money markets

How insurers can regain Zim market confidence – NewsDay

Currency changes in Zimbabwe have affected medical insurances with clients facing challenges when in need of medical services.

FINANCIAL markets are by nature a reflection of the collective confidence of the transacting public.

The insurance industry is by no means an exception to this general rule as it sells financial promises that in some instances take a lifetime to materialise.

It is true that for anyone to make a bank deposit, lend, borrow, save, and buy insurance or trade in any financial instrument, confidence has to exist.

In fact, confidence is the glue that establishes the bond between a consumer of insurance products and the provider.

In Zimbabwe, insurance is an emotive subject as periods of hyperinflation and currency changes have rendered some of the products valueless, leading to significant loss of confidence in the industry.

Insurance product spectrum

The spectrum of what the public considers insurance is broad, ranging from long-term products like life assurance, pensions and funeral services to medical aid and short-term insurance.

It is possible that many adults in Zimbabwe would have at some point interacted with one form of insurance or another.

The interaction ranges from simply mandatory insurance to enable one to licence their vehicle, a deduction on your payslip for medical aid or contribution for group life assurance or pension to complex corporate risk transfer mechanisms.

This article attempts to keep the focus and perspective of the customer hence taking a very non-technical approach to dissecting the issues relating to confidence building.

Negative connotations

It has to be noted that generally, insurance products do not enjoy the good publicity of other financial products given the technical nature of the product.

In addition, benefits normally flow in times of great human pain.

This is so because the triggers are normally some misfortune, accident, death, injury, illness and rarely in good times upon retirement or premium rebate.

In some instances, the beneficiaries of the product may not be the ones to have purchased it.

The consumption of insurance is therefore by nature a highly emotive issue.

Currency challenges

Zimbabwe has seen periods of high inflation like in 2008, which culminated in dollarisation in 2009. The same phenomenon would happen again post 2018. In a sense, the industry operates in the same operating environment as any other businesses.

It follows, therefore, that the major vagaries to have befallen the financial markets have affected the insurance industry in equal measure.

The most important of these vagaries over the years has been currency changes from Zimbabwean dollar in 2009 to a basket of currencies anchored on US dollars, introduction of bond notes in 2016, introduction of nostro accounts in 2018 and concurrent floating of the RTGS.

These policies are a panacea for value erosion for both long and short-term insurance products.

Without dwelling much on the causes of these high inflation periods, it is important to note that significant value is lost on people’s savings like pensions.

A good number would go on to retire into a poverty and financially insecure life.

These are real issues, but blame apportionment is always a difficult task given the technicalities.

Government policy

At the heart of value preservation of insurance products is the need to have a stable currency for transacting insurance business.

At a very idealistic level, an insurance currency could be, for instance, the South African Rand, the US dollar or any other currency that is stable enough over a long period of time to preserve the value of people’s savings.

The challenge further arises with ability to continue paying in foreign currencies, when the Zimbabwe dollar is the currency freely available given fluidity of government policy. Further, insurance business is subject to prescribed asset requirements.

This means a portion of investments have to be made in government backed securities to raise funds for government projects.

Government could provide inflation proof securities for money mobilised from the insurance industry.

Indexing

The insurance industry can adopt inflation adjusted policies that respond to inflation trends.

This involves setting a base currency in a stable currency with the policy value in local currency converted at the official exchange rate.

Challenges associated with the forex market will also be inherent and market changes will mean that premiums may be unaffordable in times of huge gallops in a short period of time as incomes do not always rise at the rate of inflation.

The advent of Artificial Intelligence provides a long shot solution to this challenge.

Investment mix

The investment mix of the industry is regulated and generally details the proportion of investments in property, securities, money markets, cash and cash equivalence.

This is to enable the industry to have an acceptable mix of both short and long term investment mix. In the extreme, property investments are better at value preservation.

But cash is required to finance operations and liquidate current liabilities mainly claims that have to be honoured timeously.

The shares, money market securities and prescribed assets, all are subject to inflationary pressures and can be wiped away in times of galloping inflation, leading to significant loss of value.

Some schools of thought is for regulation to allow a portion of the funds invested in offshore vehicles.

Regulation

In the case of pensions, the regulation is too tight to liquidate own or employers contribution. Regulation around this area should allow contributors to be able to liquidate a portion of their pensions based on inflation triggers in the market.

The obvious challenge with this approach is obviously a form of a run on pension’s funds where everyone might want to exit at once, thus creating significant financial constraints to the insurance industry.

Another work around would be some form of premium payback plan where part of the premium is paid back to the policyholder at regular intervals like a year.

The point is that regulation can play a big role in promoting the good perception of the insurance industry by creating visible benefits of insurance products in Zimbabwe.

Simple products

Empirical evidence shows that insurance products across the globe are almost generic and have experienced very little fundamental changes over the last century.

Generally, the product spans many pages in technical legal language commonly referred to as small print. It is this small print that the transacting public believe is used by the industry to avoid honouring claims or compensation.

Many people are not insurance literate, making it very difficult for the consumer to comprehend fully what they have or have not bought.

