IPEC sets terms on forex denominated insurance policies

IPEC sets terms on forex denominated insurance policies

HARARE – The Insurance and Pensions Commission (IPEC) made a statement on the forward going policy for foreign currency dominated insurance policies. The development comes in the midst of a growing confidence crisis in the recently formalised local currency.

The substance behind the statement (Circular 13 of 2019) appears to be aligning insurance industry practices with S.I 142. In the communication IPEC restricts the issuance of foreign currency dominated insurance policies to international travel insurance, vehicles in transit, customs bonds, bank cash in transit and safari operators insurance. The commission goes further to say that the settlement of the foreign currency premiums should be settled through normal banking channels, that is through Nostro FCA accounts.

Outside of those aforementioned policy classes, IPEC said that insurance policies on domestic assets must be denominated in the local currency. The commission goes on to say that policies active foreign currency dominated policies will be allowed to continue until they lapse. Additionally, policies that had lapsed due to the introduction of S.I 142 will be immediately reinstated upon payment of outstanding premiums. However, the settlement of the premiums cannot be made through the interbank market.

Meanwhile, the externalisation of foreign currency denominated risks will subject to the approval of Exchange Control on a case by case basis.

Commenting on the development; it appears to be more policy tinkering resulting from the lack of coordination behind economic policy management. It also shows increasing desperation from the authorities to prop up the flagging local currency. The issue is not in the legislation but rather the impracticality of insurance policies denominated in a currency that is losing value daily. In that sense, it is difficult to see the economic rationale behind the measures. FINX ONLINE