The insurance industry in Zambia is regulated by the Pension and Insurance Authority which operates under the Ministry of Finance and National Planning. It derives its mandate from the Pension scheme Regulation Act No. 28 of 1996 (as amended by Act No. 27 of 2005). In December 2022, the long-awaited Insurance Act, 2021, complemented by the subsidiary legislation, the Insurance (General) Regulations, 2022, ushered in a new era for Zambia’s insurance industry. This comprehensive legal framework significantly overhauls the previous Insurance Act of 1997, impacting insurers, reinsurers, brokers, agents, and auxiliary service providers.
While the full impact remains to be seen, several key provisions have the potential to reshape the landscape for insurers and policyholders alike. At Malisa and Partners Legal Practitioners, we’ve been closely following these developments and their implications for our clients in the insurance sector.
Increased Capital Requirements and Risk-Based Approach
The Act introduces a stricter approach to solvency, incorporating the definition of insolvency from the Corporate Insolvency Act No. 2 of 2017 (Section 2 of the Act). Particularly, Licensees are required to have a solvency margin of at least 10% and maintain a Capital adequacy requirement ratio of at least 150%. This expands the risk of being declared insolvent and necessitates higher capital adequacy based on the risks underwritten (Section 64 of the Act). While this promotes financial stability, it may require insurers to increase capital reserves and invest in staff training to implement the new risk-based capital framework.
New Players and Increased Competition
Section two of the Insurance Act recognises medical funds and microinsurance businesses (Section 8 of the Act), potentially introducing new competitors to the market. This can benefit policyholders with more choice and potentially lower premiums, but it also compels established insurers to adapt and innovate to maintain market share.
Enhanced Transparency and Regulatory Oversight
The Act mandates the publication of licence suspensions or cancellations (Section 14 of the Act), increasing transparency in regulatory actions that could significantly impact an insurer’s reputation. Additionally, timelines for claim settlement will be prescribed by the regulator (Section 28 of the Act), potentially reducing the discretion enjoyed by insurers in the past.
Product Pricing and Actuarial Oversight
Life policy premiums will now require approval by a qualified actuary (Section 48 of the Act), ensuring a more data-driven and transparent pricing approach. This fosters consumer trust but may require insurers to adapt their pricing strategies.
Increased Local Ownership and Investment Regulation
The Act stipulates that at least 30% of an insurer’s equity must be owned by Zambian citizens or companies (Section 49 of the Act). This may necessitate restructuring of shareholding for some insurers. Furthermore, the Minister’s authority to issue investment guidelines (Section 68 of the Act) may influence how insurers allocate capital, potentially requiring adjustments to existing investment strategies.
Mandatory Actuarial Appointments and Reinsurance
Previously, only life companies required actuaries; the Act expands this requirement to all insurers (Section 69, as read with Section 70). This strengthens the use of data and risk analysis across the industry. The Act also mandates reinsuring a portion of risk with the National Reinsurance Company (Section 77(2)). While this promotes local risk retention, concerns about the competitiveness of reinsurance rates and potential delays in claim settlement require monitoring (Section 78).
Enhanced Governance and Public Disclosure
Licensees are now required to have a minimum of five directors, of whom at least one must be an independent director who must be a person with no interest in the business of the insurer that could reasonably be perceived as being capable of materially affecting the director’s judgement in serving the best interests of the company. Brokers, on the other hand, are required to have at least three directors, of whom one must be independent. The Act also stipulates the formation of audit committees for all insurers (Section 102 of the Act), potentially leading to increased costs but also bolstering corporate governance. Quarterly and audited financial statements will now be published in newspapers (Sections 69 & 70), which could expose an insurer’s financial weaknesses but also increase transparency for policyholders and investors.
Authority’s Power to Takeover Troubled Entities
The Act empowers the regulatory authority to intervene and potentially take over troubled insurers (Section 121, as read with Sections 125 and 126 of the Act). While this safeguards the industry and policyholders, navigating such interventions requires careful execution to minimise disruptions.
The new Insurance Act in Zambia marks a significant step towards a more robust and competitive insurance sector. While challenges exist, the increased focus on transparency, consumer protection, and financial stability ultimately benefits all stakeholders. It will be interesting to witness how insurers adapt and innovate to thrive in this evolving landscape.
Please note that this article is for informational purposes only and should not be construed as legal advice. Always consult with a qualified professional for insurance-related matters.
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