Insurance industry: historical perspective

By Chungu Katotobwe

Insurance is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. Insurance and Assurance are interchangeable words. In Britain they use Assurance and in USA they use Insurance. In Zambia, we generally use the term Insurance. The insurance company sells insurance, while the buyer or policy holder is the person or entity acquiring insurance cover. The charge or fee for the insurance cover is known as premium. How much premium one pays is determined by the extent or the magnitude of what is being insured. Hence the insurance companies would charge higher premiums to insure massive properties and lower premiums to insure a house just as an example. This is so because the insurer will have to compensate the insured in case of any damage or loss of property In Zambia, there is a general misunderstanding that all insurance is costly for the reason that most Zambian’s first situation requiring buying of insurance is during motor vehicle registration, which is mandatory. The industry indirectly helps to eliminate risks, in that insurance companies demand the implementation of safe practices and the installation of fire extinguishers in fire prone installations. They also help spread risks from the individual to the larger community. Insurance in Zambia mostly comprises the traditional short term insurance products namely; fire, motor, construction, liability insurance to mention a few areas. The seeming popularity of some short term products is mostly as a result of mandatory requirements. Motor vehicle insurance and construction of a major works. The Insurance Association of Zambia (IAZ) has been working in tandem with insurance companies to see to it that Zambian insurance companies grow and move beyond the traditional short term products market and penetrate the more profitable markets. With adequate awareness among the general populace across the breadth and width of the country, insurance companies can attract more clients. The turnover would be higher. Risk is always our uninvited guest in almost everything we do in life. You only part ways with risk the moment one dies or in the industry, when a business is liquidated. So what is cardinal is how we manage risk both at a personal level, as in safeguarding our properties and at a business level, ensuring that in case of damage or unforeseen eventualities, we ultimately get compensated for every loss incurred. I will define risk management as a deliberate undertaking, or activities that are well coordinated to minimize or control unexpected eventualities that may result in losses for a given business entity. In this modern world, insurance is also considered as a factor when you intend to access loans from banks. The banks are comfortable with collateral that is insured, to hedge themselves against unpredictable events that may result in losses for the bank. Hence, beyond question every entity requires to have a realistic understanding of what their risks are and make deliberate effort to insure themselves and thereby, avoid business or work stoppage arising from accidents. It is also imperative that individuals secure their properties through insurance and guarantee their income long into retirement in order to enjoy a comfortable livelihood beyond one’s productive age. We have various insurance products available on the market such as life, accident, fire liability to mention but a few. Often people ask themselves whether all this insurance is really necessary. The predominant type of insurance is the home owners insurance. This product covers the building structure as well as the contents. This coverage is flexible and may depend on the needs of specific clients. Property insurance is accessed through a written contract known as a policy and is a legal document that binds the client and the insurance company to abide by the contract terms. Insurance dates back to early human society. We know of two types of economies in human societies: natural or non-monetary economies (using barter and trade with no centralized or standardized set of financial instruments). Today we have monetary economies with markets, currency, financial instruments and so on. Insurance in the former case implies agreements of mutual aid. If one family’s house gets destroyed, the neighbors’ are committed to help rebuild it. Granaries presented another early form of insurance to indemnify or hedge against famines. These types of insurance have survived to the present day in countries or areas where a modern money economy with its financial instruments is not widespread. Property insurance as we know it today can be traced to the Great Fire of London, which in 1666 charred more than 13,000 houses. The devastating effects of the fire converted the development of insurance – from a matter of convenience into one of urgency. A number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and eleven associates established the first insurance company that addressed fire accidents. Initially, 5,000 homes were insured by this Insurance Office In the United States, until the passage of the Social Security Act in 1935, the federal government did not mandate any form of insurance upon the nation as a whole. With the passage of the Act the new program expanded the concept and acceptance of insurance as a means to achieve individual financial security that might not otherwise be available. Historically in Zambia people generally perceived the number of children they had as an insurance policy in old age. The more children a couple had the better their fortunes in old age. Therefore, tradition encouraged families to bear as many children as was biologically possible. Insurance was unheard of then and pension was not considered to be enough security in old age. Children were expected to look after their parents when they were no longer productive. Modern insurance in Zambia began around 1968 with the formation of Zambia State Insurance Corporation (ZSIC). This coincided with the nationalization of the Insurance industry using the Cessation and transfer of business Act. At the time, the Law stated that no other insurer will conduct insurance business except through Zambia State Insurance. Nationalization came with its own challenges. The main challenge was that ZSIC lacked competent human resource. ZSIC Management entered negotiations with foreign companies to engage expatriate staff. Training of Zambians was treated as a matter of urgency hence the formation of the Zambia Insurance Business College Trust (ZIBCT). Much later, in 1991, the Act which disallowed other insurance entities to conduct insurance business was repealed. In 1992, several new insurance companies came onto the market, first entrants being Madison and Professional Insurance. At the time no regulatory institution existed. Later in 1997, the Insurance Act was enacted leading to the establishment of the Pensions and Insurance Authority as the regulator. In 2005, the Insurance (Amendment) Act No 26 was passed instructing all insurance companies to categorize/split their short term – general insurance and long term-life insurance businesses. This resulted in restructuring of ZSIC. The main reason for the restructuring and compliance exercise was to make ZSIC more innovative in its products and systems so they could perform better and in a more cost effective manner. In December, 2008 an exercise called Rebranding and Unbundling of Zambia State Insurance Corporation was started.   After this exercise, Zambia State Insurance Corporation was re-branded and unbundled and now comprise three separate companies that operate within the group, namely; ZSIC Limited, the Holding company, ZSIC General Insurance for short term business and ZSIC Life to handle the long term business. All this was in an effort to make ZSIC more robust and competitive. Since then Zambia’s insurance industry has grown by leaps and bounds with the following players as at 31st August 2016: According to (Pensions and Insurance Authority) Reinsurance Companies(03), Reinsurance Brokers (02), General Insurance Companies (22), Long-term Insurance Companies (12),Brokers (45), Insurance Agents (223), Claims Agents (10), Motor Assessors(11), Loss Adjustors (08) and Risk Assessor (01).