INSURANCE BILL [H. B. 1, 2021]
Fifth Order read: Second Reading: Insurance Bill [H. B. 1, 2021].
HON. DR. NYASHANU: Thank you Madam Speaker Ma’am. I rise to present a report on the Insurance Bill by the Committee on Budget, Finance and Economic Development.
1.1. Since the attainment of independence in 1980, there has been very little progression in terms of strengthening the regulatory framework in the insurance and pension industry, which resulted in legislative and policy gaps. The Insurance Bill, which was gazetted on 10 September 2021, seeks to repeal the current Insurance Act and usher in best practices which have long been missing in the industry as well as enhance protection for policy holders. The Bill also seeks to align the laws in the sector with the Constitution and the Justice Smith Commission of Inquiry of 2017.
1.2. The review of the envisaged laws governing insurance, public and private occupational pension funds should facilitate for the recommended reorganisation of the insurance and pension industry. This process of legislative reforms once completed would present a new era in the insurance and pension sector, particularly stabilising the sector which contributes immensely to economic development as the country strives to become an upper middle income economy by 2030.
2.1. In 2014, Cabinet approved the key principles to regulate the carrying of insurance business in Zimbabwe and to repeal the current Insurance Act (Chapter 24:07). However, the process never saw the light of day until the coming in of the new dispensation, which has shown commitment in aligning the laws with the Constitution and addressing the concerns raised by the Justice Smith Commission of Inquiry as well as to align the sector with international best practice.
2.2. One of the challenges raised by the Commission of Inquiry was loss of value attributed to insurance companies and pension funds which failed to index contributions, premiums and benefits to inflation; arbitrary and prejudicial conversion methods from ZW$ to US$; arbitrary terminations of products and closures; pension contribution arrears; failure to separate insurance, pension and shareholder assets; poor record-keeping as most institutions could not account for assets; investment returns and individuals’ contribution records; poor corporate governance practices; unsustainable administration and other expenses as high as 300% of pension contributions as well as compromised provision of actuarial services and absence of skills.
2.3. In light of that, there was urgent need to revamp the sector through reviewing the legislation to address such discrepancies and loopholes that have negatively impacted on the sector.
3.1. Section 141 of the Constitution requires Parliament to engage the general members of the public in its legislative processes and consult them on any Bills being considered in the August House. Therefore, in fulfilment of this constitutional obligation, Parliament through the Portfolio Committee on Budget, Finance and Economic Development conducted public hearings on the Insurance Bill to gather the views of the key stakeholders and the people of Zimbabwe.
3.2. In light of the technical nature of the Bill, the Committee invited the Insurance and Pension Commission (IPEC) to unpack the Bill prior to conducting public hearing in selected provinces in the country. The Committee was then invited to participated at a two-day workshop at Leopard Rock Hotel, Mutare where the Bill was unpacked by IPEC.
3.3. Public hearings were then conducted from 13 to 16 March 2022 in Bulawayo, Mutare and Harare. Generally, attendance by the people of Zimbabwe was very poor as only a total of 25 people attended the 3 consultative meetings, as follows, Bulawayo (17), Mutare (1) and Harare (7).
3.4. The Committee then deliberated on the submissions received together with the views raised during the two-day workshop by the Committee and IPEC which forms this report.
4.0. Summary of Submissions on the Bill
4.1. Clause 2 on application of the Act gives the responsible Minister the powers to exempt certain entities from the application of the Bill. The Committee noted with concern that Subsection (b) and (c) must be reviewed as it gives the Minister the powers to gazette a statutory instrument or regulations which can be subject to causing arbitrage in the sector as some insures are exempted while others are not.
4.2. Clause 3 provides definitions of terms used in the Act. The public observed that the definition of the word “premium” as used in the bill was wrong and misguiding from an insurance practitioner perspective. Reference was made to the usage of the word ‘benefit’ in defining ‘premium’ which is normally applied to long term insurances such as life policies and pensions. The public argued that the word ‘benefit’ does not apply in paying a short term claim. Hence it was recommendation that IPEC should assist with the actual definition of the word ‘premium.’
