THERE has indeed been several positive economic news flows in Zimbabwe, with the government revising the 2021 economic growth forecast from 7,4 percent to 7,8 percent, mainly driven by the agricultural sector, which is expected to grow by 34 percent.
The IMF is projecting a six percent growth rate for the economy. In addition, the vaccination programme in Zimbabwe appears to be aggressive when compared to other countries in the region. In our view, there is positive momentum in service sectors such as banking and insurance. An important point is that the inflation environment in Zimbabwe has also been changing. The policies being implemented by government have managed to firmly anchor inflation expectations given a significant decline in inflation from 837,5 percent in July 2020 to c50 percent. While we note an improvement in the broader macro-economic indicators, the Covid-19 pandemic changed the form of the insurance industry in Zimbabwe. The spread of Covid-19 prompted the government to enforce lockdown measures to ensure the safety of its citizens.
During this period, only critical and essential services, such as the provision of insurance and financial services, were permitted to continue with operations, conditional on their compliance with public health measures such as social distancing. Financial and insurance services were also required to provide finance for individuals and support for business continuity services. We detail the impact on operations hereunder;
High lapse rates — A higher-than-usual lapse rate as insurance customers’ incomes became more constrained because of the Covid-19 crisis;
Premium collection — There were delays in payment of premiums because of the lockdown. Where necessary, premium payment reminders have been sent to clients through emails or SMS messaging;
Claims — An increase in health and personal accident claims because of the pandemic and a low-to-medium risk of property and fire, travel and motor and domestic insurance claims increases;
Changes adopted to enable remote work — In response to the national lockdown, some insurers made the decision to close all their physical branches. This implied providing several critical staff members with the necessary digital tools to work, using virtual/remote engagement tools such as Skype and MS Teams for internal and client-facing meetings and providing customer assistance services through a range of channels, such as emails, mobile phones and WhatsApp;
Digital acceleration — The pandemic accelerated the digitalisation of both supervisory processes and the insurance business value chain. For the industry, Covid-19 presented an opportunity to leapfrog digitissation. However, as with the law of unintended consequences, the automation process resulted in increased operational efficiency and excess staff. Redundancy risk leading to calls for voluntary retrenchments in the industry have heightened with corporate restructuring and streamlining of operations; and
Increase in demand for foreign denominated products — The insurance and pensions industry has not been spared the prevailing inflationary environment, with most economic agents now opting for foreign currency-denominated policies as opposed to Zimbabwe dollar-denominated policies, as they seek to guard against regular review of sums insured. Similarly, employers who are paying salaries and pension contributions in foreign currency have made a call for the payment of benefits in the corresponding currency in which contributions would have been made.
The important question is whether there will be adequate demand for insurance products in 2021 and beyond? In a country like Zimbabwe that has limited social-safety nets, a commodity-driven economy and limited financial reserves, the impact of Covid-19 restrictions could be severe on household incomes. This is because limited economic activity and low productivity levels associated with the restrictions create new risks such as company closures, increased levels of formal unemployment and shrinkages in the value of exports receipts. Another problem is inequality.
While the government is focusing on achieving an average economic growth rate of five percent from 2021 to 2025, the arithmetic of economic growth does not necessarily imply any reduction in economic inequality. If the incomes of the rich and the poor grow at the same rates, the proportionate difference between them stays the same, and the absolute difference — in dollars per year — increases. As demonstrated by the original
Kuznets curve hypothesis, when growth or industrialisation increases, income inequality first increases and then decreases at a later stage. Inequality is only expected to decrease when a certain level of average income is reached and the processes of industrialisation — democratisation and the rise of the welfare state — allow for the benefits from rapid growth and increase the per-capita income. Aggregate demand is also likely to remain constrained because of the following;
– Firstly, salaries and wages of most workers within the private and public sectors are in Zimbabwean dollars. A deteriorating exchange rate implies that the real values of incomes is declining monthly. This situation constraints the uptake of insurance products and presents serious risks for companies given the pressure to continuously review salaries;
– Secondly, taxes in Zimbabwe remain high. It is worth noting that Zimbabwe has one of the highest personal income tax rates in the world. This is because the government is cash-strapped and revenues from the personal income tax rate are an important source of income. The two percent Intermediated Money Transfer Tax has made the general populace worse off given the contraction in consumer purchasing power and the inability of households to build personal assets; and
– Thirdly, access to capital for small and medium sized businesses (SMEs) remains limited. Policy makers need to boost employment and aggregate demand by providing financing solutions for micro-enterprises.
Poverty and vulnerability continue to be the major hurdle confronting Zimbabwe. This calls for insurers to innovate and re-invent themselves in the current environment. For example, ZB Life Assurance recently launched an enhanced cash funeral plan, which provides cash pay-outs both in foreign and local currencies when a policyholder and listed beneficiaries die.
In the same vein, Vineyard Funeral Assurance Company recently announced that it is planning to sign up clients whose policies had lapsed under a fresh plan to rebuild its customer base. The strategy kicked off in May 2021, with a recapitalisation plan that saw the firm beefing up its fleet of hearses, as it geared to extend services across Zimbabwe.
Under the policyholder rebuilding strategy, Vineyard indicated that clients with lapsed policies would be allowed to reactivate their accounts without having to go through the normal readmission processes.
Matsika is the head of research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com