Zambia: Strenghtening Insurance and Pensions Supervision

The Pensions and Insurance Authority (PIA) approached FIRST directly with a request for technical assistance (TA) in February 2005. PIA had requested FIRST assistance in 2003 but it was agreed that any technical assistance should be provided in the context of the Financial Sector Development Plan (FSDP) that was being developed at that time by the Zambian authorities. Since then, the Zambian authorities, led by the Bank of Zambia (BoZ), developed a FSDP, with some FIRST assistance, and a FSDP Implementation Committee was established.

In 2004, DFID/Sida approved a £1million program spread over 18 months that supported an initial phase of the implementation of the FSDP. This was a two-stage program that included: as stage one, assistance for harmonising the financial sector legislation; production of market knowledge on the supply and demand of financial services together with the development of an implementation plan for the FSDP; and, and drafting the terms of reference for stage two. The FIRST project complemented the DFID/Sida program and addressed some of PIA’s immediate needs. The project was a short scoping consultancy focused on strengthening supervision of the private (non-state) pension and insurance sector and defining the PIA’s TA needs.

FSDP recommendations

The FSDP recommendations included:

  • Restructuring the existing relevant Acts namely, Pension Scheme Regulation Act, 1996 and the Insurance Act, 1997.  The existing Acts had left out a number of pertinent areas in the regulation of pensions and insurance;
  • Developing regulations to the Acts stated above.  This would help in the implementation of the two Acts;
  • Revising the Investment Act together with the Insurance/Pensions Acts in such a way that all insurance companies being formed or already formed must have local ownership/equity partnership. This would help in the reduction of dividend repatriation/capital flight;
  • Establishing the PIA as an independent body rather than being a department of the MoFNP.  In its current structure, PIA was not a legal entity and therefore could not sue or be sued in its own right.  The Authority would be more effective if it enjoyed some independence and reported directly to parliament;
  • Providing adequate funding to PIA to enable it fulfil its functions of regulation and supervision.  Consideration could be given to the imposition of a levy on pension fund contributions and insurance premiums to sustain the operations of the PIA;
  • Providing adequate training to all PIA technical staff;
  • Formulating the national policy on pensions provision needs and disseminating in the next few years to clarifying misunderstandings about the responsibilities and policy intents of different players;
  • Initiating a study to ascertain the viability of the Personal Pension Plans;
  • Setting new minimum capital requirements for establishing a broking company or agency as well as minimum qualifications for principal officers; and,
  • Reviewing the dual roles of PIA either separately or in the context of a call for single regulator.

While the DFID/Sida program covered the required legislation and regulations work as part of its first stage, FIRST project addressed some immediate TA needs in the insurance and private pension area and provided an implementation plan for further work in these sectors.

Lessons Learned:

  • This project was a good example of coordination between donors. In this case, clear assignments for technical assistance to be funded by FIRST and DFID and Sida.
  • Clarity of the role of the PIA and its objectives because the Government of Zambia had first developed from a well rounded and clear Financial Sector Development Plan (in turn informed by recommendations from the World Bank’s FSAP).
  • Training and capacity building was a challenge that could not be met in one short term exercise for many reasons. In the PIA case staff levels were very low and funding of adequate resources was also low. Since this issue arose in several other southern African countries linked to SADC,  FIRST designed a regional training and capacity program to run for several years, allowing re-visits to regulators in the region.

Reports:

  • The terms of reference for the consultants
  • The Consultants Final Report. This contains considerable guidance on many issues in addition to an overview of PIA needs and the insurance and pensions sectors in Zambia. Of particular relevance could be the sections on Action Plans and Organization & Strategy; whilst these were targeting the PIA, some of the issues raised and the approach should be of benefit in other similar situations.