The Adequacy of Zimbabwean Legislation in Regul Ating Insurance Brokers

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

be luring of anothers 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 insureds 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 customers 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 clients 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 insureds 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
insureds 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

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 insurers monies. Investing in
prescribed assets protects the insureds 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 brokers 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 years 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.

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.

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

Republic of South Africa Government Gazette

The Adequacy of Zimbabwean Legislation in Regul Ating Insurance Brokers

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insurance brokers in Zimbabwe