Insurance industry on growth path

DESPITE the insurance industry recording a growth rate of 15 percent in 2014, compared to seven percent registered in 2013, the level of insurance penetration has been inadequate to fight poverty and contribute to economic growth.
While the current statistics are not exactly inspiring, this in itself demonstrates the huge opportunities that still exist for the industry to grow and support economic development, and help alleviate poverty in the country.
I have no doubt that in the years to come, the industry will be one of the highest taxpayers to Government; hence so many people are now considering investing in the sector.
Currently, there are about 33 insurance firms in Zambia.
To ensure the sector positively contributes to the treasury, Government this year introduced strategies such as the compulsory third party liability insurance and the increase in the minimum paid-up capital requirement for insurance companies and brokers to help companies strengthen the financial base of the sector, among others.
The signing of Statutory Instrument 71 of 2015 by Minister of Finance Alexander Chikwanda on October 2, 2015, which requires re-insurance to increase the minimum capital requirement from
K1 million to K20 million, long term and general insurers paid up capital from K1 million to K12 million and K10 million, respectively, and brokers from K50,000 to K100,000, will help Zambia build a solid, competitive and sustainable insurance sector as it will strengthen the financial base of the sector.
Mr Chikwanda further proposed to simplify the taxation of the insurance industry by removing value added tax (VAT) in the 2016 budget and introducing a levy at the rate of three percent on insurance premiums.
The move by Government to remove VAT will help promote trade and commerce for the betterment of the economy.
Furthermore, to develop and support a robust sector, the Insurers Association of Zambia (IAZ) has set aside K20 million for its strategic plan aimed at improving performance of the insurance industry in the next five years.
IAZ president Chipango Mutelo observed that due to low insurance penetration, growth skewed towards general insurance, absence of up-to-date regulation, low understanding of insurance in the low-income market segments, and skills gaps in the industry, are among the key factors that motivated the association to develop the strategy.
He added that the primary objective of the plan is to build the capacity of the association and become an important industry partner that will contribute to the performance and growth of the insurance industry.
Mr Mutelo said the K20 million will cover building capacity, research and consumer education programmes in a bid to encourage a more improved information delivery system in the sector.
The strategic plan also seeks to enhance the image and reputation of the insurance industry to various stakeholders, including consumers, distribution partners, Government, Pensions and Insurance Authority (PIA), and other support institutions involved in the supply chains of insurance.
Mr Mutelo believes that by 2019, IAZ should have achieved and managed to sustain a positive public perception of insurers.
Meanwhile, PIA registrar Martin Libinga says the creation of an enabling environment, through an appropriate legislative framework, remains one of the key components of Zambia’s micro-insurance strategy.
To this effect, Mr Libinga says the authority has since developed micro-insurance regulations which protect low-income people against specific risks in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved.
“It is, thus, cardinal to ensure that as we develop business models and legislative frameworks, creating value for the micro-insurance targeted markets should not be ignored. Consumer financial education is also a critical ingredient, particularly in micro-insurance, because no matter how well designed the products can be, they have to be understood by the target market, to achieve inclusiveness,” he said.
Mr Libinga believes that these regulations will provide a framework for the industry to introduce innovative products that will cater for the needs of the targeted customers, that is, the low-income market.
According to a report by the Central Statistical Office, the insurance industry’s gross written premium (GWP) grew by 163 percent over a period of five years to reach K 1,216 billion in 2011, from K462 million in 2006.
The sector recorded significant growth in volume of business under written general insurance which stood at K1,216 billion in 2014 from K1.022 billion in 2013, while on the long-term side of insurance, the GWP turnover as at December 2014 stood at K650 million, from K450 million in 2013, which is a positive sign of growth.
The above figures should be a motivation for stakeholders in the industry to tap into the abundant market that presently exists.
It is, therefore, significant to recognise the role that PIA and IAZ plays in the development of the insurance sector and its contribution to the country’s economic growth.
It is indeed no myth that a healthy insurance sector provides a safety net for development, hence the need for a sound industry that will stimulate economic growth in Zambia.

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