Interview: Lydia Lariba Bawa
To what extent is consolidation needed in the country’s insurance sector?
LYDIA LARIBA BAWA: In Ghana, there are too many insurance companies relative to the size of the market. With a total market premium of less than $500m, the country has around the same number of insurance companies as Nigeria. The latter has a total premium income of around $1.8bn. A direct effect of the extremely high number of insurance companies is the existence of small, financially constrained and operationally inefficient companies. Unfortunately, these companies erode trust and confidence, as they are unable to pay valid claims. Consolidation in the form of mergers and acquisitions is necessary.
What steps can be taken to better enforce compulsory insurance for commercial properties?
LARIBA BAWA: The NIC, in collaboration with relevant stakeholders such as the Ghana National Fire Service (GNFS), Ghana Police Service and Ghana Insurers Association, has done a lot to enforce compulsory insurance for commercial properties. An inspection team made up of representatives from these four stakeholders monitors compliance through inspections in Accra, Kumasi, Tamale, Tema and Takoradi. Evidence of insurance for developed properties is now a prerequisite for the acquisition of a fire certificate from the GNFS. Intensifying the degree of inspections in collaboration with various metropolitan, municipal and district assemblies will ensure future compliance, while the prosecution of offenders will aid enforcement.
How far can domestic reinsurance be expanded?
LARIBA BAWA: Currently, most reinsurance activity happens outside of Ghana, which leads to premium flight from the economy. As these transfers are performed in foreign currencies, it leads to the depreciation of the cedi. There is, however, some potential for expanding reinsurance here. First, prior to the reinsurance stage, direct companies could share a significant amount of business through coinsurance to exhaust the capacity of direct underwriters before recourse to reinsurance. Second, at the reinsurance stage, the capacity of the local reinsurers should also be exhausted prior to reinsurance outside of Ghana. Still, some of the larger foreign and multinational firms will aim to bypass these requirements and insure and reinsure all their businesses overseas, resulting in the most substantial challenge to expanding domestic reinsurance.
What are the obstacles to expanding insurance penetration among the broader population?
LARIBA BAWA: Key obstacles include low literacy levels, and thus low insurance awareness; low income levels; a lack of suitable and efficient distribution channels; a large informal sector that is mostly unbanked with irregular income patterns; and inadequate actuarial resources to develop appropriate products for the various population segments.
In addressing some of these obstacles, the Insurance Awareness Coordinators Group (GIZ), made up of relevant stakeholders, has developed an Insurance Awareness Strategy, which was implemented in the second half of 2016. The NIC has further collaborated with GIZ, the German development organisation, to design and implement a micro-insurance regime to reach out to low-income households and the informal sector. Alongside GIZ, the NIC and the industry have developed an Actuarial Capacity Development Strategy, which is currently being implemented. It seeks to steadily increase the supply of locally available actuarial resources over a finite period of time to improve the efficiency and service delivery of the insurance sector. Finally, innovation and technology has spurred mobile money and electronic payment systems, such as e-zwich, for alternative distribution channels.
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