HOW THE LOCAL INSURANCE SECTOR IS TURNING THE CORNER

Stanbic Insurance Brokers see growing opportunity for inclusive insurance in Zambia.

By Chilufya Ngoi-Nyirenda

Zambia’s private sector has taken a massive hit during the first half of 2020 as a result of the COVID-19 virus pandemic.

While the relief interventions by government and other institutions are commendable, there is a serious need for us to put as much effort into exploring ways in which we could avoid a repeat of the devastation the partial lockdown has inflicted on local businesses going forward. 

This disease is by no means the worst pandemic to hit the planet nor is it likely to be the last, yet one thing that is certain is the impact it has had on various aspects of our lives, including the economy.

It is, therefore, vital for businesses and individuals to use the current situation as a learning opportunity so we could be better prepared to face the next major crisis that may hit our economy.

The starting point

The disruption to trade notwithstanding, anecdotal evidence suggests part of the reason why most businesses, particularly SMEs were so heavily impacted by the pandemic is that they were ill-prepared for the shocks the virus had on their value chain.

Few SMEs in Zambia set aside resources to hedge against unforeseen eventualities. And if – as in this case - the seemingly distant risk comes to pass, the negative impact is exacerbated by the lack of mitigating measures.  

When the virus hit, many businesses and individuals found themselves faced with a sudden loss of income coupled with a rising cost of operation thanks to disrupted supply chains and safety measures they had to implement to stay open in line with government directives.

Part of the problem

Despite being a critical part of building a sustainable business able to survive various setbacks, through risk management and asset protection, insurance is still largely seen as a non-priority cost by many entrepreneurs.

The perception is not much better at individual level, as most people do not recognise the benefit of protecting themselves against unforeseen losses, resulting in a low uptake of policies.

Further, Insurers have over the years struggled to sustain policies meant to reach low-income households and individuals due to the restricted scalability of the insurance plans in their bracket. The low premiums coupled with generally high administration costs not only make upscaling the plans difficult but also entail low profit margins for the insurer.

New Dawn

In recent years, the local insurance sector has made marked strides in overcoming the historical challenges – particularly those in the medium to low income bracket.

We are now seeing entities like Stanbic Insurance Brokers Zambia (SIBZ) leveraging digital platforms and strategic partnerships to shave-off some of the operational costs associated with dealing with medium- to low-income groups, and allow more flexibility in premium payments and policy pricing.

One of the most important drivers of growth is customer focus in the context of product development.

Insurers need to move away from the habit of creating pre-designed products and actively engage their clients to create solutions that are relevant to their needs to avoid a mismatch between client needs and insurance products.

A perfect example is the current COVID-19 outbreak, while insurers cannot cover businesses for the disease as it is officially classed as a global pandemic, they could provide cover for other risks people may face as an indirect result of the prevailing economic slow-down.

Trying to shoehorn current problems into old policies will inevitably result in customer dissatisfaction – which risks harming the already fragile trust between the public and the insurance sector.

However, creating market relevant products does not fall on the insurers alone, the public has a duty to shape the local insurance sector by actively engaging insurers and getting involved in developing market relevant products.

There is no ‘one size fits all’ with insurance, there must exist specific cover for specific risks which can vary greatly between individuals and businesses.

Policy intervention

The need for customers to understand the policy they are buying can hardly be overstated. All too often we hear of people paying for a policy thinking it is providing cover against one thing when it is not thus leaving the client as vulnerable as they were before they bought the policy.

To counter this, the Pensions and Insurance Authority (PIA) issued a directive that compels insurers to provide their clients with Key Fact Statements (KFS). These statements breakdown insurance jargon to help clients understand the provisions of a policy before they sign up. 

The KFSs ensure a customer is availed with all the key information about a policy beforehand to help them make more informed choices.

This directive was part of several other guidelines introduced by the authority to help bridge the gap between insurers and the public in the hope of demystifying the sector thus making it more relevant at business and individual level.

Such policy interventions are timely because they help cultivate trust between the client and insurer at a time when the need for businesses to make risk management a key part of operations is clearer than ever thanks to COVID-19 - albeit in hindsight.

If all stakeholders work together to create an environment that encourages customer participation in product development, Zambia could start to see significant growth in insurance penetration rate within the decade.

Market relevant insurance products can play a leading role in helping businesses manage their risks and protect their investment when hard times hit.

 A thriving business sector will not only help create employment but will also support economic growth in the country.

-Ends

Chilufya Ngoi-Nyirenda is Stanbic Insurance Brokers Zambia Ltd Chief Executive Officer.