It is usually when you have a claim or want to bury a loved one or seeing any form of compensation that you become aware of what you did not buy.

The industry has to address this information asymmetry by simplifying contracts into both legally sound and simple to understand documents.

Simplicity encourages scaling through high acceptance.

Conclusion

To regain confidence, the industry needs to be afforded a very stable currency. A stable currency insulates the industry from loss of value of the publics’ savings.

Inflation is a form of tax on people’s savings and once it gallops beyond single digits, there will be significant value loss.

To foster, retain and grow confidence and trust, it is important to manage price risk in the form of inflation and exchange rates to maintain real value of insurance products.

Manyika is seasoned risk management and insurance professional with over 11 years of practice in the insurance and risk management field in Southern Africa. — [email protected].

money markets

Zimbabwe’s economy seen growing 5.5% in 2023 – finance minister – Reuters

HARARE, Nov 30 (Reuters) – Zimbabwe’s economic growth is expected to end the year at 5.5% in 2023, slightly higher than previously forecast, before falling to 3.5% in 2024 due to drought, Finance Minister Mthuli Ncube said in a speech on Thursday.

The budget deficit is expected to end the year at 1.2% of GDP, he said.

Annual inflation is projected to end the year at 20% and then fall to between 10% and 20% in 2024 due to tight monetary policy, Ncube said.

Reporting by Nyasha Chingono; Writing by Nellie Peyton; Editing by Alexander Winning

Our Standards: The Thomson Reuters Trust Principles.

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2024 budget ED’s project: Mthuli -Newsday Zimbabwe – NewsDay

Although Ncube said the Finance ministry was under Mnangagwa’s supervision, under Government Gazette General Notice 1925A of 2023, as prescribed by sections 99 and 104 of the Constitution, the President assigned Vice-President Constantino Chiwenga to oversee all economic sector ministries.

FINANCE minister Mthuli Ncube yesterday revealed that President Emmerson Mnangagwa played a part in the formulation of the 2024 national budget to be presented in Parliament this afternoon.

Ncube made the revelations in an interview with a State-owned local television channel saying the budget was, in essence, Mnangagwa’s.

The budget presentation follows complaints that Treasury had failed to conduct physical public consultations for the budget.

Ncube said he met Mnangagwa outside Cabinet on several occasions where he would dictate what he wanted to be included in the budget.

“I meet the President every week, not in Cabinet. We meet because the Finance, Economic Development and Investment Promotion ministry reports directly to his Excellency,” Ncube said.

“It’s his ministry, so we meet every week to discuss policy issues.

“When it comes to the budget again, I take him through our thinking in terms of the excess budget and how the economy is doing.

“I take him through the revenue measures, and he always comes back, pushes back, and give us ideas. He always asks very good questions.”

He said Mnangagwa was aware of the content of the budget to be presented today.

“Actually, I do not want to be questioned by him. They are tough questions, and you have to be clear, so I would say, maybe I should do this differently. So, we have that interaction. He had tremendous input into the budget,” Ncube told ZTN.

“As I speak, he knows everything that I will be presenting in terms of revenue measures, areas of relief, additional revenue, and areas of how to improve the tax administration. He is fully aware, and he has given input.

“In a way, it’s his budget.”

Meanwhile, public finance watchdogs yesterday raised fears that the budget would not reflect the citizens’ aspirations because of limited consultations.

The consultations were conducted online, mainly on public radio stations, unlike in previous years, where meetings would be done physically.

Coalition for Market and Liberal Solution executive director Rejoice Ngwenya said the Treasury chief’s remarks explain why the national budget was “militarised.”

“I do not for once think ED (Mnangagwa) has the ‘depth’ and interest to contribute anything to the budget, other than saying ‘add more money to the soldiers and police’. If indeed, as he says, it’s his budget, it’s going to be shallow and uneventfully dreary,” he said.

Zimbabwe Coalition for Debt and Development programmes manager John Maketo said: “The budget must address the immediate needs of ordinary people, particularly bread and butter issues. It must make sense to all.”

He said the budget must be inclusive, pro-poor, and create opportunities for the majority of the poor.

“It must seek to close existing inequality gaps. This is an indication that public policy is top-driven rather than people-driven,” Maketo said.

National Consumer Rights Association spokesperson, Effie Ncube, told NewsDay that government must take stakeholder input seriously.

“Consultation for the sake of consultation is not the way to go. It must be a good faith engagement,” he said.

The Zimbabwe Congress of Trade Union (ZCTU) challenged Ncube to present a pro-poor budget.

“Reviewing taxes downwards for anyone earning less than a living wage is a must,” ZCTU secretary-general Japhet Moyo said in an interview.

“The government should not tax someone earning below a minimum wage.”

Ncube presents the budget when the majority of the country’s citizens are wallowing in poverty with the Zimdollar on a free-fall while companies are struggling to stay afloat.

There have been calls to re-dollarise, but Mnangagwa has dug in saying his dedollariation strategy remains on course.

Mnangagwa reintroduced the local currency in 2019 after a decade of relative economic stability.

money markets

2024 budget ED’s project: Mthuli – NewsDay