The insurance industry in Ghana has plenty of reasons for optimism. A favourable economic backdrop alongside an emerging middle class have helped to boost the sector’s assets, while the World Bank has forecast the continuation of strong economic growth in 2019. Moreover, the country’s insurance penetration rate stands at less than 2%, according to the latest annual report from the National Insurance Commission (NIC), which has expressed its determination to capitalise on this latent market potential, targeting a penetration rate of 10% by 2021. The growth of new business lines such as bancassurance, micro-insurance and mobile insurance should help bring this target into reach.
However, Ghana’s insurers also face considerable challenges. The market is fiercely competitive, and the struggle for premium share has resulted in price undercutting and poor technical performances. Traditionally, where insurers have lost revenue on unsound underwriting, they have recovered it through investment returns – a practise which has become less sustainable since Ghanaian interest rates began to fall in 2017. With the regulator also bearing down on underwriting policies, Ghana’s insurers are faced with the difficult task of significantly boosting efficiency and bolstering their bottom line over the coming years.
Like many sub-Saharan markets, Ghana’s insurance industry began in the colonial era, with the establishment in 1924 of the Royal Exchange Assurance Corporation, now Enterprise Insurance Company. Many other foreign players established offices in the region over the following years, and in 1955 they were joined by the first domestic player – Gold Coast Insurance Company, renamed Ghana Insurance Company (GIC) in 1957.
A number of domestic players followed, and in 1962 the government stepped into the arena with the creation of the State Insurance Corporation, now known as SIC Insurance Company, after it took over the Ghana Cooperative Insurance Company and reinstituted it to await the takeover of GIC and its subsidiary Ghana General.
By the 1970s the insurance industry was expanding at a rate that warranted a more robust legal framework. Accordingly, in 1972 a decree by the National Redemption Council, the then-ruling party, imposed a number of important rules on the market, including the requirement that all insurers operating in Ghana have their head offices in the country, and that 40% of their shares must be owned by Ghanaians. The passing of the decree also marked the government’s first attempt to reduce the outflow of premiums from the country, through its establishment of the Ghana Reinsurance Organisation.
In 1988 Ghana’s insurers welcomed their first industry body, Ghana Insurance Association, now the Ghana Insurers Association, established with a mandate to protect and promote the common interest of market participants.
One year later, key legal reform created the NIC as the sector regulator and set capital and solvency requirements, dividend policies and investment parameters: for life insurance firms, 50% in government securities; and for non-life firms, 25%. With this legislative platform, the market has grown steadily over the intervening period.
The Modern Sector
The nation’s status as a gateway to West Africa means that Ghana’s insurance market is populated by domestic, regional and international providers competing for business both within the country and beyond its borders. As of the second quarter of 2018, some 54 insurance companies – 25 life and 29 non-life – were authorised to transact business in Ghana.
Products offered by the life segment include individual and group life assurance, annuities, pensions, group credit, permanent health and investment policies (including unit-linked investment products). While the number of life insurers is large relative to the size of the economy, a small number of firms account for the bulk of market activity. In the second half of 2018, sector leaders included Enterprise Life Assurance with 26.4% of the market by premium, followed by SIC Life Insurance (23.4%), StarLife Assurance (15.5%) and Glico Life Insurance (8.2%).
The non-life segment, meanwhile, provides coverage across a broad range of lines, including aviation, engineering, fire, liability, marine, motor, personal accident, theft, employee compensation, medical and micro-insurance. As with the life segment, premium distribution among the non-life players is top heavy, with Enterprise Insurance Company holding a 15% market share, followed by SIC Insurance company (11%), Star Assurance Company (10%) and Vanguard Assurance Company (9%).
Ghana is also home to three reinsurance companies: Ghana Reinsurance Company (Ghana Re), Mainstream Reinsurance and GN Reinsurance Company, as well as an array of ancillary service providers. These include nearly 80 brokerages, four reinsurance brokers and around 7000 insurance agents.
