General economic decline impacts short term insurers
While the covid-19 lockdown contributed to the decline in performance in the short term insurance sector , the general decline in the economic growth of the country has taken a toll on the performance of corporates, Insurance 24 has learnt.
Corporates are the main consumers of short-term insurance products culminating in reduced uptake of insurance covers.
ICZ Executive officer Tendai Karonga , this week told a journalist mentorship programme that most classes registered negative real
growth mainly attributed to the high inflation induced by currency reforms.
“While the covid-19 lockdown contributed to the decline in performance, the general decline in the economic growth of the country has taken a toll on the performance of corporates who are the main consumers of short-term insurance products culminating in reduced uptake of insurance covers. Some corporates are now relying on self-insurance,” Karonga said
He added that the decline in Aviation and Hire Purchase business to some level reflects the drop in demand for aviation service and retail goods during the lockdown period.
“ The performance of most classes of business will not register significant positive performance in line with the national economic growth that has been further revised downwards as a result of the Covid-19 pandemic.” Karonga said
The short-term insurance’s growth in gross premium written increased by 689,18% for the period January to June 2020 with motor insurance being one of the large classes of insurance contributing 29,45% to the total GPW during the period.
However in real terms, after adjusting for inflation of 737,30%, the gross premium written declined by 6% and assets by 5% as Insurance and banking operations expected to decline by 7.1% in response to Covid-19 pandemic by end of 2020.
Karonga said Third Party Motor insurance was the largest contributor
of premiums to the Motor Insurance class He added that data collection structures were being implemented to accurately record premium contributions of motor insurance subclasses
“No information was released by insurers that indicated a decline in renewal of policies despite reduced travel due to the lockdown and the work from home concept. The Covid-19 lockdown restricted local and cross border traffic movement. Level of traffic was greatly subdued in April 2020 when the lockdown restrictions were imposed. With the easing of restrictions movement gradually increased to an average of
64% and 36% for commercial and private traffic respectively.” he said
Karonga said one of the ICZ insurance pools negatively affected by restricted regional cross-border traffic was the Motor Insurance Pool.
As of August 2020, 59% of budgeted premium was collected registering a decrease of 37% in premiums collected compared to the same period last year.
Performance of motor insurance was further affected by the Central Vehicle Registry’s (CVR) inability to register vehicles due to lack of financial resources to produce registration plates.
“This resulted in about 80,000 unregistered and uninsured vehicles on the roads leading to a loss of the mandatory Third-Party Motor premiums of approximately ZWL60M. Statistics are based on the CVR
Registrar’s Report to the Parliamentary Transport Committee on 28 September 2020.The situation might persist as CVR has financial resources to provide plates for 32,000 vehicles leaving more than 48,000 unregistered.” Karonga said.
On the other hand, fire insurance 29,03% to the total GPW for the period January to June 2020.
It registered a decline of -1.3% in terms of real growth compared to the same period in 2019.
Karonga said, policy renewals and downward revision of cover could not be ruled out as companies cut down on expenditure in response to low revenues and profit margins due to the loss of productivity over the lockdown period.
Engineering Insurance contributed 26.12% to the GPW for the period January to June 2020 and experienced an increase of 116% in real growth compared to the same period in 2019.
Despite the agricultural sector being one of the major drivers of the economy, its consumption of insurance service was very minimal contributing 1.45% to the GPW for the period January to June 2020 which is an increase of 370% in real growth compared to the same period in 2019. 290% of the growth is attributed to Hail Insurance for
the tobacco crop.