The Adequacy of Zimbabwean legislation in regul;ating insurance brokers.docx

The adequacy of Zimbabwean legislation in regulating insurance brokers in Zimbabwe An insurance broker is an insurance agent and or specialist who sells, solicits or negotiates insurance for compensation. Brokers work with the insureds in developing risk management strategies appropriate to their risk profiles. They are also there to educate the insureds about policies available and assist in placing their business with the best insurer. An act is a decree or order governing the partaking of certain duties by stated individuals in order to protect the interests of third parties and to refrain them from abusing their powers. Acts are vital for the regulation of insurance business as there is greater need for the protection of the general public in the services industry. As insurance business is intangible and cannot be even smelt the general public can be easily defrauded by the brokers hence there is need for such regulation. For the regulation of insurance brokers the insurance act chapter 24:07 subsection 35 carters for such. The Zimbabwean insurance act is adequate for regulating the brokers. It requires every insurance broker to be duly registered with Commissioner before commencing with operations. As brokers at times deal with peoples monies there is need to regulate their operations so that in any case of misappropriation of funds they can be easily traceable. Registration gives the commissioner the powers to assess and evaluate the performance of brokers to ensure that they are adhering to the stated statutes. Application to the commissioner must be made in prescribed form and being accompanied by the requisite documents. Requiring such terms to be met allows the commissioner to examine the proposer on whether he is capable of being a broker. Documents required can thereby give an insight of the proposers financing and administration procedures as well as their intended location and area they need to specialise in. Having perused through the documents the commissioner can then go on to approve or turndown the registration application. The law requires the commissioner to check whether the applicant wants to use a similar name to other players in the industry or not. Problems of identity may result in the industry if different brokers share the same name, there might be conflicting interests and this can be eliminated at ab-initio if the commissioner notes that the name is similar to that of another player in the industry. Using the same name may result in the filing of lawsuits as there might

Joycios Maguwu : MCSMCG (MSU), B. Com Insu & Risk Mgt (MSU), Dip Insurance (IIZ), Ind Member IRMSA

The adequacy of Zimbabwean legislation in regulating insurance brokers in Zimbabwe be luring of another’s clients due to misrepresentation by another broker. The insurance act justly addresses the issue of the names. Our law is concerned about the financial soundness of the broker. It deters those who are applying but having been declared insolvent and or bankrupt from attaining registration as a broker. This is vital as some insurance companies may allow the brokers to collect and remit premiums on behalf of their clients. If a broker is bankrupt or insolvent there is a temptation of misappropriating of the insured’s funds (premiums) that may compromise the position of the insured if premiums are remitted late and a claim arises. The insurance act is thus strict about the financial soundness of a broker as this has a great influence on how he is going to handle the monies of the third parties. The law is always there to make sure that there is no breach of rights of third parties so as to protect the image of the profession. The insurance act also pays attention to matters of the broker being honest. An insurance contract is a contract based on utmost good faith thereby there is need for the broker to be honest. The broker has the role of addressing the customer’s needs and give technical advice enabling the placing of the business with the best insurer. An example of a dishonest broker is where one suggests for a policy which is over and above the client’s needs with the motive of getting a higher commission. Having such brokers in the market may lead to the collapse of the insurance industry as at times the clients would fork out more than they can afford thereby stereotyping the insurance policies of being expensive. Also the act deters crime offenders (fraudsters) to register as brokers. It is the role of the broker to negotiate contracts on the insured’s behalf and allow placing of insurance business with the insurer with the best terms. The insurance act pays special attention to this aspect. It takes a closer look at whether a broker has not entered into an agreement relating to preferential offers of insurance business; with any person carrying out insurance business so as to impair his impartiality in placing insurance. As the broker works for the insured and has to act in his best interests it will be difficult for him to place the insured’s business as he will be inclined to place it with the insurer who he has personal relationships with. At times having personal relationships with the insurers compromises the professionalism in brokers. Brokers will tend to favour those insurers whom they have Joycios Maguwu : MCSMCG (MSU), B. Com Insu & Risk Mgt (MSU), Dip Insurance (IIZ), Ind Member IRMSA

