Currency mismatches costing Zimbabwe's insurers millions

Zimbabwe's short-term insurance sector is losing millions of dollars annually as currency mismatches between ZiG-denominated claim settlements and US dollar-priced vehicle repairs continue to undermine profitability, an industry expert has warned.

Speaking at the recent Insurance Institute of Zimbabwe (IIZ) Winter School in Bulawayo, insurance practitioner Lovemore Madavo said the industry's primary threat has evolved beyond inflation and is now centred on the complex interaction between currency volatility, delays in claims processing and operational inefficiencies.

"Zimbabwe's biggest insurance risk is no longer inflation; it is the interaction between currency, time and operational discipline," Madavo told delegates.

He explained that many insurance companies continue to settle claims in ZiG while vehicle repairers and suppliers source spare parts in US dollars, often relying on parallel market exchange rates. This disconnect, he said, creates significant financial leakages that directly affect insurers' bottom lines.

According to Madavo, a motor vehicle claim initially assessed at ZWG100,000 can ultimately cost an insurer as much as ZWG130,000 due to exchange-rate distortions, resulting in a loss of ZWG30,000 on a single claim.

"Currency mismatch is not theoretical; it is a direct, measurable profit drain on insurers and reinsurers," he said.

Based on industry estimates, an insurer processing approximately 500 claims of a similar nature each year could incur losses of up to ZWG15 million purely from exchange-rate-related inefficiencies.

Madavo warned that delays in claims processing are further exacerbating the problem. While inflation may have moderated compared to previous years, prolonged settlement periods continue to erode the value of claims and increase overall costs.

"The insurer may not intend harm, but time and delay still create value erosion, customer frustration and relationship breakdown," he said.

In addition to currency-related challenges, Madavo raised concerns about inflated repair quotations where insurance companies are involved. He noted that repair costs for insured vehicles are often significantly higher than those charged to customers paying directly.

According to his observations, some repair quotations submitted to insurers can be as much as 20 percent higher than those offered to uninsured motorists for similar work.

The warning comes as Zimbabwe's insurance industry continues to navigate the complexities of a multi-currency operating environment, where businesses must manage exposures across both local and foreign currencies while maintaining profitability and customer confidence.

Industry stakeholders say the growing mismatch between claims settlements and repair costs highlights the need for insurers to review pricing models, strengthen claims management systems and develop more effective strategies for managing currency risk.

The concerns raised at the Winter School also underscore broader questions about the long-term sustainability of underwriting profits in Zimbabwe's short-term insurance market if exchange-rate distortions and operational delays remain unresolved.

As the industry adapts to changing economic conditions, experts argue that improving efficiency, reducing settlement delays and aligning claims payments more closely with actual repair costs will be critical to preserving profitability and maintaining confidence in the insurance sector.