Where Does the Future of Zimbabwean Insurance Regulation Lie? Iiz THE FUTURE VISION OF INSURANCE LEVERAGING OUR PAST TO PREPARE FOR THE FUTURE Where Does the Future of Zimbabwean Insurance Regulation Lie? IIZ Annual Conference 2015 (Josphat Kakwere) Elephant Hills Resort – Victory Falls 9 November 2015

Outline Insurance Industry Architect Insurance Business Trends Responsibilities of Business entity Evolution of regulation Regulatory Drift Regulatory Concerns Environmental Factors Regulatory Developments Solvency II Regulatory Implications Conclusion Insurance and Pensions Commission

Architect of the Insurance Industry Insurance and Pensions Commission

Business Trends Insurance and Pensions Commission

Responsibilities of a Business Entity SOCIAL RESPONSIBILITIES ECONOMIC LEGAL ETHICAL DISCRETIONARY MUST DO SHOULD DO HAVE TO DO MIGHT DO

Responsibilities in Order of Priority? Satisfy the economic responsibility in profitable manner Duty to be compliant to legislation to ensure continued existence Fulfil social responsibilities: ethical/discretionary Fiduciary responsibility – insurers handle public funds hence need to regulate their activities Insurance and Pensions Commission

Insurance and Pensions Commission

Evolution of Regulation Today’s discretionary may become tomorrow’s ethical and ethical may become the future’s legal responsibilities Insurance entities should therefore fulfil their economic goal within the regulatory constraints among other factors Regulation has been lagging behind developments in the industry resulting legislative drift Mombe muforo Insurance and Pensions Commission

Regulatory Drift Adopted from Johnson, Scholes and Whittington (2008) Amount o f Change Time Environmental Legislation Drift Calling for major changes to legal framework Incremental Changes to Legislation 2015 Adopted from Johnson, Scholes and Whittington (2008)

Sources of Regulatory Drift Out-dated Laws Inadequate regulatory capacity results in a regulator; Failing to enforce existing laws Being reactive instead of being proactive Insurance and Pensions Commission

Some Observed Regulatory Concerns Poor Corporate Governance Practices in owner managed business and insurance entities existing in group structures Conflict of between shareholder and policyholder interests shareholders using their insurance companies as cash-cows to fund their non-insurance business ventures at the expense of creating the necessary insurance pools Siphoning of premiums towards shareholder loans Insurance and Pensions Commission

Regulatory Concerns Cont’d Weak board oversight- quality of minutes do not reflect Poor capital quality to support insurance business In appropriate asset structure coupled with cases of misrepresentation of reported financial position Some cases of high proportion of related part transaction Premium debtor problem Insurance and Pensions Commission

Environmental Factors Stagnation/slow in insurance growth Harmonisation of Regulation within the region will eventual open up the Zimbabwean insurance market under the SADC’s Financial and Investment Protocol Technological driven insurance products and other disrupters e.g. banker insurance Informalisation of the Zimbabwean Economy making traditional products less relevant – take the business where the business is Insurance and Pensions Commission

Regulatory Development Regulatory developments are prompted by the need to enhance policyholder protection under the changing environment Strengthening supervision and regulation becomes imperative Adapting risk based supervision (RBS) Training and development of RBS in progress Insurance and Pensions Commission

Regulatory Development Cont’d Amendments of the insurance laws bill may be presented to parliament before year end Revision of individual shareholding threshold Barring shareholders with significant shareholding from holding executive positions in insurance companies Insurance and Pensions Commission

Regulatory Development Cont’d Deadline for compliance with investment guidelines and guidelines on the calculation of capital which among other things define (admissible and non- admissible assets) is fast approaching (31 December 2015 and 31 March 2016 for non-life and life companies respectively) (where are we?) These guidelines are meant to positively impact on the quality of capital and ability of insurers to match assets and liabilities Insurance and Pensions Commission

Regulatory Development Cont’d Risk Management Survey for the insurance completed – laying the foundation Solvency II Results enscouraging 62% of insurers have documented Risk Management Strategies in place Risk management guidelines being developed The Commission is also advocating for the early adoption of the new audit reporting requirements – auditors are now mandated to disclose Key Auditor Matters (KAM) – insurance industry should embrace for this sooner than later (2016) Insurance and Pensions Commission

Regulatory Development Cont’d TCF (ethical or regulatory issue) TCF ≠ Customer satisfaction A satisfied customer may have been treated unfairly An unsatisfied customer may have been treated fairly (unrealistic expectations Microinsurance Framework – Financial inclusion is now a national agenda -Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT) need for KYC Insurance and Pensions Commission

Solvency II is it Part of the Agenda? Moving towards some Solvency II Regime in the context of the Zimbabwe Regulatory developments are towards Solvency II Pillar 1 sets out quantitative requirements, including the rules to value assets and liabilities (in particular, technical provisions), to calculate capital requirements and to identify eligible own funds to cover those requirements; Standard and Internal Models for capital determination Insurance and Pensions Commission

Solvency II Cont’d Pillar 2 sets out requirements for risk management, governance, self assessment Pillar 3: transparency, reporting to supervisory authorities and disclosure to the public, thereby enhancing market discipline and increasing comparability, leading to more competition and better protection of policyholders. Insurance and Pensions Commission

Regulatory Implications for the Industry Both regulatory developments and environmental changes will continue to impact on the landscape of local insurance industry Need for proactive players and track international regulatory developments as one day in one way or the other will become applicable Self assessment of the impact of developments Those who fail to adopt strategically to the changes will fall along the wayside Insurance and Pensions Commission

Conclusion Regulation will follow international standards and is shifting from being prescriptive to be principle based However want to prescribe the following: Risk Management and TCF are essential business practices to be embedded in the way of doing business and never to be taken as regulatory burdens Insurance and Pensions Commission

Conclusion Cont’d Insurance is not for those looking for money but those who have money and are seeking for a descent return on investment in the medium to long term Lets be fair to the policyholders and make money in a responsible manner Capital increments may not be avoidable in the near future Insurance and Pensions Commission

END THANK YOU QUESTIONS? Insurance and Pensions Commission