The issue of funeral policies has often been topical on social media in Zimbabwe. A few months back, there were some trending issues regarding a major Zimbabwean life assurance company. It all started on Twitter and gave some much-needed attention to certain issues. That is why it is interesting, some few months down the line, to see this latest development. IPEC recently announced a new set of regulations pertaining to funeral policies in Zimbabwe. IPEC is the Insurance and Pensions Commission of Zimbabwe. The regulatory body is responsible for protecting the rights and interests of insurance policyholders and pension scheme members.
Brief Background Of The Public Pain Points
Over the years, there have been outcries by the public. It was commonplace for most funeral policies do not mature by design. This is a recurrent pain point cited by the public. Another challenge was that of inconvenience when one has a valid claim. Sometimes there would be delays, or one would be told their claim is invalid. According to IPEC, this has been the most reported complaint.
It was also the norm for funeral policyholders to be unreasonably and heavily penalized for terminating their policies. The other problem was funeral policy providers misled the public. To build brand awareness, some would lie about what they offer to lure customers. These are some of the pain points; there are, of course, more. This is why IPEC had to look into the matters and make regulatory adjustments.
IPEC Announces New Regulatory Framework
The new set of directives is with respect to the Treating Customers Fairly Framework launched in 2021 on July 1st. The IPEC Commissioner, Dr Grace Muradzikwa said:
The funeral directive is also issued in order to improve the governance structures and systems for funeral business underwriters for the protection of funeral policyholders.
Summary Of The New Regulatory Framework
Each funeral policy covering a single life shall be limited to a maximum sum assured not exceeding an amount of US$6000 or the Zimbabwe dollar equivalent using the prevailing interbank exchange rate
This means as a funeral policy subscriber, you now pay premiums up to US$6000 (or Zimbabwean dollar equivalent). That is the ceiling for your policy to be considered paid up. Similarly, the same US$6000 is now the premium pay-outs ceiling. Remember, this new regulation comes into effect on 1 July 2023. Let others know.
What Does This Mean Though?
This means you will not continue paying monthly premiums once your policy is paid. Once your premiums get to US$6000, you are done and can only wait to get your payout when the need arises. Before, funeral policyholders had to pay their premiums perpetually till the need arose. That is why policies would not mature, which was unfair to the policyholders. However, an interesting dynamic is at play here when you look at the new regulation.
The US$6000 limit sounds good, but is it not too high? It can still result in a scenario similar to the perpetual payment of premiums. Consider working with any reasonable monthly premium and divide it into US$6000. Whichever scenario will mean paying premiums perpetually? For instance, a US$20 monthly premium translates into 300 months which is 25 years. What do you think about this? I have seen some people raising this concern. It is, however, a ceiling, so you would expect insurers to offer policies below that.
Regarding Grace Periods Before Policy Lapses
There exist regulations that already govern that area. However, it was common for some funeral policy providers to terminate one’s policy as soon as they defaulted immediately. Section 60 (1) (a) and (b) of the Insurance Act (Chapter 24:07) are clear on this matter. IPEC emphasised that funeral policy providers should comply. Here is a summary of the grace period dynamics:
Grace Period: 6 Months – for a policy whose duration of force is 5 or more yet less than 7 years.
Grace Period: 60 Months – for a policy whose duration of force is 25 or more years.
Thus the grace periods range between those two i.e. from 6 to 60 months.
Having Multiple Policies
Where a policyholder has continuously paid premiums for an existing secondary policy and met all the terms and conditions of the policy, he or she is entitled to a cash in lieu of service that is equivalent to the sum assured of the policy
IPEC indicated that funeral underwriters are now obligated to do a full pay-out assured in cases where one has multiple funeral policies.
Of Period Of Annually Renewable Policies
Going forward, all annually renewable policies will have a limit of three years after which they become long-term policies with a maturity date and shall have a term not exceeding 25 years from the date of conversion from an annually renewable policy to a long-term policy. The policy shall mature at the end of the premium paying term.
This means IPEC have limited the period.
That is the latest regarding funeral policies in Zimbabwe. The Zimbabwe Association of Funeral Assurers indicated that they would comply as directed. They did, however, highlight that IPEC did not consider some of their inputs. What are your thoughts on this latest development?