Insurance companies in Zimbabwe are likely in a celebratory mood right now after the gazetting of Statutory Instrument 268 of 2020. In essence, the statutory instrument provides that insurance companies can receive premiums and process claims in US dollars. SI 268 is an amendment to SI 212 of 2019.

Insurance companies had felt the brunt of the reinstatement of the Zimbabwean as the official legal tender. There was a public outcry on the viability of maintaining basic insurance policies such as health policies where the costs had left the realm of sensibility some time ago. Being unable to serve clientele adequately was threatening the long term prospects of insurance companies. 

Generally speaking, insurance companies are the only business in the finance world with a model that flouts the matching concept. Matching encourages the use of short term funding for short term projects and long term funds for long term projects. Insurance companies play a little differently and can fund long term projects with short term funds as long as they are liquid enough to do so. This liquidity hinges on keeping the premiums flowing inconsistently.

Dollarisation, is that you?

This latest move has sparked a conversation about dollarisation again. At a time when the country is on a de-dollarisation road map that includes reinstating the US dollar as legal tender the addition of insurance premiums and claims being denominated in US dollars to the conversation makes for one very confusing de-dollarisation attempt. While the Zimbabwean dollar has achieved some stability on both the parallel market and the Official Auction system there are still many who advocate for a return to the US dollar. What we should always bear in mind is that while then Minister of Finance and Economic Development Patrick Chinamasa announced dollarisation or rather the multi-currency era in February 2009 the economy had been slowly dollarising up to that point. The official word tends to come after the fact in Zimbabwe.

Zimbabwean dollar holds steady 

The Zimbabwean dollar continued it’s slow and predictable creep on the foreign currency auction market. It lost negligible ground against the US dollar trading at 81.6741 compared to 81.6740 the previous week. This compared to the parallel market which has seen rates settle somewhere between 90 and 105 to the US dollar.

Zim dollar exchange rate

Insurance companies and pension funds will breathe a sigh of relief although the same cannot be said of all their customers. It is not beyond them to start pushing their best features and benefits towards US dollar-denominated policies. Wither those who cannot afford to pay the piper.