eBusiness Weekly
Tawanda Musarurwa
Today’s customers, be they individuals or corporate buyers, have more information than ever and — at least theoretically — are better decision-makers when it comes to selecting products.
Customers are naturally inclined towards products or services that either solve their problems or give them value.
In this regard, numbers don’t lie.
Zimbabwe’s short-term insurers offer various insurance classes, but only three — motor vehicle (at 29,45 percent), fire (29,03 percent) and engineering (26,12 percent) — accounted for 84,6 percent of the sector’s Gross Premium Written (GPW) in the six months to June 30, 2020.
Over that period, total business written for the three classes of business amounted to $2,32 billion, figures from the Insurance and Pensions Commission (IPEC) show.
Although very essential, it remains debatable if the motor vehicle insurance segment dominates other classes because it is a Statutory requirement for all cars to be insured. But the fire and engineering classes are certainly by choice on the part of the insured.
This begs the question: why has the uptake of other insurance segments remained low?
According to latest official data, the balance of the insurance segments account for the sector’s GPW as follows: Agriculture (1,45 percent), aviation (0,01 percent), bonds/guarantees (3,42 percent), hire purchase (0,23 percent), marine (2,01 percent), miscellaneous accident (2,22 percent), personal accident (4,34 percent), and personal liability (1,17 percent).
This is not to say that these classes are not relevant per se, but perhaps they are not speaking to what Zimbabweans value. Or perhaps the categories are just too generic.
Product relevance could be a critical factor as to the low uptake of these insurance products, as recently indicated by Insurance Council of Zimbabwe (ICZ) executive officer Tendai Karonga.
“The survival of the short-term insurance business is hinged on innovative responses that ensure offering insurance products that are relevant in addressing consumer needs,” he said.
The sector regulator has continually highlighted the need for local players to develop relevant products.
“Insurance players are encouraged to be innovative and design new products that satisfy market needs considering the disruptions brought about by the Covid-19 pandemic,” said IPEC in its latest Short-term Insurance Report.
With regards to agriculture insurance, as a case in point, it’s difficult to sustain an argument that the class is not relevant, given the importance of agriculture to Zimbabwe’s economy as borne out by the fact that the sector contributes about 17 percent to gross domestic product (GDP) and about 60 percent of raw materials to the manufacturing industry.
There is a possibility, however, that insurers have not innovated with regards to the structure of available policies.
Let’s take one of Zimbabwe’s biggest foreign currency earners — tobacco — for instance.
Prior to the land reform programme, around 1 500 large-scale tobacco farmers of about 4 500 commercial farmers (predominantly white) produced 97 percent of tobacco in 2000, but the number of indigenous smallholder farmers had risen to 110 000, producing around 65 percent of the crop by 2013.
Do existing agriculture insurance policies cater to the needs of the new indigenous tobacco producers?
“The main consumers of agricultural insurance are commercial and contract farmers,” said Mr Karonga.
“Despite the positive performance (in the six months to June 30, 2020), the uptake of agricultural insurance remains subdued due to various factors as follows: lack of insurance products that address the needs of smallholder and subsistence farmers who are the majority in Zimbabwe following the land redistribution exercise; mistrust in insurance services; reliance on traditional self-insurance in risk and loss management, and thin profit margins in the sector particularly for small scale commercial and subsistence farmers.”
Apparently, local insurers are missing a beat.
In a paper titled ‘Modernising insurance product development’, Deloitte Centre for Financial Services insurance research manager Michelle Canaan posits that insurers need to come up with offerings that meet market-driven expectations.
“If insurers fail to adapt to meet the demands of emerging industries, they run the risk of seeing more premium dollars shift to alternative markets.
“Such has been the experience in the property-catastrophe space, where innovation has taken place outside the insurance industry, with substantial market share shifting to the capital markets.”
Effective innovativeness is particularly important for local short-term insurers, which have long been weighed down by a difficult operating environment that has been made even more complicated by the Covid-19 pandemic.
