The bond notes introduction as a measure to alleviate cash shortages was novel at best. At introduction the bond note was given a value equal to the US dollar. Due to a number of factors, US dollars have become scarce in the market and that has left the market with a dim view of the Bond notes. Further, the Reserve Bank of Zimbabwe directive to banks to separate US Dollar balances and RTGS Balances finally made it clear that Bond notes are not equivalent to US dollars. This directive led to the decline of the Bond Notes value , as now 1USD = 3.5 Bond Notes on the parallel market. The insurance industry has not been spared by this. 

Underinsurance / Inadequate Cover

The fall of the bond notes has presented a genuine problem of valuation of insured assets. Amounts in bank accounts and other electronic forms are deemed to be Bond Notes/RTGS values. All insurance policies are thus considered to be RTGS/Bond Notes policies.  Insurance policies work on a defined benefit principle, items are insured to a specific value.  In the event that something unfortunate happens, the insurance company would pay out up to the defined amount of cover to reinstate the insured party.

As the USD:Bond Notes rate increased, the values of assets in Bond Notes value also shot up. The disparity between the insurance cover amount and replacement costs means there’s a shortfall in cover which leaves many exposed to loss.  The cover level for any asset will need to be increased to fully cover its replacement cost and that means a further increase in your insurance premium.

You may have valued your car at $5 000 in January, but it’s now worth $18 000 in Bond notes value as we showed in this article. This means you are now under-insured. In the event of a loss, even if you are given the $5 000 by the insurance company, you will not be able to replace your car.

Increased premiums

The fall in the value of the bond note has been met with increase in prices with official year on year inflation coming in at 20.85% for the month of October based on the Consumer Price Index which measures prices of basic goods. However, other prices of consumables, spare parts, building materials, labour etc have rapidly increased in excess of 100%. As a result, most insurance companies have increased premiums.

Nostro FCA Insurance Policies

Insurance companies have now introduced Nostro FCA Insurance policies. The Nostro FCA insurance policy is valued in US dollars and premiums are paid in US dollars. The USD premiums are lower as compared to the Bond Notes premiums. You will have to pay premiums using USD cash, a Nostro FCA bank account, or an international MasterCard. This means in the event of a loss, the payout will be in US Dollars. Thus it’s unlikely that you will end up being under-insured as the price of assets in USD terms is relatively stable.

What you should do

It’s important that you contact your insurer, and adjust your cover to match the current Bond Notes Value. Increase in cover will mean your premium will increase, thus you will be paying more than before. Your insurance company will calculate the topup premium you should pay for the remaining term of your policy. Alternatively, you can open an Nostro FCA Insurance policy, and pay premiums in USD.

Insurance is now expensive

The problems created by the fall of the bond notes value leave many insured people exposed. With increased premiums and a need to increase cover amounts, the costs may become unaffordable for some. The concept of foreign currency denominated insurance policies is a relief to some but given the scarcity of foreign currency in the country, it is a solution that may not be accessible to many. Many people are now questioning the need of taking insurance when they will not be fully covered in the event of loss.

Have your insurance policies been affected by the fall of the bond note? Or perhaps you’ve had an experience that I haven’t captured in this article? We’d love to hear from you.