Covid-19, business interruption and short-term insurance in Zimbabwe

Lazarus Sauti

IN December 2019, cases of pneumonia were detected in Wuhan, China, and reported to the World Health Organisation (WHO) on the 31^st of December 2019.

These pneumonia-like symptoms caused by severe acute respiratory syndrome coronavirus were then named Covid-19.

As of 8 October 2020, WHO confirmed 36 002 827 Covid-19 global confirmed cases with 1 049 810 people succumbing to the virus.

“Out of 36 002 827 Covid-19 global confirmed cases, 1 212 396 were recorded in Africa,” WHO noted, adding that Zimbabwe recorded 7 951 cases with 229 patients succumbing to the virus.

To combat the spread of Covid-19, Zimbabwe responded through national lockdown, social distancing, closing its borders, and self-quarantining measures.

These measures promulgated in Statutory Instrument (SI) 83 of 2020, SI 93 of 2020, SI 94 of 2020, SI 99 of 2020, and SI 136 of 2020, greatly subdued economic activities in the country.

The Confederation of Zimbabwe Industries (CZI), the umbrella body of the manufacturing industry in Zimbabwe, revealed in its August 2020 report that there was low demand for goods and services in the country due to Covid-19 containment measures.

Launching a virtual Insurance and Pensions Journalists Mentorship 2020 Programme organised by the Insurance and Pensions Commission (IPEC) and National Social Security Authority (NSSA) recently, IPEC Commissioner, Grace Muradzikwa said Covid-19 also negatively affected the insurance and pension sector in Zimbabwe.

“The Covid-19 pandemic reduced the uptake of insurance and pension products in the country,” she said, adding that contribution arrears were aggravated by the pandemic.

Muradzikwa further said the Covid-19 pandemic not only led to long turnaround times in processing benefits but also increased expenditure to capacitate insurance employees from working from home.

The Insurance Council of Zimbabwe (ICZ) – an independent self-governing association of short-term insurers and reinsurers in Zimbabwe duly registered by IPEC – also noted that Covid-19 affected the performance of the short-term insurance sector in Zimbabwe.

“The short-term insurance business has not been operating at the expected level, characterised by low uptake of products and services, the slow movement of premium, as well as inadequate information on some of the claims lodged as assessors were not able to go out during the lockdown period because of the restrictions on people movement,” ICZ Executive Officer, Tendai Karonga said.

He also said that the impact of Covid-19 on the short-term insurance sector in the country cannot be separated from political, economic, and social challenges such as inconsistent monetary policies, collapsed demand for goods and services, high inflation, high-cost environment, political unrest, and drought.

“Short-term insurance classes such as motor insurance, fire insurance, and engineering insurance registered negative real growth due to Covid-19 and high inflation induced by currency reforms,” Karonga added.

He said motor insurance is one of the large classes of insurance in Zimbabwe contributing 29.45 percent for the period January to June 2020 to the total Gross Premium Written (GPW) of the Non-Life insurance.

“This class was affected since Covid-19 lockdown restricted local and cross border traffic movement; the level of traffic was greatly subdued in April 2020 when the lockdown restrictions were imposed,” Karonga said.

“One of the ICZ insurance pools negatively affected by restricted regional cross-border traffic was the Motor Insurance Pool. As of August 2020, 59 percent of the budgeted premium was collected. In comparison to the same period in 2019, there was a decrease of 37 percent in premiums collected.”

He continued: “Performance of motor insurance was further affected by the Central Vehicle Registry’s (CVR) inability to register vehicles due to lack of financial resources to produce registration plates.

“This resulted in about 80 000 unregistered and uninsured vehicles on the roads leading to a loss of the mandatory Third-Party Motor premiums of approximately ZWL$60 million, according to the CVR Registrar’s Report to the Parliamentary Transport Committee on 28 September 2020.”

Karonga said the fire insurance class was also badly affected as consumers of this class are mostly corporates in the service and manufacturing sectors whose operations have been interrupted by the Covid-19 pandemic.

“Fire insurance contributed 29.03 percent to the total GPW for the period January to June 2020, but registered a decline of -1.3 percent in terms of real growth compared to the same period in 2019 due to Covid-19,” he said.

On engineering insurance, Karonga said Covid-19 delayed the completion of various national construction projects like the Beitbridge Highway and independent power stations in the country.

“Extension of completion time due to national lockdown also means an extension of insurance policies and probably increased premiums depending on policy terms and conditions as well as negotiations with insurers,” he added.

Karonga also said other short-term insurance classes like aviation, bonds or guarantees, hire purchases, marine, miscellaneous accident, personal accident, and personal liability registered negative real growth, thanks to Covid-19 and other factors.

“While the Covid-19 lockdown contributed to the decline in performance, the general decline in the economic growth of the country has taken a toll on the performance of corporates who are the main consumers of short-term insurance products culminating in reduced uptake of insurance covers. Some corporates are now relying on self-insurance,” he said.

Karonga added that the decline in Aviation and Hire Purchase business to some level reflects the drop in demand for aviation service and retail goods during the lockdown period.

“Marine and Aviation, as well as accident classes as part of transportation insurances, were negatively affected by the grounding and suspension of movement under lockdown,” he said.

Muradzikwa said notwithstanding the Covid-19 pandemic and macroeconomic challenges, the insurance industry remained resilient, a fact supported by Elite Risk Acceptances Managing Director, Christelle Colman, who added that Covid-19 forced many individuals and short-term insurance businesses to embrace technological change.

“The Covid-19 pandemic has forced all stakeholders in the insurance business to swiftly introduce the use of virtual meetings, to promote the use of digital platforms and social media, and to normalise remote working,” she said.

“These changes have improved short-term insurance business efficiency and productivity.”

Addressing a ministerial roundtable meeting at the ongoing International Telecommunications Union Digital World 2020 conference in Geneva, Switzerland, Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) Director-General, Gift Machengete also said digital technology ensured business continuity at time mobility was restricted.

“Businesses embraced digital technology for information dissemination and for forecasting. They held virtual meetings, cutting on costs associated with physical meetings,” he said.

At a webinar hosted by Cenfri and the Digital Frontiers Institute (DFI), Pravin Kalpage of Hollard said digital technology stimulated digital sales, for instance, call-centres or end-to-end mobile sales during this Covid-19 times.

“Hollard managed to sell 3 million policies with its technology partner Econet, using only a digital interaction,” he said.

Kalpage said the use of digital technology not only helped with the selling and processing of insurance policies digitally, but also enhanced the accuracy and efficiency of underwriting, risk assessment, and claims processing.

However, transitioning to digital engagement with short-term customers remains a challenge in Zimbabwe and other African countries because most customers are accustomed to face-to-face engagements and in-person interaction.

Because of this, it remains difficult to build sufficient trust with most short-term consumers through digital interaction.

In a journal paper Evaluating Factors Affecting Supply of Short-Term Insurance in Botswana, Paul Guruwo said greater investment in consumer education, communication, and technology is needed to build trust and maintain digital engagement with customers.

“Short-term insurers should open more channels of interacting with existing and potential customers to enable the address of questions, provision of information and/or advice, and handling customer feedback,” he said.

Guruwo further urged insurance companies in general and short-term insurance companies to be specific to enhance cybersecurity protocols to protect their customers and also to simplify their policy documents so that consumers are able to easily understand and interpret them.