The proliferation of insurance companies in Ghana in recent years is indicative of the growth potential of the industry, but has also hindered its maturation. As with many financial sectors in Africa’s frontier markets, fragmentation has limited growth. Larger, heavily capitalised companies are needed to take on the scale of risk inherent in the country’s major energy, mining, industry and infrastructure projects. Stronger insurers would also have the capacity to train and specialise in different segments, allowing for higher-quality underwriters and the development of new policies.
In recent years the sector regulator, the National Insurance Commission (NIC), has tried to encourage the formation of stronger firms by raising capital requirements. Insurers have, for the most part, resisted the push towards consolidation, though this is changing.
In September 2017 the new commissioner of the NIC, Justice Yaw Ofori, proposed to the Bank of Ghana that minimum capital requirements be doubled to GHS30m ($11.28m). If confirmed, this sharp increase could change the landscape of the insurance industry.
As of mid-2017 there were 22 life insurers and 27 non-life insurers registered with the NIC. Ghana’s 2006 Insurance Act initially set the minimum capital requirement for local firms in US dollars at $1m, but this was steadily increased and later stated in local currency, reaching GHS15m ($5.6m) by the end of 2015. The policy of raising requirements has yielded mixed results. In October 2016 Regency Alliance Insurance and NEM Insurance Ghana merged to meet the new standard, but the NIC’s 2015 annual report shows that 14 non-life companies and 17 life companies received less that GHS20m ($7.5m) in premiums that year, indicating continued fragmentation in the market.
Ghana’s larger firms see the higher standard as beneficial to the industry. “We’ve talked about consolidation as a way to sanitise the industry for many years,” Daniel Addo, general manager of Hollard Insurance, told OBG. “We thought raising requirements would lead to mergers, but that process has been slower than expected and needs to be reinforced. Too many companies in the market has led to unhealthy undercutting and prevents firms from building the muscle required to take on big-ticket deals with international investors.”
With the discovery of the country’s oil deposits, firms grouped together in 2011 to form the Ghana Oil and Gas Insurance Pool, but this grouping could only cover 5% of total policies in the sector. The creation of a two-tiered system would also allow for greater specialisation in an industry in which all non-life providers compete.
“As well as creating larger, more capitalised firms, regulation should probably be introduced to allow lower capital requirements for specialised insurance companies,” Solomon Lartey, managing director and CEO of Activa International Insurance’s Ghana office, told OBG. “That way we can expand the market without each company focusing on the same targets.”
The country’s major brokerages could also benefit, according to Patrick Dughan, assistant general manager of KEK Insurance Brokers. “Fewer insurance companies will lead to specialisation and an incentive for excellence, both for the companies themselves and the brokers that sell the policies,” he told OBG.
With the regulator, major insurers and brokerages pushing in the same direction, consolidation of the industry looks relatively certain. In the past, the NIC has encouraged this by modestly raising capital requirements, but smaller insurers have managed to find the extra capital rather than merge. A move to GHS30m ($11.3m) would be a decisive action from the NIC and essentially force the hand of smaller players. It will be up to the larger firms, thereafter, to deliver on their promises of higher-quality, specialised services.
Charles F Oduro, managing director of KEK Insurance Brokers, told OBG, “Insurers must become more efficient, especially in how they manage claims. In the end, if an insurance company goes under, the sector’s reputation goes down, too – and that is bad for everybody.”
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