a substantial portion of total assets.

Insurers that have a large number of premium debtors compared to their total assets may find that a significant portion of their capital is not easily accessible to support their daily operations.

Recognising this issue, Ipec has considered implementing the No Premium No Cover self-regulation as a temporary solution.

This measure aims to address the immediate concerns faced by insurers with high levels of outstanding premiums.

According to SI 81 of 2023: “The receipt of an insurance premium shall be a condition for a valid contract of insurance and there shall be no cover in respect of an insurance risk unless the premium is paid in advance”.

By enforcing the No Premium No Cover policy, insurers will be able to ensure that policyholders, who have not paid their premiums are not provided with coverage.

This approach serves as a stop-gap measure to mitigate the risks associated with unpaid premiums and safeguard the financial stability of insurers.

This is because insurance companies depend on these payments to sustain themselves and fulfil the promised benefits to policyholders.

Post announcement expectations

Following the recent implementation of SI 81 of 2023, effective for the latter half of the year, it is imperative for the short-term industry to adhere to the prescribed guidelines for all business categories, excluding crop insurance.

As a result, outstanding debts are expected to plummet by year-end, significantly bolstering the industry's financial health through the prompt remittance of receipts.

Beneficiaries of the instruction

The implementation of the No Premium No Cover self-regulation is crucial for insurers to maintain their financial health and stability.

By ensuring that premiums are paid in a timely manner, insurers can effectively manage their cash flow and allocate resources to support their day-to-day activities.

This self-regulation also promotes responsible behaviour among policyholders, encouraging them to fulfil their financial obligations and maintain the integrity of the insurance industry.

Furthermore, the No Premium No Cover policy enhances transparency and trust within the insurance sector. It establishes a clear understanding between insurers and policyholders, emphasising the importance of timely premium payments for continued coverage.

This self-regulation not only protects insurers from potential financial strain, but also safeguards the interests of policyholders by ensuring that their claims will be honoured when needed. 

The implementation of the No Premium

No Cover self-regulation by Ipec serves as a necessary measure to address the challenges faced by insurers with high levels of premium debtors.

Reinsurers and insurers are the primary beneficiaries of this initiative.

The perception was that brokers were causing bottlenecks in the remittance of premiums, and at times, they would withhold premiums until the policy expired, only then informing the reinsurers that the policy was not taken up.

The initiative aims to address these issues and streamline the process for all parties involved.

By eliminating the bottlenecks caused by brokers, reinsurers and insurers can now receive premiums in a timely manner, ensuring a smoother flow of operations.

  • Mupepereki is a passionate risk management and insurance professional with a drive for excellence. —   [email protected].

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