4.3. Clauses 6 and 7 on registration of insurers raised so much debate among Committee Members who felt that there was need to put minimum qualifications for registration of an insurers in addition to other requirements outlined in the Bill. The Committee also suggested that an additional clause be included which requires the Commission to complete the registration process within 21 to 30 days from the date of receipt of an application.
Clause 7 on registration of insurers by the Commission. Subsection (2) (iii) which requires ‘at least half of the applicant’s directors’ are either citizens or permanent residents of Zimbabwe must be amended to read ‘at least two thirds of the applicant’s directors.’
4.4. Clause 10: The Committee highlighted the need for a new insertion (d) which mandates the Commission to also publish any notice of registration and of cancelation of registration of an insurer on the website in addition to those proposed in the Bill. Then the current subsection (d) becomes (e).
4.5 Clauses 11 and 12 provides for the registration of insurance brokers, loss adjusters and insurance surveyors. The subheading for clause 12 is not complete as it states that, “Registration of insurance brokers, etc.” However, the public noted in a Bill, all subheadings must be complete and specify exactly what they seek to achieve. Thus, it was proposed that the subheading be completed and also to include a new insertion for registration of other players in the market, such as claims settlement agent to cater for the small insurance agencies or other agencies in the sector.
4.6. Clause 14 on the cancelation of registration of insurance brokers, loss adjusters and insurance surveyors, it was also proposed that all gazettes be standardised and published also on the website in addition to other proposed medium of communication.
4.7. Clause 33 was welcomed by the stakeholders in the industry as it is a new provision. Currently, the Minister make use of a directive through a statutory instrument to provide for board of registered insurer and insurance brokers. However, concerns were raised on the manner in which the word ‘insurer’ is being used to refer to three different aspects.
Firstly, the insurance companies, secondly, the re-insurance companies and thirdly to other insurance players. This was highlighted to be potentially confusing in the insurance market. Recommendations were made on this logjam, highlighting that there is need for the bill to distinguish the insurance players and not necessarily use the word ‘insurer’ to refer to any insurance player. Specific reference on the likelihood for confusion in clause 33 was made on where an insurer is referred to as an ‘insurance company’ and subsequently called an ‘insurance broker’ in the same subsection. Emphasis was therefore made on the need for clarity on the actual names given to insurance players.
4.8. Clause 36: The public raised concern on the definition of “significant interest” given in the Bill. The public posited that clause 36 failed to provide specific information on when and how the commission would be defining and quantifying the interest. Members of the public also recommended that there should be clarity on the process in the event that an insurance company is a public listed entity.
Subsection 2 of the Clause must also be reviewed. The Committee noted with concern that the term ‘knowingly’ must be deleted so that it does not create confusion in the interpretation of the law.
4.9. Clauses 37 and 38 are new provisions to curb abuse of shareholder funds through investing in off-shore markets. The Committee welcomed the idea of having IPEC to approve all opening of subsidiary branches outside the country as it will seek to safeguard the best interest of the country.
4.10. Clause 39: Members of the public welcomed clause 39 which seeks to encourage the sharing of policies and the creation of procedures on how insurance companies can share a particular risk. They however called on the Committee to ensure that the Bill specifically highlights “co-insurance” in the clause which indicates that two entities can agree to jointly insure against a risk.
4.11. Clause 41: The public recommended that the requirement in this clause for brokers to remit premiums timeously with seven working days be reviewed. Firstly, the use of the term insurance broker alone is not adequate. The provision must apply to every registered insurance broker, insurance agents or other parties that receive premiums. Secondly, the prescription of seven working days is problematic as it becomes a long time in a volatile environment. Thus, the people and the Committee recommended that IPEC from time to time review through regulations of delegated law the period depending with the market volatility.
4.12. Clause 44 requires the Commission to request insurers to furnish information regarding their liabilities or valuation of the insurers’ assets. However, in the event that the Commission is not satisfied with the information provided, Subsection 2 mandates the Commission to cause an independent evaluator to provide such valuation of liability or assets. However, the Committee felt that subsection 3 be amended to ensure that the commission shall bear the cost for causing any independent valuations. This has been suggested as measures to ensure that the Commission will also not request for valuation on flimsy grounds.
