The sector has also been a victim of subdued premium growth.
Thirty licensed short-term insurance companies in the sector are chasing a paltry US$150 million in annual premiums.
This represents an average gross income of US$5 million for each player.
After reinsurance costs, this hardly leaves enough income for administration, claims dividends and receiving costs.
Zimbabwe’s insurance industry currently comprises 76 players — 30 short-term insurers, five life assurers, eight short-term reinsurers, six funeral assurers, two life reinsurers and 25 insurance brokers.
Only one out of 27 short-term insurers is publicly quoted and only five are credit-rated.
Competition has increased among players, with most opting for sub-economic premiums to attract business, leading to poor underwriting, a development market experts say could see more insurance companies folding or merging with bigger companies who can underwrite meaningful business.
Baobab Reinsurance manager Tarupiwa Tarupiwa said if no immediate measures were taken to bring order and sanity into the sector, once considered one of the largest on the continent, it would collapse again.
“An accumulation of cases of the same means you will not have an idea of a sufficient pool from which to pay claims.
“The concept of an insurance pool where the sum of premiums of many is used to pay claims for the few will be breached as funds will be inadequate to fund claims and potential liabilities,” he said.
Tarupiwa said insurers had to be prepared to walk away from markets and certain products when prices fall below a prudent, risk-based premium.
“Uneconomic rates threaten the viability of both insurance and reinsurance companies and can lead to insurance and market failure.”
“Insurance and market failure lead to lack of public confidence in the sector,” he said.
Addressing insurance players at a seminar in the capital recently, South African Khanyisa Insurance Brokers CEO and founder Irene Fortuin said, if properly handled, the insurance sector had the potential to capitalise the economy.
“The insurance industry in Zimbabwe has a bad reputation because of mistrust from clients when making claims.
“Some companies are in the habit of rates undercutting, and it is unhealthy for the sector,” she said.
Fortuin said the culture of insurance is still very much alive in the country unlike in other countries in the region like Angola, where it has virtually died and therefore must be protected from unscrupulous business practices.
Officials from the Insurance and Pensions Commission (Ipec) lamented the low barriers to entry and said the US$5 000 fines for rates undercutting was not deterrent enough to stop the habit.
The minimum capital requirements in Zimbabwe have been set at US$300 000, which is low considering the risk that insurance companies assume.
This is in comparison with minimum capital requirements in Angola and Mozambique of US$6 million and US$1 million respectively.
The industry is still in the high growth phase and has great potential for generating above-average returns.
Growth in the key sectors of the economy such as mining, manufacturing and agriculture has brightened prospects in the country’s insurance sector.
Baobab Reinsurance chairman Ambassador Buzwani Mothobi noted that the recovery of the insurance sector was based upon the recovery of the economy, which he said could help restore the value of capital assets that support insurance policies.
“The success of any insurance industry is relational to the economic performance of the country.
“If the economy suffers, the insurance sector suffers as well.
“However, in the Zimbabwean case there is still hope as we have the necessary skills needed to drive the industry forward,” he said.