eBusiness Weekly
Golden Sibanda
Insurance companies say they stand to lose approximately 40 percent of their incomes through loss of third party cover, which they may have to stop running if the Government goes ahead with plans to establish a road accident fund.
This comes as the Government has proposed the Road Accident Fund (RAF) to mitigate funding challenges it regularly face after major road accidents.
The Government argues that the role of insurance companies to road disasters is insignificant and yet they are liable as a result of third party insurance (TPI) cover they run for motorists.
Government has often accused insurance companies of reacting slowly to road disasters leaving the state to carry the burden alone and yet under third party insurance, the claimant’s first port of call is the owner of the vehicle, who makes the claim according to provisions of the Road Traffic Act.
According to an insurance industry position paper to Government, the fund would result in loss of business and income generated from motor insurance.
While it was not immediately clear how Government intended to structure the RAF, Insurance Council of Zimbabwe (ICZ) said it means that short-term insurers would stop doing third party insurance, which generates nearly half their income.
Business Weekly understands that the Government has sought advice from the Insurance and Pensions Commission (IPEC) on the matter, before making a decision on the way forward. IPEC confirmed Government had sought its views on the RAF, stressing this was part of its mandate to offer advice on insurance related issues.
“Where the Government requests for the commission’s advice or view on any matter involving the insurance and pensions industry in Zimbabwe, IPEC is always ready to do that as is the case with the matter you raised. We have submitted our position to Government, as such, only Government can disclose the position,” said IPEC commissioner, Tendai Karonga in emailed responses to questions.
The Insurance Council of Zimbabwe, an association of seven short-term reinsurers and 24 short-term insurance companies, said in its recent submission to the Ministry of Finance and Economic Development, RAF would erode most of the industry’s income and resources they currently direct towards investments in pre-scribed assets.
“There is definitely a heavy loss of business with an estimated 40 percent of market premium derived from motor insurance, which is predominantly structured around the RTA (Road Traffic Act),” ICZ said.
In terms of the RTA, compulsory insurance (TPI) is required for all motor vehicles, except vehicles owned by the Government.
Further, ICZ said taking away the TPI business would diminish the pool of available resources to fund other existing statutory payments, such as the levy paid to the pensions and the insurance regulator, IPEC and for mandatory investments into pre-scribed assets.
“Low premium return by the industry would culminate in reduced levies received by IPEC (Insurance and Pensions Commission) who may have to turn to Government for any funding gaps,” ICZ said.
“In that case, the Government may find itself having to fund shortages on the RAF, as well as funding IPEC simultaneously,” ICZ added.
According ICZ, most of the reasons for which Government wanted to establish the RAF had since been addressed by the insurance firms, including the issue of risk posed by uninsured vehicles, high frequency of fake third party insurance, delays by insurers in responding to accidents and the ‘insignificant’ role they play in road disasters.
The Government has often accused the insurance industry of not doing enough to assist victims of road disasters, leaving the Civil Protection Unit to do everything.
However, ICZ claimed insurers have started working with the CPU, which would now only have to coordinate disaster response mechanisms, as provided for in the law.
ICZ also said Zimbabwe had comprehensive third party insurance system, which many countries in Africa have studied with a view to copy. It said shortcomings could be addressed through constructive dialogue.
Further, the insurers’ lobby group said where the concept has been implemented; the fund has encountered its fair share of challenges including transparency issues, resource duplicity, and further costs to the public, inadequacy to cover claims payment and fraud among others.
According to ICZ, the fund could also cause a litany of economic and administrative challenges, which may include inadequate resources, lack of effective mechanisms to make up for short falls and the possibility of Government having to intervene to capitalise the fund.
ICZ contends Government would be forced to keep capitalising the RAF in the event of shortfalls, which would be costly.
Currently, short-term insurers subsidize TPI in the event of short-falls, which RAF will not. ICZ also argued that the average claim payment was significantly higher in Zimbabwe than in the region because of TPI and no-fault system, which does not seek to shift blame to motorists.
“We foresee a State-operated fund that may suffer from operational inefficiencies and may offer poor service levels relative to private insurance industry, given that it is an area where the world over governments are leaving the private sector to operate because of structural and skills issues,” ICZ stated in its submission to Government.
“Experience has (also) shown that RAFs are administratively heavy and a significant portion of the resources pooled are consumed by the administrative expenses; such as salaries and Government might have to separate administration from the fund itself,” ICZ said.