4.13. Clause 49 on the percentage of assets that can be maintained in Zimbabwe or abroad. The Committee noted with concern the open ended check given to IPEC to determine the percentage of total assets which may be maintained outside Zimbabwe by a registered insurer. Therefore, the Committee proposes that a limit of 25% of the assets can be maintained outside Zimbabwe in line with precedent set in the Pension and Provident Fund Bill.
4.14. Clause 79: provides for arbitration and the courts procedures as recourse for disputes. Given the possibility that small and micro policy holders may not be able to afford the arbitration process, the public recommended that there should be a provision in the Bill for embedment services or an inclusion of a specialised small claims unit at IPEC which handles such kind of disputes.
4.15. Clause 80: provides for the sum insured to be in the legal tender of the Zimbabwe. This is a new provision, which the Committee felt that it must be removed and left to be prescribed under regulations since the Zimbabwean dollar currency is volatile.
4.16. Clauses 81 – 82: provides for legibility of printed policies and electronic policies. The Committee felt that this provision must be removed and be left for inclusion under regulations since it is more administrative and too prescriptive. However, members of the public also submitted that there has to be a definition of what an electronic policy is to avoid confusion and misinterpretation.
4.17. Clause 83: Members of the public submitted that both parties in the insurance contract should be equally responsible for ensuring disclosure of certain material facts. They noted the fourteen (14) day requirement for the insurer to provide the insured with a clearly legible policy document was too long. It was recommended that this period be reduced to seven (7) days so that service delivery will not be affected in the event of a claim within that period.
4.18. Clauses 84 and 85: Members of the public recommended for clarity on the use of the word ‘insurance broker’ under this clause. Moreover, emphasis was made on the need to include the ‘duty to disclose by the insurer’ in clause 85. Members of the public also recommended re-wording of clause 85 where a broker can act on behalf of the insurer implying a broker as only an agent of the policy holder.
4.19. Clause 86: Members of the public recommended that the clause should also stipulate the terms that should accompany a policy that is issued on a credit basis.
4.20. Clause 89 on registration of death of children under fourteen years of age does not comply with the Constitution which defines a child as any boy or girl below the age of eighteen. Thus, the provision must be amended in line with the Constitution.
4.21. Clause 108 provides for days of grace, paid up policies and non-forfeiture provisions of funeral policies. The Committee noted that subsection 10(i) where a maximum maturity period for every funeral policy is set at twenty-five years is too long a period for one to be contributing premiums. It was recommended that the period of twenty-five years be amended to ten years.
4.22. Clause 126 provides for the Commission to prescribe minimum and maximum premiums. However, the Committee felt that regulation of premiums must be based on the sum assured and the Commission must develop a formula determining the premium.
4.23. Clause 129 provides for an annual report to be submitted within 6 months to the Minister by the Commission. The current act is silent about deadline. Thus, the Committee welcomed the new provision which seeks to synchronise and rationalise this process to be in line with best practice of producing and submitting reports within six months.
4.24. Clause 135 is a new provision on currency conversion. The provision seeks to ensure that policy holders are not prejudiced of their premiums by providing the steps to be followed in any eventuality by every insurer. This provision was welcomed by the Committee as it seeks to factor in all the economic risks such as inflation and currency instability that may arise in the country in line with the Commission of Inquiry recommendation.
4.25. Clause 140: provides for regulations by the Commission. However, the Committee highlighted that this provision must be amended to refer to the responsible Minister through the Commission and not the Commission to make regulations as provided for in the Bill. It was noted that the Minister administers an Act of Parliament and not the Commission.
- Committee Observations
5.1. That under Clause 2, the following subsection (b) and (c) be reviewed so that the Minister does not carry too much powers to gazette a statutory instrument or regulations exempting certain entities from the application of the Bill. The Committee noted with concern thatthis Clause may cause arbitrage in the sector.
5.2. That although the Insurance Bill is a welcome piece of legislation that sought to strengthen the insurance industry, the wording within the Bill needed to be given due diligence. The Committee was of the view that due to its technical nature, it was pertinent that Clause 3 of the Bill on Interpretation should clearly define key provisions such as “assets”, “insurer,” “premium” and provide proper wording to distinguish such among the insurance players. This was emphasised to be critical in eliminating vagueness and confusion that may arise in interpreting some of the provisions of the Bill.
5.3. That any reference to the term ‘approved’ in the Bill be removed and be replaced with ‘prescribed’ which is more authoritative and ideal.
