TIME FOR A RETHINK

Zambia 2017 | FINANCE | INTERVIEW

TBY talks to Christabel M. Banda, Executive Director of Insurers Association of Zambia (IAZ), on the evolution of the local insurance landscape, raising awareness, and tackling challenges in the sector.

Christabel M. Banda
BIOGRAPHY
Christabel M. Banda was appointed the Executive Director of the IAZ after having set up the Association Secretariat in July 2013. She has been coordinating the industry’s various interventions in improving insurance penetration levels in the country through several stakeholder engagements. She holds an MBA and is a Fellow of the Association of Chartered Certified Accountants and a Fellow of the Zambia Institute of Chartered Accountants. She also holds a diploma in insurance from the Chartered Insurance Institute of the UK. Banda is a qualified investment advisor, with an advanced certificate in investments and stockbroking and a certificate in corporate finance and funding.

How did the landscape of Zambia's insurance market change in 2016?

In 2016, there was a significant drop in new entrants to the market, which was influenced by the introduction of the new capital requirement regulation. Only one new insurance company registered in 2016, and at the end of 2016 there were 34 insurance companies, five reinsurance companies, and two reinsurance intermediaries operating in the country. This measure to increase the capital requirement was introduced to strengthen insurance companies and ensure liquidity in the insurance market. Considering that insurance penetration in the country is fairly low, the amount of companies servicing the market was far too high, and we now hope to see a smaller but stronger pool of providers that are able to innovate and provide new services to bring the uninsured population into the fold. The legislation has a grace period of two years, which will expire in September 2017, which has given companies time to adjust. The IAZ's mandate is to preserve and foster a favorable climate for the insurance business in the country, which is why we have been pushing for the new Insurance Act since 2012. Currently, insurance business in Zambia is governed by the 1997 Insurance Act, which has now become outdated for the most part. We have, however, received assurances from the Ministry of Finance and the Pensions and Insurance Authority that there will be progress made in enacting a new Insurance Act in 2017.

What are the association's goals and strategies for increasing insurance penetration in the country?

Over 95% of Zambians do not participate in the insurance market. The IAZ's target is to have at least 6 million Zambians covered by an insurance policy by 2019. For this, we need to rethink our insurance offering: Currently most Zambian citizens are employed in the informal sector, but most products available from insurers are conventional and only speak to people in formal employment. Microinsurance bridges that gap, catering for those with irregular income. We also look at certain positive insurance policies that can be made mandatory, such as compulsory group life insurance schemes for employers with a certain number of staff. Some of our members partner with mobile service providers, which will also help to open the market to the 11 million mobile phone subscribers nationwide. Finally, in more developed markets, insurers are visible and there is a high level of consumer education, but this is not the case in Zambia, we are trying to change that. A Finscope survey from 2015 found that 42% of Zambians had never heard about insurance. Therefore, the IAZ is mobilizing resources to push the agenda of raising awareness.

What are the main challenges facing Zambia's insurance market?

Aside from necessary changes to legislation, the other challenge is the issue of liquidity. Insurance in Zambia is not provided on a cash-and-carry basis, and by the end of 2015 we had a situation where 52% of premiums were with debtors. This means insurance companies are struggling to pay claims because their money is tied up in debtors, leading to a double setback of high debtors ratio and also stiff competition resulting in undercutting of rates. Prices are being driven down, and we are operating in a soft market with low rates and high-risk profiles. This puts a great deal of strain on companies, with many companies in 2015 not making profits from underwriting. Many managed to scrape through owing to investment income that cushioned their operations. The IAZ is working with the regulator to settle the issue of liquidity and debt management, keep it in line with the industry's growth, and prevent it from potentially stifling the sector. However, we are optimistic that with the new government policy direction of a homegrown economic recovery program and copper prices looking up, these are realistic goals that can be met.