The Government has published three Bills intended to reform the insurance and pensions industry: they are:
- The Insurance and Pensions Commission Amendment Bill,
- The Insurance Bill, and
- The Pension Provident Funds Amendment Bill.
We shall deal with the first one in this Bill Watch and the other two in subsequent bulletins.
The Insurance and Pensions Commission Amendment Bill was gazetted on the 10th September last year and can be accessed on the Veritas website . Its explanatory memorandum is singularly uninformative, so in order to work out what it proposes to do one must examine its provisions in the light of the Act which it will amend, namely the Insurance and Pensions Commission Act.
The Insurance and Pensions Commission Act
The Act, as its name suggests, establishes the Insurance and Pensions Commission to supervise the insurance industry in Zimbabwe. The Commission has the following functions:
- To register and regulate insurance companies, mutual insurance societies, insurance brokers, and pension and provident funds,
- To keep the public informed about the insurance and pension industry, and
- To advise the Minister about the industry.
The Commission is governed by a Board consisting of two civil servants and up to five other persons appointed by the Minister of Finance for three-year terms (which can be renewed indefinitely). The Commission is funded mainly from levies which it imposes on the insurance and pension industry with the Minister’s approval.
Outline of the Amendment Bill
The Bill proposes to amend the Act in the following respects:
Objectives of the Commission
A new section 3A will be inserted in the Act, setting out objectives for the Commission. Most of them are quite worthy:
- To establish a fair, safe and stable insurance and pensions sector,
- To be operationally independent, accountable and transparent, and
- To meet high professional standards [though such standards should be met by the industry rather than by the Commission].
One objective however – to maintain a high standard of confidentiality – needs to be clarified, and another objective – to have adequate resources – is surely beyond the Commission itself to attain.
Board of the Commission
The Bill will make several changes to the Commission’s Board and the way it carries out its functions:
- Clause 5 of the Bill will increase the maximum number of Board members from five to seven, and provide for members to be chosen for their experience in actuarial practice, law, finance, human resources management, information technology and related fields [clause 5 of the Bill]
- Clause 6 of the Bill will disqualify persons from membership of the Board if they are employed or connected with an insurance company or other entity regulated by the Commission [That is probably what is intended, but the amendment is so incoherent one cannot be sure.]
- Members will serve a maximum of eight years on the Board – two four-year terms. At present they can be re-appointed indefinitely [clause 7]
- The number of members who can compel the chairperson to call a special meeting will be increased from two to six [clause 8]
- Whereas at present the Board has a discretion to appoint committees to perform specific tasks, clause 9 of the Bill will compel the Board to appoint at least two committees – but, very oddly, it does not say what these committees are supposed to do.
Functions of the Commission
Clause 4 of the Bill proposes to expand the functions of the Commission to include the accrediting of actuaries, auditors, asset managers, credit rating agencies “and other service providers”. There are problems with this:
- The Bill does not give the Commission legal powers to compel actuaries, auditors, etc. to be accredited, nor does it set out the procedure by which they should apply for accreditation, or how long accreditation will last. Without all this, the provision is futile.
- Auditors are registered and regulated quite adequately under the Public Accountants and Auditors Act. Asset managers are likewise registered and regulated under the Asset Management Act.
- Accreditation for these professions is unnecessary.
- It is not clear who or what will be covered by the very wide term “other service providers”. What will stop the Commission accrediting office cleaners and fast-food outlets?
Co-operation with other regulatory authorities
Clause 11 of the Bill will insert a new Part into the Act, empowering the Commission to co-operate with other regulatory authorities, both local and foreign, in such matters as enforcing laws, carrying out investigations and exchanging information. This is admirable because insurance companies and pension funds operate across national boundaries and co-operation between different regulatory agencies is necessary to ensure they abide by all applicable laws.
There is however a point that needs to be clarified. According to clause 11 of the Bill, the Commission will be able to pass on “privileged information” to other authorities, and will not have to disclose “privileged information” received from those authorities.
It is not clear what is meant by this. In legal parlance privileged information is information that the holder cannot be obliged to disclose. According to the Civil Evidence Act, our law confers privilege on information in only four circumstances, two of which [the privilege against self-incrimination and lawyer-client privilege] would not apply to information passing between the Commission and other regulatory authorities. The other two, the privilege attaching to confidential communications and privilege in the public interest, are conferred only by order of a court – i.e. the information is privileged only if a court orders it to be so. So these two privileges would probably not apply either.
