Road Accident Funds in perpetual losses, hence not sustanable: IPEC
By Insurance24
HARARE, Road Accident Funds worldwide are in perpetual losses since they are in most cases not adequately funded, the Insurance and Pensions Commission (IPEC) has said.
Last year Zimbabwe through the Ministry of Transport and Infrastructure Development mooted establishment of a road accident fund as a mechanism to pool financial resources to be used in the event of major road accidents; amid concerns private third part insurance (TPI) companies do not do much about it, leaving the burden to the Government.
However, IPEC advised Government against setting up the Road Accident Fund, warning doing so will erode $71 million of short-term insurers’ income from third party business and cause sudden collapse of at least eight companies.
IPEC Commissioner Tendai Karonga during a Q&A session at a journalist mentoring programme workshop maintained that the road accident funds are not sustainable and in many cases choke government finances.
“The funds require adequate financing but governments in most cases do not honor and these funds end up in perpetual losses,” he said. He gave specific examples of these funds in South Africa and Swaziland.
Comm Karonga added that the funds are also very risky. The RAF would have meant that insurers would have to stop third party business that could have seen a total of eight out of 20 TPI insurance companies immediately collapsing as four other insurers derive 60 percent of their gross premium written from third part cover.
IPEC’s advice followed the submission to Government by the Insurance Council of Zimbabwe which lobbied against the establishment of the road fund, but consolidation and refining of the TPI system.