The sector has undergone steady and robust expansion in recent years. The most recent full-year statistics for the sector from the NIC show industry gross premium amounting to GHS2bn ($497m) at end-2017, representing a growth of 15.3% from GHS1.9bn ($410.6m) in 2016. As for aggregate assets, figures reached GHS4.7bn ($1bn) in 2017, up 71.2% on GHS2.2bn ($475.4m) in 2016.
Asset growth continued into the first half of 2018, with sector figures totalling GHS5.1bn ($1.1bn) as of end-June, although industry gross premium fell to GHS1.35bn ($291.7m) during the period. By segment, non-life held GHS2.1bn ($453.8m) in assets and GHS705.6m ($152.5m) in premium as of the end of the first half. Meanwhile, in the life segment, assets totalled GHS3bn ($648.3m), with premium accounting for GHS639.7m ($138m).
Two of Ghana’s biggest insurers, Enterprise Group and SIC Insurance Company, are listed on the domestic stock exchange, and are therefore required to regularly disclose their financial results in full. Final year results for 2017 show that total assets at Enterprise Group stood at GHS1.03bn ($222.6m), up 23.7% from GHS812.1m ($175.5m) in 2016, while profit after tax grew by 22.8%, from GHS68m ($14.7m) in 2016 to GHS87m ($18.8m) in 2017. Net insurance premium increased by 21.1%, from GHS308.1m ($66.6m) to GHS380.7m ($82.3m).
At SIC Insurance Company, total assets grew by 14.4% from GHS187.3m ($40.5m) in 2016 to GHS216.7m ($46.8m) in 2017. Profit after tax amounted to GHS11.4m ($2.5m), more than doubling on the previous year’s GHS5.4m ($1.2m). Net premium increased 37% to GHS98.9m ($21.4m).
As with other African insurance markets, European and North American providers have traditionally played the dominant role in the Ghanaian reinsurance arena. However, successive governments have become increasingly aware of the advantages of domesticating more risk, including retaining more capital within Ghana’s borders and protecting the sector from global rate volatility. To further these goals, the NIC now requires that insurers exhaust local reinsurance capacity, of which around 80% is supplied by the state-owned Ghana Re, before engaging with foreign firms. This approach replaces a regulatory requirement, removed in 2006, by which local players were compelled to cede 20% of their premiums to Ghana Re, which was considered unnecessarily restrictive.
The premium income of Ghanaian reinsurers has increased steadily since 2012, according to the NIC, with the non-life segment accounting for the vast majority, contributing 92% of the sector’s aggregate premium income at GHS173m ($37.4m). The life segment, meanwhile, contributed GHS14m ($3m), or around 8% to the total. The NIC attributes this discrepancy to the high retention rates of domestic life insurers, who generally sell savings and investment products linked together – a common practice in insurance markets across the world.
The development of the life segment, which consists primarily of coverage related to death, terminal illness or critical illness, has failed to take off for a number of factors, most notably the limited disposable income of the population, a lack of awareness regarding the benefits of life insurance, limited distribution channels as well as delayed payments on claims. Addressing these challenges and increasing life insurance coverage is a priority for the regulator. Ghana’s insurers continue to generate the majority of their premium income from the nonlife segment, which contains the market’s two main compulsory business lines.
As all drivers are required to take out thirdparty coverage, motor insurance comprises the largest non-life segment, generally accounting for 50% of total non-life premium income, and contributing GHS518m ($111.9m) in 2016.
The third-party premium rate is fixed by the General Insurance Council and the NIC. In July 2015 the premium rate was raised from GHS66 ($14.26) to GHS252 ($54.46) per year, while the rate for taxis was hiked from around GHS83 ($17.94) to GHS252 ($54.46) per year. Only rigorous opposition from motor unions prevented an even sharper increase from being proposed; the NIC had initially targeted annual premiums of GHS471 ($102) and GHS576 ($124) for cars and taxis, respectively. To assuage motorists’ fears, the regulator agreed to introduce the increase over the course of three instalments.
