Life assurers flex muscles
PHIL MHLANGA
HARARE-ZIMBABWE’S funeral assurance companies find themselves in a precarious position following mounting threats from life assurance firms who are now writing 90% of funeral business in the country.
The strong presence of life assurers in the funeral market appear to be stoking the situation, making it difficult for dedicated funeral assurers to stay afloat as their ability to write new business is adversely affected.
The growing fear is that this kind of development where the bulk of business is happening without dedicated funeral firms is threatening their continued existence. It is understood that some are contemplating closing operations while others are enacting cost-cutting measures.
It appears, Life assurers, have turned the heat on funeral products because people no longer have confidence in life products, especially after investment in life products have been eroded by hyperinflation. According to the Commission of Enquiry, policyholders lost value amounting to more than US$3 billion.
Mavukeni Rufai, the secretary general of Life Offices Association, a body for life assurers said: “We have bigger muscle and we give value as well,”
He added: “A lot of our members are big companies to underwrite such products as funeral. Apart from that, our members (life assurers) have sales team, advisors and more than 2 000 agents. Any life insurance even funeral is personal and requires a sales person to come and talk to you. Funeral products are visible and have visible services so it’s easier to sell through sales representatives. Also, we use technology that’s why there is a massive growth.”
The funeral industry remains challenged in several other fronts as the situation continues to simmer against a backdrop of unrelenting economic shocks rocking the sector due recent monetary and fiscal measures enforced by government.
Despite the potential for a boost to the ailing Zimbabwe economy, there is a continued sharp rise in inflation which have completely destroyed premiums, low uptake of the products due to erosion of the disposable income and fraud which has become rampant in the sector with 133 cases with a value of ZWL$51 019 reported and still being investigated, are militating against growth and it’s something which is threatening the viability of the sector.
There is a steadily shrinking numbers in business written by funeral assurance industry namely Moonlight, First Mutual, Ruvimbo, Sunset, Foundation, Vineyard and Orchid, according to official data obtained from the industry regulator, the Insurance and Pensions Commission (IPEC).
Just 9,79% of the entire funeral business was written by funeral assurers in the nine months to September 2019 while life assurers, including CBZ Life Assurance, Econet Life, ZB Life, Old Mutual, Zimnat Life and Nhaka Life, wrote 90,21% of the funeral business. This was a 1,139 basis points decline in the gross written premium by the eight dedicated funeral assurers when compared to the same period in 2018.
Two funeral assurers wrote 80% of the gross premium written (GPW). The remainder was wrote by six companies. Total GWP declined 33% to ZWL$21,1 million in the nine months to September 2019 from ZWL$31,4 million recorded in the comparative period in 2018.
Dedicated funeral assurers continue to struggle writing new business compared to life assurers, who wrote funeral assurance business worth ZWL$ 194,67 million for the nine months to September 2019.
This was nine times more than the business written by the eight dedicated funeral assurers.
The stiff competition from life assurers has adversely affected the ability of dedicated funeral assurers to write new business. This trend is particularly noticeable as one life assurer had market share of 63% in-terms of GPW for funeral business.
The GPW for the referenced entity increased by 74,56% to ZWL$ 136,67 million in the nine months to September 2019 from ZWL$ 78,29 million in the prior comparative period.
Individual business continues to be the dominant business line for the funeral assurance sector as it accounted for 89% of GPW, whereas corporate business accounted for 11% for the nine months ended 30 September 2019.
The number of policies written by funeral assurers decreased by 60% to 165,290 policies in the nine months to September 2019 from 411,600 policies in the prior comparative period.
The sum assureds decreased by 23% to ZWL$ 164,67 million from a total sum assured of ZWL$ 213,03 million in the same period last year.
It is, however, understood that the significant decrease from both policy count and sum assureds was due to the change in the licence by Doves to a life assurer which had a significant impact on the number of policies written by funeral assurers.
The situation was also worsened by the shrink in disposable incomes, which resulted in the decrease in number of policies written.
IPEC reveals a desperate situation and feels it is particularly important for funeral assurers to do more. One of the areas of fantastic growth, IPEC said is innovation in their product offering.
“Funeral assurers are urged to device mechanisms to write business and improve market share and to be able to survive the pressure that is being experienced from the life assurers.
There is need to be innovative in their product offering and their distribution methods so as to enhance customer experience and increase the coverage ratio. The funeral assurance business also faces competition from new entrants in the micro-insurance space as there has been increased presence of registered micro-insurers writing funeral business. This is likely to reduce GPW by funeral assurers should the sector fail to be creative and reengineer their business models,” IPEC says.
