To date, Ghana has followed a traditional course in the development and sale of insurance products: companies design and underwrite policies and brokers and agents are used to distributed them. As a result, penetration rates are relatively low.
Much of Ghana is poor or rural or both, limiting exposure to classic distribution channels and necessarily confining the customer base to middle and upper-middle income segments in urban areas. But this is fast changing. New products and distribution channels are being developed that will bring more average Ghanaians into contact with insurance products and bring them services that are better suited to their budgets and needs.
To a great degree, the push is government driven. A pending insurance bill, which has been in the works since 2010 and which will become the new regulatory framework for the sector when passed, has a strong emphasis on micro-insurance; it is expected to mandate the promotion of the sector, require transparency and provide for the fair treatment of customers, and it will outline benchmarks of solvency and strength so that micro-insurers have the capacity to meet claims.
The draft bill is also, significantly, a modern piece of legislation. It is principles-based, with the actual text of the document light on detail and only broadly defining what the law should do. In the past, legislation has included too many specifics; any changes have required parliamentary approval, which takes time or never happens at all. The hope is that the new law will be flexible and allow for adjustments to be made administratively, and at the same time set down clear lines of authority so any changes are reasonable and appropriate.
The National Insurance Commission (NIC) wants the micro-insurance sector to grow as a part of the existing insurance industry. Rather than following the institutional approach and creating regulations for an entirely new type of business, which includes addressing capitalisation and prudential requirements, it has decided to incorporate the segment into the sector. Under the so-called functional approach, micro-insurance will just be another line of business for existing players. The NIC is breaking ground. It will allow any insurance product to be designated as micro-insurance by the insurance companies themselves. If the product is later determined not to actually be micro-insurance by the company or by the regulator, it will no longer be able to be marketed as micro-insurance. However, the product can remain in existence as a normal insurance product and existing contracts can be serviced. The hope is to achieve a degree of regulatory certainty.
File & Use
In order to maintain the micro-insurance designation a policy will need to meet a number of requirements. It will have to be designed for low-income consumers, the premiums will have to be affordable and the policy must be accessible to those it is designed to reach.
However, the bill has been long delayed prompting the NIC to announce, in early 2013, a micro-insurance framework. This is an interim measure that permits the easy issuing of products before the full law has been passed. According to the local press, insurers will be allowed to sell policies and freely set rates, as long as they conduct a four-week performance study and submit the results to NIC. They are also required to pay claims within 10 days and present the list of exclusions to customers in simple to understand terms. Rather than approving a product, the NIC would only object after submission.
The framework provides other key incentives. Some unlicensed agents can be used to sell policies and policies can be rated on a community basis rather than on an individual basis, making it easier for insurers to sell and underwrite in bulk. The commission has also designed a logo that will be affixed to every micro-insurance contract. However, it is mainly the introduction of the simplified “file and use” system that will greatly increase the speed at which micro-insurance products make it to market. Previously, companies would have to seek formal approval fornew products; now they simply have to notify the authorities about a new product. Following the introduction of the new framework, all companies surveyed in a study by the German Federal Enterprise for International Cooperation said they would be introducing new products. Beyond the new guidelines and the law, the regulator is working to promote the sector in other ways. It said that while it is holding back on new licenses in general, it will be more likely to issue licenses for companies that are interested in entering the micro-insurance business.
Public plans – such as the Social Security and National Insurance Trust and the National Health Insurance Scheme — have generally provided the bulk of coverage for the lower-income segments – where there is any coverage at all. However, as is the case in a number of West African markets, micro-insurance is beginning to have an impact on the lower end of the income spectrum.
The NIC has said in public statements that micro-insurance covers about 1.7m risks. Part of this is a result of micro-insurers unveiling more innovative products to bundle together different lines, or repackages existing lines into more accessible products. In late 2013 Glico (a firm that has been in the micro-insurance business since 2003) relaunched its micro-insurance products. One product it sells is called Anidaso, a term life policy that also covers accidents and hospitalisation, with an optional savings scheme attached. Other micro-insurance products include those from Star Micro-insurance Services, which sells products from Star Assurance Company and StarLife Assurance. The company has burial cover (with a micro savings option), a microhealth plan, an education policy, a life policy with hospitalisation, and a credit protection plan. Agency distribution is helping bring down the costs of reaching rural areas. For example, Star Micro-insurance sells a product through the post office. In 2013, it also signed an agreement with the Money Lenders Association of Ghana to make policies available through members.
