Caleb M Fundanga: The Bank of Zambia and the insurance industry
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the end of year cocktail party
for the Zambia State Insurance Corporation Limited clients, Lusaka, 1 December 2004.
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The Master of Ceremony
The Registrar - Pensions and Insurance Authority
The Board Chairman-Zambia State Insurance Corporation
The Board Chairman-Zambia State Insurance Pension Trust Fund
Madam Managing Director - Ms Muyenga
Distinguished Invited Guests
Ladies and Gentlemen
Good Evening!
I wish to thank the Managing Director of Zambia State Insurance Corporation Limited - Ms Muyenga,
for inviting me and my wife to be the Guest of Honour at this end of year cocktail party. Despite the
fact that the Bank of Zambia is not directly associated with the insurance industry, this function gives
me a rare opportunity to say something about the relationship between the Bank of Zambia and the
insurance industry.
In the past few years, the Bank of Zambia has taken keen interest in the operations and performance
of the insurance companies and pension funds. This is because insurance companies and pension
funds have a direct impact on macro-economic variables, since most of them are leading players in
the Government securities market. Whenever the Government wishes to raise funds, it is these
institutions together with commercial banks that provide them.
Ladies and Gentlemen, many of you will agree with me that the recent downward trend and
stabilisation in the macro-economic variables, such as interest, inflation, and exchange rates, has
induced high levels of investor confidence in our economy. As many of us are aware, a stable
macroeconomic environment is one of the critical ingredients for achieving sustainable economic
growth and, ultimately, poverty reduction, in our country.
In this regard, allow me to reiterate what I have been saying at other fora that the insurance industry
plays a critical role in the economic growth and development of any country. Here in Zambia, the
insurance industry, with gross annual premiums of approximately K273 billion for life and non-life
business, and about K550 billion for pensions, controls colossal sums of money which could be used
for investment locally; and if properly regulated could contribute to developing a strong financial sector
in Zambia.
However, the problem has been that the insurance industry has been under-regulated for many years.
In this respect, it is high time that regulations are put in place to harmonise the operations of this
important industry. I have several times been told that the Insurance Act of 1997 is inadequate in
many areas such as licensing, separation of life and non-life business and investment outside the
country. I have similarly been told that the Pension Schemes Regulation Act of 1996 is equally
deficient.
To make matters worse, the Zambian public has insufficient knowledge of insurance matters. In
addition, the industry itself has failed to co-operate to enable it handle mega risks and stop the
externalisation of insurance funds.
Unlike the Bankers Association of Zambia (BAZ), whose existence and strength is cemented by the
banks themselves, the insurance industry has a very loose arrangement about how it should promote
a common front. There is neither a written nor binding memorandum of understanding among the
insurance companies to foster cooperation on some of the thorny issues confronting the insurance
industry today!
However, I must acknowledge here, that there is an organisation called the Insurers Association of
Zambia (IAZ), whose membership is compulsory but which may not be very strong in guiding its
membership.
Ladies and Gentlemen, from my observation, the insurance and pension industry in Zambia is facing
many challenges. These include:
1) Amendments to the Insurance Act of 1997 and the Pension Schemes Regulation Act of 1996
so that laws and regulations that impose stricter corporate governance practices and
structures in all institutions managing pension and insurance funds are introduced;
2) The Investment Act must be harmonised with the Insurance/Pensions Acts in such a way
that all insurance companies formed or already formed must have local ownership/equity
partnership. This would greatly contribute to minimising capital flight and huge repatriation of
dividends;
3) Need for the establishment of a national re-insurance company to avoid capital flight;
4) Insurance companies need to harmonise their operations so that clients benefit from fair
competition. In other words, data on operations for all insurance companies should be
captured easily for planning purposes; and
5) Along the same lines, the insurance companies should focus on their core-insurance
business, as this has the effect of reducing outflow of capital.
If insurance companies had an avenue for co-operation amongst themselves, some arrangements to
compensate for fore-gone income on ceded commission could be worked out under the co-insurance
programme.
In this regard, I call upon my counterparts at the Pensions and Insurance Authority (PIA) to strictly
supervise the industry in order to ensure, among other things, the proper investment of the insured
funds. On our part as the Bank of Zambia, we would like to assure you of our continued support, and
our doors are open for consultations.
As I do not want to take much of your leisure time, I wish to conclude by thanking you, once again, for
according me the opportunity to share my thoughts with you. To this end, I wish you all a Merry
Christmas and profitable New Year. Please, have a pleasant evening!
I thank you.