Short-term insurers in tourism firestorm

BY FIDELITY MHLANGA

INSURANCE players covering tourism industry assets endured a premium drought during the first quarter of 2021, after some of their clients were affected by the Covid-19 pandemic, a sector report released on Friday says.

Zimbabwe’s tourism industry is one of the hardest hit sectors by the Covid-19 scourge, after arrivals plummeted 90% last year as governments closed off air spaces and grounded airlines to contain the deadly contagion.

According to the Zimbabwe Tourism Authority, the industry lost US$1 billion within the first 10 months of last year, throwing several operators out of business.

Some of them have been operating at significantly reduced capacity, with occupancy rates falling from over 45% before the pandemic to about 13% during the first quarter of this year.

The Insurance and Pensions Commission (IPEC) said in its first quarter report for short-term insurers that the pullback had triggered a deadly contagion in the sector, which has struggled to collect premiums from under-fire tourism sector operators.

“The commission has noted that entities with clients offering tourism related activities have remained hamstrung due to the pandemic with some struggling to keep up with paying premiums,” IPEC said in its report.

The crisis could continue for most of 2021 after government imposed new Covid-19 measures two weeks ago to help the country fend off a looming third wave as infection rates surged.

The indefinite measures are likely to limit travel within the country due to localised lockdowns being rolled out as pockets of outbreaks hit regions and cities.

International arrivals could also be affected.

“Others in cross border transportation services have also reduced fleet size and retrenched workers.

However, the full impact of the pandemic on the industry is still unfolding.

“For the industry, Covid-19 presented an opportunity to leapfrog digitalisation.

“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 has heightened with corporate restructuring and streamlining of operations,” the pension industry regulator said.

IPEC said total gross premium written (GPW) for short-term insurers rose by 387,97% to $3,99 billion from $817,93 million reported during the comparable period in 2020.

However, marine and engineering underwriters suffered a decrease in premiums.

“The real increase in gross premium written for the quarter ended 31 March 2021 was 43,27%, which shows that there was real growth in short-term insurance business,” IPEC noted.

“Only two classes of short-term insurance business namely engineering and marine experienced a decrease in the real gross premium written.

“Motor insurance maintained the pole position as the major contributor in terms of GPW for the first quarter of 2021 at 54,69% from 51,175% for the first quarter ending 31 March 2020,” IPEC added.

“The undesirable continued increase in premium debtors is a sign of weak credit risk management by the sector.

“To this end, the commission is finalising the “No Premium No Cover” regulations to protect both the industry and policyholders against the negative impact of the issuance of cover on credit,” IPEC added.

It said the majority of the short-term insurance industry had outstanding levy and annual fees balances due to the commission.

GPW in foreign currency for the quarter was US$18,37 million, which was 38,85% of total GPW.

“The commission recently carried out an industry-wide offsite inspection on the commissions.

“The inspection noted that some entities are paying commissions as high as 50% of the gross premium written.

“Players are urged to ensure that they maintain their commission rates at levels within the dictates of Circular 2 of 2009 to ensure the protection of policyholders,” IPEC said.

There were 735 registered entities/persons in the short-term insurance industry as at 31 March 2021.

All 18 insurers reported capital positions that were above the minimum capital requirement of $37,5 million as at 31 March 2021.

None of the short-term insurers were compliant with the minimum prescribed asset ratio of 10% during the period under review, according to IPEC.

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