During the nine months to September 2019, the sector’s profit before interest and tax decreased by 63,21% to ZWL$ 1,33 million from ZWL$ 3,60 million in the comparative period in 2018.
An overall increase in inflationary pressures resulting in rising costs of providing funeral services and the high administration costs associated with the need to retain policyholders.
“This was noticeable as the persistency ratio was approximately 90% during the period under review.
“Although operating expenses decreased by 10,31%, they still remained relatively high and concentrated in two funeral assurers which accounted for approximately 80% of the operating expenses (ZWL$ 13,06 million) for the nine months ended September 30,2019.
The remaining six funeral assurers accounted for remaining 20.00% of operating expenses.”
The expense ratio for the nine months to September 30, 2019 stood at 70%, meaning that for every dollar of premium received approximately 70 cents was spent on management and operational expenses.
“This might not be sustainable in the medium to long term given the high cost structure being experienced. All funeral assurers are encouraged to streamline their operating and management expenses to sustainable levels,” IPEC warned.
Claims ratio for the sector, IPEC disclosed that it was as high as 29% for the nine months to September this year.
IPEC is concerned.
“Funeral assurers are continuously encouraged to assess and address the major contributing factors that are resulting in the claims ratio that has been experienced.
“The Commission is concerned with high commissions, management, operating and administration costs that continue to be incurred by funeral assurers at the expense of policyholder protection.”
The industry is faced with challenges that are now threatening the viability of the industry. These include the high costs of meeting claims due to high inflation, a situation which leads to frequent premium adjustment.
The industry capacity utilization is serious declining. Some funeral companies are downsizing or closing completely. It’s quite a challenge.
Some funeral assurers are now failing to fulfil their obligations.
“…Two complaints relating to the funeral assurance sector were received and resolved by the Commission. The complaints were related to the failure by funeral assurers to fulfil their obligations as defined in the terms and conditions of the policy citing economic challenges such as fuel shortages, for the short-comings,” IPEC highlighted.Apart from the operational challenges, all funeral assurers in Zimbabwe are finding it difficult to meet the prescribed assets minimum capital thresholds.
“All funeral assurers were not compliant with the minimum prescribed assets ratio of 10% as stipulated by Statutory Instrument 206 of 2019. Funeral assurers are expected to hold at least 10% of their total adjusted assets in prescribed assets,” IPEC said.
The sector’s investments in prescribed assets decreased by 70% to ZWL$ 289 010.00 in September 2019 from ZWL$ 961 000.00 in June 2019.
IPEC has now directed the funeral assurers to submit in writing to the Commission their compliance proposal as required in-terms of Section 11B(4) of the Insurance Regulations ( SI 49 of 1989) as amended by SI 206 of 2019. 6.8.
IPEC said it will not hesitate to implement any measures provided for in-terms of Section 11B(6) Insurance Regulations (SI 49 of 1989) as amended by SI 206 of 2019 to ensure compliance, in the event any funeral company fail to adhere to the directive.
Funeral companies are snubbing reinsurance, retaining the risk business, according to IPEC. Only one company has reinsurance arrangement in place, meaning that retention ratio of the industry which stood at 99,89%.
“One out of eight funeral assurers had reinsurance arrangement(s) in place as a risk management tool,” IPEC revealed.
“Accordingly, the overall net effect of the reinsurance on the sector is very minimal given that 1,88% of the business is being reinsured and 98,12% of the business is being retained. The Commission cannot underscore the need for funeral assurers to have reinsurance arrangements so as to better manage the risks that they are exposed to. Furthermore, reinsurance increases the amount of available capital, thereby allowing funeral assurers to write more business.”
The funeral assurance sector had a negative working capital position of ZWL$ 36 839. Current liabilities amounted to ZWL$ 19,49 million ,which were supported by current assets worth ZWL$ 19,46 million.
The sector finds itself in a very precarious position given that approximately 50% of the current liabilities are for example, employee related obligations and payments to subsidiary funeral providers for services provided.
Worsening the situation, about 86,36% of the current liabilities are from one funeral assurer with the majority of current assets being in the form of accounts receivables (75.45% of current assets) which might or might not be paid.
Funeral assurers are therefore, encouraged to revise their investment portfolio mix, so as to avoid asset- liability mismatch and ensure that they have appropriate short – term assets which are easily liquid to be able to support their claims.
