A Zimbabwe government appointed independent commission of inquiry to investigate losses incurred by pensioners and policyholders during the conversion from the Zimbabwe dollar to the multi-currency system nine years ago wants tighter legislation on insurance companies and pension funds to protect savings in the event of another currency collapse.
The collapse of the local currency due to hyperinflation, which reached 500 billion percent in December 2008 according to IMF data, left thousands without life insurance and savings when government adopted a basket of foreign currencies to stem the tide in February 2009.
In 2015, government set up the Commission of Inquiry into the Conversion of Insurance and Pension Values from the Zimbabwe dollar to the United States dollar led by retired Justice Leslie George Smith.
“The exchange rate of US$1 to ZW$35 quadrillion, which was used when the ZW$ currency was demonetised in 2015 prejudiced insurance policy holders and pensioners, and it reduced the already worthless ZW$ values that had been deposited in individuals’ bank accounts to just a few US cents, or at a maximum, $5,” said a commissioner, Godfrey Kanyenze before the Finance and Budget Portfolio Committee on Monday.
“The inquiry revealed that loss of value in insurance and pension benefits mainly occurred before the conversion from the ZW$ to US$ and dollarization only revealed the extent of the loss.”
In its report released last month, the commission recommended an exchange rate of Z$13.8 million to US$1. The commission also noted that insurance companies and pension managers did not maintain consistent and reliable asset values during the near decade long hyperinflation period.
There is now need to review legislation governing insurance and pensions like the Insurance Act, the Pension and Provident Funds Act, the Insurance and Pensions Commission Act and the National Social Security Authority (NSSA) Act to protect people’s savings, Kanyenze told the committee.
The commission also wants the government to bring NSSA and medical schemes under the purview of the Insurance and Pensions Commission to enhance transparency, accountability, protection of policyholders and to consolidate the regulation of insurance and pension businesses under one statutory body.
Currency rebasing between 2006 and 2009 under which the central bank removed zeros resulted in abnormally low ZW$ benefit values which, upon conversion to US$ were for some pensioners as low as US$0.05 cents, and in most cases zero, despite years of contributions to pension funds.
“The removal of 25 zeros during the period 2006 to February 2009 resulted in insurance companies and pension funds technically extinguishing their obligations to policyholders and pensioners without any actual payments being made,” said Kanyenze.
Loss of value in insurance and pension benefits mainly occurred before the conversion from ZW$ to US$ and dollarization only showed the extent of the loss, he added. – The Source