The Bill needs to be amended to make it quite clear what information the Commission will be able to disclose and what information it will have to keep confidential.
Exemption from Liability of Board and staff of Commission
Clause 13 of the Bill contains a provision exempting members of the Board and staff of the Commission from liability for loss or damage they may cause, unless they acted deliberately or recklessly or with gross negligence. The effect of this provision is that anyone who suffers loss will have to sue the Commission rather than the individual who actually caused the loss, unless the individual’s conduct was deliberate, reckless or grossly negligent.
The Bill’s memorandum does not explain why such a provision is necessary or even desirable. This is not surprising as it would be most undesirable for the Commission’s members and staff to be exempted from personal responsibility for what they do under the Act. The provision violates the rule of law and may also contravene section 56(1) of the Constitution, which states that all persons are equal before the law – the new provision puts the Commission’s members and staff above the law.
Establishment of the Policyholder and Pensions and Provident Fund Members Protection Fund
The Bill proposes to set up a fund to compensate holders of insurance policies and members of pension and provident funds who suffer loss if their insurance companies or funds go insolvent. Establishing such a Fund is a welcome move as it will protect the public against loss and so enhance confidence in the insurance and pension industry. On the other hand, some aspects of the new provisions could be improved: The Fund will be administered by a board [not the Board of the Commission] comprising the Commissioner of Insurance [the CEO of the Commission] and up to seven other members appointed by the Minister. It will be financed primarily by contributions from insurers and pension and provident funds. Although there is provision for it to get other funding – for example it may receive appropriations from Parliament – the Fund will essentially be financed by the insurance and pensions industry. Put briefly, it will be a compulsory insurance fund for the insurance industry.
- Contributions to the Fund will be fixed by the Board, so it is a pity that insurance companies and pension and provident funds, which will have to pay the contributions, are not given some say in the appointment of Board members. As the Bill stands, they do not even have to be consulted [By way of comparison, contributory institutions do have a say in the appointment of directors of the Deposit Protection Corporation Board].
- There is a provision limiting the amount the Board spends on staff remuneration and allowances to 30 per cent of the Fund’s annual income. Thirty per cent seems an exorbitantly high proportion of the Fund’s income: surely something like ten per cent would be more appropriate? It would be better still if the ten per cent limit included the sitting allowances the Board pays to its own members.
Clause 13 of the Bill contains a provision requiring the Commission to keep asset registers for insurers, insurance brokers, funds and other entities, and prohibits those entities from disposing of assets unless the Commission has been given 14 days’ advance notice of the disposal. The provision seems unduly restrictive: it will delay decisions which sometimes need to be made quickly – for example, the selling of stocks and shares.
Clause 13 also contains a provision giving insurers and other people who are aggrieved by decisions of the Commission a right of appeal to the Minister of Finance, though it does not specify what the Minister can do when faced with such an appeal. Insurers should have a right of appeal to a court rather than just to the Minister: it may be noted that under section 73 of the Banking Act, banks can appeal to the Minister against decisions of the Reserve Bank and, if they are dissatisfied with the Minister’s decision, they can appeal to the Administrative Court and from there to the Supreme Court. The same extended right of appeal should be given to persons aggrieved by the Commission’s decisions.
Evaluation of the Bill
Generally the amendments proposed in the Bill – particularly the establishment of the Fund – will enhance public confidence in the insurance and pensions sector and so will benefit the economy as a whole. That said, the Bill is carelessly drafted and is defective in several respects, some of which we have noted already. In addition the following errors and defects should be remedied:
- The Bill should amend the long title of the Act to reflect the establishment of the Fund.
Clause 2 of the Bill inserts two definitions into the Act, of “appointed director” and “independent director”. The Bill’s memorandum does not explain what these definitions are for but the intention seems to have been to change the title of members of the Board to directors. If so, the intention has not been followed up because throughout the Act references to “members” have not been changed to “directors”.
- In clause 13 the provisions for determining when an insurer or pension fund becomes insolvent [and thereby entitling policy holders or members to compensation] need to be clarified: there is no provision in the Insurance Act or the Pension and Provident Funds Act for entities to be “declared to be of unsound financial position”, as stated in the Amendment Bill.
It is to be hoped that the necessary amendments will be made to the Bill during its passage through Parliament.