5.4. That an additional clause be included under Clause 6 on insurers to be registered to call upon the Commission to complete the registration process within 21 to 30 days from the date of receipt of an application.
5.5. That the term “significant interest” in Clause 36 be clearly defined and provide specific information on when and how the commission would be defining and quantifying the interest.
5.6. That the idea of having IPEC to approve all opening of subsidiary branches outside the country in Clause 37 and 38 is a welcome development as it will seek to safeguard the best interest of the country.
5.7. That the fourteen (14) day requirement for the insurer to provide the insured with a clearly legible policy document in Clause 83 was too long. The Committee is of the view that that the process be reduced to seven (7) days so that service delivery will not be affected in the event of a claim within that period.
5.8. That while Clause 86 of the Bill recognises that some policies can be offered on credit, it is critical that the Bill stipulates the terms and conditions that should apply to a policy that is issued on a credit basis.
5.9. That they allow the Commission to prescribe minimum and maximum premiums in Clause 126 must be removed given that a premium must be self-regulatory rather than regulated. The Committee is of the view that market forces must be allowed to determine such premiums.
5.10. That Clause 140 be amended to allow the Minister to gazette regulations instead of the implementing entity, the Commission.
5.11. That the conferment of investigative powers to the Commission in Part XII of the Bill is a welcome development. However, it is not so clear if the Commission can have arresting powers.
6.0. Committee Recommendations
6.1. That the Act must apply to every player in the sector and the proposal for an exemption be removed.
6.2. That interpretation of key terms used in the Bill such as “assets”, “insurer,” “premium,” “significant interest “insurance brokers,” “insurers”, et cetera be clearly defined to avoid vagueness and misinterpretation of the law.
6.3. That the fourteen (14) day requirement for the insurer to provide the insured with a clearly legible policy document be reduced to seven (7) days to ensure efficient and effective service delivery in processing claims and policies.
6.4. The 7-day period of collection of premiums should apply to all people including insurance agents who collect premiums and not only to brokers.
6.5. That the Bill be clear as to whether the conferment of investigative powers to IPEC warrants it to have arresting powers.
6.6. That the provision which states that, ‘at least half of the applicant’s directors’ are either citizens or permanent residents of Zimbabwe in Clause 7, subsection (2) (iii) be amended to read ‘at least two thirds of the applicant’s directors.’
6.7. That the subheading for Clause 12 which reads as follows, “Registration of insurance brokers, et cetera.” be amended so that it is complete and straight forward.
6.8. That the Bill clearly stipulates the terms and conditions that should apply to a policy that is issued on a credit basis.
6.9. That Subsection 2 of Clause 36 be reviewed and remove the term ‘knowingly’ which may create confusion when interpreting the law.
6.10. That under Clause 41, the period of seven working days be removed and allow IPEC to prescribe the period using regulations, which may be changed from time to time depending on the volatility of the market.
6.11. That a limit of 25% of total assets of a registered insurer can be maintained outside Zimbabwe in line with precedent set in the Pension and Provident Fund Bill.
6.12. That the period of fourteen (14) day requirement for the insurer to provide the insured with a clearly legible policy document be amended and reduced to seven (7) days so that service delivery will not be affected in the event of a claim within that period.
6.13. That the clause 86 stipulates clearly the terms that should accompany to a policy that is issued on a credit basis.
6.14. That Clause 89 on registration of death of children under fourteen years of age be aligned to the Constitution which defines a child as any boy or girl below the age of eighteen.
6.15. That subsection 10 (i) be reviewed from the maximum maturity period of twenty-five years and ten years.
6.16. That the Commission regulates premiums based on the sum assured while at the same time develop a formula to determine the minimum and maximum premiums.
6.17. That the responsible Minister be given the powers to make regulations to support the implementation of the main Act and not the Commission.
7.1. The Bill is progressive as it seeks to strengthen the Insurance and Pensions industry in line with the international best practices. The bills seek to bring sanity to the Insurance and Pensions industry which for decades has crumbled under a weight full brunt of factors inter-alia legislative shortfalls and macro-economic challenges.
7.2. The Committee therefore implores that all raised observations, the input from the public and recommendations therein be given due attention. I thank you Madam Speaker Ma’am.