Phone It In
A similarly significant innovation in micro-insurance in Ghana is the development of mobile distribution. Mobile banking, rarely replicated to the same degree anywhere else, has been driven by the success of M-Pesa in Kenya, prompting other financial service providers to look at using ubiquitous mobile phones to tap into new customer segments. In 2010 Tigo, a local mobile operator, began offering free life insurance to customers who bought a certain amount of airtime credit.
After a year, Tigo started offering a premium service; by paying an additional fee, the user would be entitled to a higher payout. Vanguard Life Assurance is the insurance partner. The platform and the sales force is provided by BIMA, a Swedish micro-insurance technology company which has partnered with cellular companies throughout the world (including operators in Bangladesh, Cambodia, Sri Lanka, and Indonesia). MicroEnsure, a subsidiary of Opportunity International, is also a partner. Early reports in local press suggest that Tigo is enjoying lower churn rates and higher average revenues per user for customers insured through the company.
Other mobile providers have launched similar programmes. Airtel, another major operator, worked with MicroEnsure and Enterprise Life to offer a range of insurance products, including life, disability and hospitalisation. The model issues cover based on airtime used. A customer using between GHS5 ($1.90) and GHS9.99 ($3.80) of airtime a month gets GHS250 ($95) of life cover. If customers use more than GHS50 ($19) of airtime, they get GHS2500 ($950) of life cover. Within a few months of launching, more than 100,000 customers received insurance. The firm said it has already paid claims – the first one sent out one hour and 12 minutes after filing. For the mobile operators, the service involves complex incentives. The premium they must pay to cover each customer and the other related expenses must be justified by the additional business they get from the customers and the lack of churn. For the customer, it is also a tough calculation. The payouts are quite low and may not be meaningful, but the implications for the market are significant. The bottleneck for micro-insurance has been distribution, and with mobile phone penetration exceeding 100%, relying on devices as a distribution channel is a reliable solution. Most importantly, the mobile phone system allows for micropayments to be made, drawing in users with the ease of use. While the freemium model dominates at the early stages, the option exists for using phone credit to buy coverage (as Tigo does).
Banking On It
Bancassurance is another promising area for the sector, allowing insurers to connect to customers easily and in an established channel. Over the past two years, a number of banks have launched or relaunched insurance products. In contrast to insurance agents, bancassurance operators are helping to promote personal savings. C.C. Bruce Jr., the executive director of Enterprise Life Insurance, told OBG, “Our insurance agents and brokers tend to sell more risk products, while our bancassurance partners tend to sell more savings products.”
Standard Chartered was one of the first to market in 2007, providing coverage on everything from education to cargo to life, and has since been joined by Barclays – which among other products offers funeral insurance – Unibank and Stanbic, as well as others. When the new insurance bill and supporting legislation are passed, it is expected that provisions will be included that allow banks, as well as some non-bank financials, to sell micro-insurance products without special licenses. This will speed the process of getting products to the market and reduce some of the regulatory friction that might prevent some policies from being issued and sold.
Bancassurance is sure to be a growing sector, as it meets the needs of all parties involved. The main issue is that it tends to attract mainly urban and wealthy customers and does little to bridge the gap and get to the uninsured. While rural banks can sell insurance too, they will only be selling to people who actually have accounts and missing the two-thirds of the country that is not yet banked.
The Business Case
Ultimately, micro-insurance can work in Ghana if there is a good business case for it. While the sale of relevant products can be driven by corporate social responsibility, the sub-sector must be profitable to be sustainable. For that reason, despite the many challenges, micro-insurance could grow significantly in the next few years. Ghanaians at all income levels are being exposed to more information and are more aware of the need to protect against unexpected costs, and they are increasingly interested in insurance products. Businesses may ultimately find that micro-insurance makes sense, because there is demand for it and money can be made originating and selling products via mobiles.
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