As the first rate move in five years, it came as a response to the falling value of the domestic currency and the consequent rise in motor input costs at the time. The change was also accompanied by an alteration to the regulatory framework, which allowed Ghana’s insurers to sell cover on a monthly basis. The additional charges have made third-party provision a more attractive business line for insurers, who for some years had relied purely on the sale of comprehensive motor cover for profit. Nevertheless, the rising cost of damages arising from road accidents continues to undermine the segment’s profitability. Consequently, the Ghana Insurance Broker’s Association lobbied the authorities to address this challenge. In early 2018 the NIC expressed its commitment to establishing a cap for injury and death compensation for third parties, after appropriate consultation had been completed.
Looking forward, in late 2018 Vice-president Mahamudu Bawumia revealed that the government intends to establish a digital system that will link insurance companies directly with the Driver and Vehicle Licensing Authority. This will make it possible for law enforcement personnel to establish the insurance status of a vehicle almost instantaneously, with the likely outcome of increased compliance in regards to motor insurance.
Uninsured vehicles are commonplace on Ghanaian roads: of the 2701 traffic offence convictions in Ghana between January and July 2018, 644 of them were for driving with expired documents. The likely result of the new initiative, therefore, will likely be an immediate uptick in premium income.
Private commercial buildings are all required to take out fire insurance. Such requirements have boosted the fire, theft and property segment to second place among the non-life lines, accounting for around 20% of non-life premium income and generating GHS221.5m ($47.9m) in 2016.
Recent efforts by the NIC to enforce safety standards and compliance with insurance requirements have been a boon to the segment. In 2016 the regulator undertook inspections in 573 buildings in Accra, Takoradi, Cape Coast, Tamale, Wa and Bolgatanga and found that 229 of them had not procured a fire insurance policy. The task force arrested managers of the concerned buildings and threatened prosecution, an action which has significantly increased compliance levels, according to the regulator.
As is to be expected, non-compulsory lines account for a smaller share of overall premium income. Voluntary non-life lines include engineering coverage, which accounts for 8% of segment premium; followed by personal accident, health and medical coverage (6%); marine and aviation (6%); bonds and financial guarantees (5%); liability (3%); and other approved products (1%).
Private health insurance in Ghana, which has considerable potential, is rivalled by the presence of the National Health Insurance Scheme (NHIS), established in 2003 as a first step to universal health care coverage. According to the Ministry of Health, however, only around 40% of Ghanaians are covered by the NHIS, leaving a sizeable portion of the population needing health coverage.
“The relationship between the private sector and the NHIS is mutually beneficial,” Dan Armooh, CEO of Acacia Health Insurance, told OBG. “Private insurers tend to provide medium and premium-level health policies, whereas the NHIS is designed to cater for as many people as possible.”
The NIC has overseen the sector since it was first established by the Insurance Law of 1989, and is mandated to perform a wide range of functions, including licensing entities, setting standards and establishing codes for practitioners. In addition, the regulator to has the power to approve the rates of insurance premiums and arbitrate insurance claims when disputes arise.
The sector is today governed according to the Insurance Act of 2006, a comprehensive piece of legislation bringing the market’s regulatory framework in line with the principles of the International Association of Insurance Supervisors. One of its central precepts is the prohibition of composite insurance companies, meaning that since its full implementation in 2007 Ghana’s insurers have been compelled to separate life and non-life operations into different companies.
However, while the 2006 act has supported the sustainable growth of the industry for more than a decade, the NIC is in the process of formulating new legal reforms, by which it aims to take account of changes that have taken place in the insurance landscape over recent years. Speaking to the local press in late 2018, Emmanuel Ray Ankrah, chairman of the NIC’s board, revealed that among the areas expected to be addressed by coming legislation are public liability, professional indemnity, insurance of government properties and marine insurance. The regulator has also announced its intention to tackle the challenge of group supervision, where an insurer forms part of a wider conglomerate of companies. The traditional approach of assessing a provider’s performance in isolation denies the regulator a full picture of the risks that policy holders are exposed to, and therefore the NIC intends to introduce a group-wide supervisory framework.
