eBusiness Weekly
. . To compel additional pay-outs by pension funds, insurers
. . . Compensation based on assets that survived hyperinflation
Martin Kadzere
Zimbabwe’s insurance and pensions regulator is working on a law to compel insurance companies and pension funds to compensate policy holders and pensioners for losses suffered following conversion of benefits post dollarisation.
Thousands of policyholders and pensioners had their values significantly eroded partly due to hyperinflation, which saw Zimbabwe’s inflation hitting 500 billion percent by end of 2008, according to the International Monetary Fund. Poor regulatory enforcement and de-monetisation of the local currency were also blamed for value erosion by the Commission of Inquiry appointed to probe the conversion process.
The Government wiped out the hyperinflation figures in 2009 when it abandoned the use of the Zimbabwe dollar for a basket of foreign currencies, but mostly dominated by the US dollar, leading to what is generally called dollarisation.
The commission, headed by Retired Justice George Smith confirmed a “huge” loss of value to policy holders and pensioners and recommended compensation for the loss suffered.
This should, however, be done in a manner that do not affect the stability of the industry.
While geo-political factors contributed to the erosion of the values, compensation will be made based on securitisation of assets that survived hyperinflation.
Currently, insurance firms and pension funds have an asset base of about $7,5 billion.
According to the commission, about 85 percent of the assets owned by pension funds and insurance companies between 1996 and 2015 were in properties and stocks.
“Most stakeholders, particularly policyholders and pensioners consider compensation as the most important recommendation of the Justice Smith Commission of Inquiry’s report and are highly expectant in this regard,” said the Insurance and Pension Commission.
“We are also in constant engagement with stakeholders in Government to come up with a legal instrument to compel insurance companies and pension funds to meet rightful benefits as recommended.
“The Commission is (also) engaging key stakeholders to come up with a compensation framework that will guide the compensation as recommended by the Commission of Inquiry. We are working on putting in place the finer details for the framework. “(It’s a) process to ensure that the compensation exercise would be beyond reproach.”
Ridiculous pay-outs
During the investigation, the commission examined the prejudice suffered by selected complainants and it emerged that some pensioners received insignificant amounts as low as US$0,08c after several years of working and the majority of them got zero values owing to lack of benefit inflation-indexation and currency de-basing.
The commission was, however, satisfied that the industry had “reasonable capacity” to compensate.
“Notwithstanding the unsound practices in the industry, the commission is of the opinion that a fair and just compensation framework can be implemented to compensate for the loss of value suffered by policy holders and pension fund members over the investigation period,” the commission said. “In the recommended compensation framework, the commission assess the asset and capital structures of the industry in evaluating its capacity to compensate for loss of value.
“The primary objective is to ensure that prejudiced members of insurance schemes and pension funds get their rightful benefits while maintaining stability and confidence of the sector,” it added.
Critics are, however, in agreement compensation should be made, but there is need to first increase the value of assets through addressing macro- economic fundamentals.
They argue that given the current distortions resulting from multi-tier exchange system, the value of the assets might be significantly poor in real United States dollar term.
There are growing concern of repeat of the loss of value incurred pre-dollarisation. To preserve the value, the authorities have maintained at par the US dollar, the surrogate bond note currency and the RTGS amid pressure to free float the exchange rate.
Reforms agenda
Apart from compensation of those who were prejudiced, IPEC is also working on institutional reforms including the establishment of a funded Civil Service Pension scheme and subjecting the National Social Security Authority and medical aid schemes to prudential and market conduct supervision. The reforms will also involve the establishment of a financial sector Ombudsman or apex body for consumers of insurance and pension products, the establishment of an insurance bureau to counter insurance fraud, setting up of a policyholder protection fund and the establishment of a complaints handling unit by IPEC, among others.
IPEC said it has since made policy recommendations to Government on the reforms. The regulatory and supervisory reforms are aimed at strengthening the institutional capacity of IPEC to effectively supervise insurance companies and pension funds. Significant progress has been registered in this regard, including increasing staff complement, diversifying skills mix, and providing the necessary enablers.
Under legal reforms, IPEC has recommended amendments to Insurance and Pension Commission Act, Pension and Provident Funds Act and Insurance Act to facilitate necessary reforms in the insurance and pension sector. The policy at the national level include the need to come up with Financial Sector Development Plan, Macro-economic stabilisation to avoid a repeat of the loss of value incurred prior to 2008 and unguided conversions of insurance and pension values subsequent to dollarisation of the economy in 2009 as well as the Development of a National Financial Consumer Protection Policy and Financial Literacy Strategy.
