The Insurance and Pensions Commission (Ipec) says it has engaged a consultant to put together a risk-based capital framework as it aims to offer improved protection to policyholders.
A risk-based framework measures the minimum amount of capital that an insurance company needs to support its overall business operations and is used to set capital requirements in line with the size and degree of risk taken by the insurer.
The framework intends to determine the capital that each insurance company should hold based on the risks that it assumes instead of just having a one-size-fits-all capital requirement approach.
A number of insurance companies have been struggling to meet the minimum capital requirements, exposing policyholders to risk.
The minimum capital requirement for life assurers is currently US$2,5 million for non-life assurers and funeral assurers and US$5 million for life assures.
However, as at December 31 2017, the total industry net assets or shareholder funds based on unadjusted assets and liabilities amounted to US$457 million, a growth of 4% from US$439 million in 2016.
The unadjusted capital positions for life assurance players ranged from US$2,1 million to US$272 million and only three out of 11 primary life assurers were non-compliant with the minimum capital requirement of US$5 million.
Ipec manager (pensions) Nhau Chivingira told businessdigest on the sidelines of an insurance awareness commemoration in Gweru last week that the work which began on July 1 is expected to take about 15 months after which the implementation would take place.
While the framework is not reviewing minimum capital requirements, Chivingira said it is meant to protect policyholders from the risk of being unable to get their benefits after contributing.
"The framework seeks to align the insurer's capital with the risk that the company is assuming. One could be depositing their premiums with a poor credit rating while another is using one with a better credit rating.
It means the one using a bank with a poor credit rating will be required to have more capital because of the risk attached to it. So it might actually bring the requirements up for some and lower for some but it won't go lower down the minimum capital requirements. It will look at a number of other risk issues," he said.
Currently Chivingirai said there is concentration on comparing an insurer's capital against minimum capital requirement notwithstanding the extent of exposure to different risks.
"This would then mean that some insurers comply with the minimum capital requirements yet they cannot withstand the risks they are exposed to or will have assumed," he said.
The framework will also help to provide for early warning systems that enable the commission to take necessary corrective measures timeously in the interests of policyholders.