The adoption of a risk-based approach is being driven globally by the introduction of Solvency II requirements in the EU, the SAM framework in South Africa and the Chinese Risk-Oriented Solvency System in China. Introduction of risk-based standards in Ghana would require insurers to meet a minimum capital requirement or a capital level based on the level of risk on their books – whichever is the greater. While full details of the risk-based system have yet to be revealed, the related question of minimum capital requirements became a prominent industry topic in 2018 after an NIC official revealed that the regulator intended to raise the requirement to GHS50m ($10.8m). Later reports suggested that the new level would be GHS30m ($6.5m) – still a doubling of the current requirement and a challenging prospect for some insurance companies.
Raising the insurance penetration rate is a central ambition of the regulator. To this end, the NIC has heavily promoted micro-insurance. The regulatory basis for this drive was established with the Micro-insurance Market Conduct rules, put in place in 2013. Under these regulations, a company is not allowed to market or renew a micro-insurance product until it has been licensed by the NIC. Contracts cannot be designated as micro-insurance unless they meet particular criteria, requiring them to be affordable and straightforward.
Ghana is a regional leader in terms of the uptake of micro-insurance, a product range marketed to small businesses and low-income families. A survey published by German development agency GIZ revealed that the principal demographic interacting with micro-insurers was self-employed women between the ages of 30 and 39 years. Nearly 60% of clients earned an average monthly income of below GHS600 ($130), demonstrating the importance of micro-insurance to boosting financial inclusion.
A large proportion of premiums for this market are sold through mobile phone operators, although products are also distributed through rural banks, post offices and government outreach programmes. The main product lines offered include life ( noncredit), credit-life and hospitalisation.
Similar to other emerging insurance sectors, the life segment is dominated by insurance agents generally tied to one company. Such agents account for around 60% of total premium income, while insurance brokers, who can sell policies from a range of companies, contributed 9%. Regarding the non-life segment, however, brokers play a more prominent role, accounting for an estimated 36% of premium income, compared to around 30% attributable to agents, according to the NIC.
While there are nearly 80 brokerage firms operating in the market, the segment remains top-heavy. Of the GHS72.5m ($15.6m) in revenue generated in 2016, around 64% of the total commission income was claimed by 10 firms. The largest brokerage by commissions income is KEK Insurance Brokers, which garnered GHS14.9m ($3.2m), or 33% of the total. This is followed by Edward Mensah, Wood & Associates (8.3%) and Gras Savoye Ghana (7.2%), which has since been bought by Willis Towers Watson.
There is a far larger number of insurance agents working in the sector, with the NIC estimating the figure at more than 5600. Recruiting more agents has traditionally been seen as the route to premium growth by the industry, and Ghana has thus far been slow to adopt the digital distribution channels that are driving growth elsewhere.
However, the emergence of a thriving micro-insurance segment in the country is helping to change the way that the insurance industry as a whole interacts with its customers. The challenge of distributing low-value, high-volume insurance products to the population has resulted in a number of fruitful partnerships between underwriters and telecoms firms. Three of Ghana’s mobile operators – MTN, Airtel and Tigo – now offer micro-insurance schemes in conjunction with mobile communications packages. For example, in the first half of 2018 MTN Ghana joined forces with MMI Holdings to launch aYo, which provides insurance cover for funds sent via MTN Mobile Money. aYo Recharge With Care enables subscribers to buy a life insurance policy with coverage up to GHS3000 ($648) and hospitalisation coverage up to GHS50 ($10.80) per night.
For the more progressive companies in the sector, partnerships with telecoms companies are just part of a new trend of multi-channel distribution, which also includes bancassurance (or partnerships with banks), automated call centres, churches and partnerships with funeral homes. Agents and brokers also need more modern data and methods to better serve their customers and compete for new business. “Insurance is about data, deciding on a premium to charge is a scientific process,” Darlington Munhuwani, CEO of Allianz Insurance Company Ghana, told OBG. “Technology is a game changer and will assist insurers with segmenting the market, price risks and improving each customer’s experience.”