The adequacy of Zimbabwean legislation in regulating insurance brokers in Zimbabwe personal relationships with over other insurers offering better terms thereby resulting in adverse selection of insurers. The insurance act is adequate as it requires every registered broker to hold and maintain an unencumbered investment in approved securities of not less than the prescribed amounts. This is vital as this stops brokers from gambling using the insurer’s monies. Investing in prescribed assets protects the insured’s position as the monies are easily traceable and properly accounted for. Investing in prescribed assets using prescribed ratios is detrimental as this result in transparency in the broker’s investment activities. In case of insolvency the dues to the creditors and the general public may be done as the asset composition and or investment portfolio will be transparent. The insurance act requires a broker to effect and maintain a professional indemnity insurance of not less than the prescribed amount and or a fifty percentum of brokerage income of the previous year, whichever is greater. Brokers are professionals responsible for giving technical advice and advice on market developments thereby must compulsorily have professional indemnity insurance. A professional indemnity insurance policy is a policy protecting brokers’ liability to clients when they give misleading advice to clients. The law then stipulates that they must be protected from such misdemeanours. The insurance act incarcerates offenders of subsection 1 and 2 which talk about the prescribed assets and the holding of professional indemnity to a fine not exceeding level eight or to a term which is not more than a year’s prison term. Every registered insurance broker shall, within six months of the end of each financial year, submit to the Commissioner in such form as may be prescribed, a statement setting out the details of insurance business placed by the insurance broker and such other additional information as may be prescribed. A registered insurance broker who, without just cause, fails to submit a statement to the Commissioner in terms of subsection (1) shall be guilty of an offence and liable to a fine not exceeding level five or to imprisonment for a period not exceeding three months or to both such fine and such imprisonment.

Joycios Maguwu : MCSMCG (MSU), B. Com Insu & Risk Mgt (MSU), Dip Insurance (IIZ), Ind Member IRMSA

The adequacy of Zimbabwean legislation in regulating insurance brokers in Zimbabwe Upon liquidation the law is sufficient as sit requires the Commissioner to cancel registration of a broker upon request by the broker or his liquidate, trustee or judicial manager.

The Insurance act is on the other hand insufficient as it fails to enunciate of some matters which l will sight below: Our law is silent on the academic and or professional qualifications required for one to be registered and or practice as a broker. In the industry there is the use of the Certificate of Proficiency (C.O.P) as a minimum qualification for one to be accepted to practice and or register as a broker. One can have academic qualifications of about 5 ‘O’ Levels and a C.O.P to be registered as a broker. I feel this as insufficient due to the complexity of the profession. In some other countries such as India require one to have at least reached the 12 th Standard/grade which is equivalent to A Level and to hold a professional qualification from a recognised board or institution. This must also be the case in Zimbabwe; one must have a minimum academic qualification of ‘A’ Level and at least a degree in Insurance or another qualification from a recognised institution having Broking as one of the core modules. In other countries it is expressly stated in their acts the experience required for one to be accepted as a broker. The Zimbabwean act is silent about the experience required. In India one must have finished his professional qualifications and must have practised for at least 12 months in the field he wants to register in before being approved as a broker. In Zimbabwe there has been a tendency of one just having been graduated from college to be approved as a broker without having acquired the adequate experience in that field. This then compromises the qualities of brokers in the insurance market thereby consequently affecting the service delivery. The act is also silent about what will happen to a person after having finished the jail sentence. In India the act states that a person can practice after having completed the jail sentence. They take into consideration that when one having completed the jail term would be acceptable in the society like everyone else. In the Zimbabwean act this has not been considered as this reflects on the silent treatment offered on the issue. Joycios Maguwu : MCSMCG (MSU), B. Com Insu & Risk Mgt (MSU), Dip Insurance (IIZ), Ind Member IRMSA

The adequacy of Zimbabwean legislation in regulating insurance brokers in Zimbabwe Our law is also silent on the offering of inducements to either the insureds or Brokers. Some laws in other countries expressly prohibits to offer to provide directly or indirectly any valuable consideration as an inducement to a person to enter into, vary, cancel or continue with a contract. An inducement may result in the broker offering business to an incompetent insurer due to the fact that he is expecting financial gains. This thereby compromises the position of the Insured as his risk may at times be placed with an insurer who is unable to meet the claims. Inducements may result in one making decisions based on the monetary benefits without being prudent. In conclusion as much as the adequacy outweighs the inadequacy the insurance act has failed to address the issue of enforcement of the set objectives. There has been an issue whereby the act through IPEC has failed to enforce the law.

BIBLIOGRAPHY Zimbabwean Insurance Act Chapter 24:07 Insurance Law Regulation in India Joycios Maguwu : MCSMCG (MSU), B. Com Insu & Risk Mgt (MSU), Dip Insurance (IIZ), Ind Member IRMSA

The adequacy of Zimbabwean legislation in regulating insurance brokers in Zimbabwe Republic of South Africa Government Gazette

Joycios Maguwu : MCSMCG (MSU), B. Com Insu & Risk Mgt (MSU), Dip Insurance (IIZ), Ind Member IRMSA