Interview: Justice Yaw Ofori

How can insurance companies benefit from the participation of actuaries in their businesses?

JUSTICE YAW OFORI: Insurance thrives on probabilities. Individuals with similar risk profiles may therefore be grouped together and specific outcomes may be predicted with some certainty. This predictability enables insurers to take on individually unpredictable risks and spread the financial consequences across many policyholders with similar risk profiles through premium charged. Thus, actuaries would measure insured risks to determine the probability they will occur.

It is often the case that insurers prioritise investment in activities that line up with their obligations, and they take steps to actively manage the relationship between assets and liabilities on an ongoing basis. The objective of asset and liability management (ALM) is to reduce the risk exposure of the insurer that exists in the investment market, particularly if the assets and liabilities are mismatched – for example, where market conditions cause an increase in the value of liabilities and a decrease in the value of assets. One benefit of ALM is that it can help an insurer invest its assets more effectively and generate higher profits to ameliorate future exposures. Most insurers that practise ALM have established committees to oversee this activity, and actuaries participate in the ALM committee together with investment managers, product line managers and financial officers. Actuaries are often responsible for modelling asset and liability cash flows, and assessing the effects of various risk factors on the results. They develop techniques and measurement tools to track growth in investments. This will have a beneficial impact on the insurance industry.

In what ways will the recapitalisation of insurance firms in January 2022 affect the market?

OFORI: In terms of guaranteeing that insurance institutions are financially sound, the number of sector players will continue to rise as we train, grow and strengthen the market. We are in the process of ensuring that the new minimum capital requirements for insurance companies are met by January 1, 2022, as they have been given sufficient time to recapitalise. The minimum capital requirement of GHS15m ($2.6m) was revised to GHS50m ($8.5m) for insurance companies and underwriters, GHS125m ($21.4m) for reinsurers and GHS500,000 ($85,500) for brokers. There are many insurance companies in the market and we want to make sure that insurance companies are strong enough to handle claims. Higher minimum capital levels will enable the insurance sector to retain more risks and be solvent in order to pay legitimate claims in a prompt manner.

What role will the Motor Insurance Database (MID) have in not only making the roads safer, but also in bolstering the sector?

OFORI: The introduction of the MID was timely, as during the Covid-19 pandemic insurance companies shifted to online sales due to social- distancing measures. Its launch has led to a wider trend of digitalisation, which is now seen not as a luxury but as a necessity. The MID has helped insurance products be more user-friendly than ever before. The unique software enables the general public, the police and insurers to check the validity of their policies in real time, while the individual who buys the policy gets an instant acknowledgement by text message. Moreover, this verification through the customer’s mobile phone is free of charge. Through communication, security and connection with clients, technology will help bring peace of mind to insurance players and the wider public. The increased transparency and ease of verifying authenticity in claims and policies will build confidence in insurance more broadly. Insurance companies have become more solvent and claims are being paid more expeditiously as a result.