Zimbabwe’s insurance and pensions sector regulator, the Insurance and Pensions Commission (IPEC) has warned players in the industry that it will cancel certain products in the market, given inflationary circumstances that have rendered ineffective some traditional policies.
The industry has been struggling with attendant effects of a raft of monetary and fiscal policy changes over the last couple of years, but particularly from last year.
Some polices’ indicated benefits are generally not indexed for inflation post-retirement, (but) an increase in the inflation rate can reduce the contributor’s real benefits.
Long-term insurance policies and pension fund policies are among some of the worst affected by inflationary pressures in recent years.
IPEC Commissioner Dr Grace Muradzikwa recently said the regulator is currently involved in researching more suitable products, but added that firms should take the lead in this regard.
“We are actually researching on alternative products to level annuities. But of course the industry should drive this process.
“We will not hesitate to cause product termination, particularly those we view as irrelevant,” she told a pension fund managers engagement.
Although the country’s annual inflation rate is expected to close at around 300 percent for 2020 due to a number of measures implemented by both the fiscal and monetary authorities, in May 2020 Zimbabwe had recorded an annual inflation rate of 785 percent.
And those earlier inflation numbers hit players in the insurance and pensions industry hard.
Dr Muradzikwa said there are several indicators in the market that point to a loss of confidence in the capacity of the industry to offer products that can preserve value in the long-term, especially with regards to the pensions sector.
“We have seen an increase in non-pensionable allowances. Clearly, this is a vote of no-confidence, it can’t be anything else. It’s a vote of no-confidence and we need to consider it as such.”
“We have also seen an increase in early partial access to pensions, also pointing to the fact that pensioners feel that they are better able to preserve value by themselves.
“They are not seeing us able to preserve value for them,” she said.
Meanwhile, the sector regulator has said it strengthening its oversight role to ensure that the value of policyholders are protected in the long-term.
“In terms of regulatory interventions, we have intensified onsite inspections on guaranteed funds. We want to understand the structure of these guaranteed funds, the governance framework so that we can note areas of improvement,” said Dr Muradzikwa.