The global takaful, or sharia-compliant, insurance market is expected to reach $40bn by 2023, from $19bn in 2017. While the Gulf Cooperation Council (GCC) and South-east Asia make up the largest consumers of takaful, over the past decade the African market has outpaced them in terms of year-on-year (y-o-y) growth.
According to international actuarial and consulting firm Milliman, the African takaful sector grew at a compound annual growth rate of 19% between 2012 and 2015, compared to 18% in the GCC region and a contraction of 4% in South-east Asia.
The expansion of takaful in Africa has been driven predominantly by Egypt, Sudan, Kenya, Gambia and Tunisia, but Ghana’s demographics suggest that it is well positioned to capitalise on future development. Around 18% of the country’s population is Muslim, and other jurisdictions in the West African region have shown that there is an appetite for such insurance products. Nigeria, for example, introduced takaful to its domestic market in 2013, and currently allows three models of sharia-compliant insurance to be utilised: mudaraba (profit sharing), wakala (agency) and a hybrid of the two.
The NIC first announced it was introducing a similar takaful component to Ghana in 2016, when Lydia Lariba Bawa, the commissioner for insurance, told local press that the regulator intended to engage a consultant to advise on the issue. In establishing the regulatory framework for a domestic takaful industry, the NIC has recourse to the advanced frameworks of Malaysia and the GCC markets, which in recent years have placed an emphasis on consumer protection and risk-based capital requirements.
While Ghana’s insurance industry has succeeded in consistently expanding its premium income over recent years, it has faced a considerable challenge in translating this positive trend into higher net margins. The life segment’s aggregate expense ratio, which represents the costs associated with acquiring and servicing policies divided by net premium, rose from 57% in 2013 to 65% in 2016, according to the NIC. This expansion has significantly outpaced European, Middle East and African averages of around 30%. As a result, less premium is being directed to policyholders’ benefit reserves, a trend which undermines the sustainability of the sector. As with the life segment, non-life insurers have been paying proportionally more each year in their pursuit of premium, with the aggregate expense ratio for the sector increasing from 78% in 2012 to 94% in 2016. The NIC considers an expense ratio of approximately 40% to be the internationally acceptable level, and has also warned that companies reporting ratios considerably in excess of this may face challenges in paying claims on time. In 2016 two life and eight non-life insurance companies reported expense ratios of more than 100%.
The combined ratio – the sum of the sector’s claims ratio and expense ratio – is considered by the NIC to be the best measure of an insurer’s underwriting and operational efficiency. As the combined ratio does not take the investment income of insurance companies into account, it is a key indicator of technical underwriting competence. Generally, a ratio of less than 100% indicates underwriting profitability, while a ratio of more than 100% indicates a loss.
The industry’s average combined ratio stood at 111% in 2012, and by 2016 had risen to 133%, indicating consistent losses over the period. In 2016 three insurance companies reported a combined ratio of under 100%, while five showed levels above 150%.
Reversing the trend of rising costs in relation to premium income is, therefore, a key sector concern in 2019. Achieving this goal will likely require regulatory intervention from the NIC, as well as an efficiency drive on the part of insurers. “Beyond these, two main things affect profitability: rate cutting and premium collections,” Solomon Lartey, managing director at Activa International Insurance, told OBG. “Rate cutting has been with us for perhaps 50 years or more, and many operators in the sector do not make a technical profit from underwriting gains.”
Ghana’s insurers rely heavily on investment portfolios to ensure their annual profits. Their investment activity is of considerable interest to both the regulator and industry observers. According to the NIC, investments make up approximately 84% of the life segment’s total assets, as well as around 60% of the assets held by non-life insurers. The most recent aggregate data provided by the regulator shows consistent y-o-y gains in investment income by life companies, increasing from GHS172.9m ($37.4m) in 2013 to GHS378.3m ($81.8m) in 2016.
This has had a positive effect on the segment’s investment ratio, which measures the proportion of a company’s investments to total assets. A high figure shows a stronger ability to meet liabilities, and therefore the rise in the segment’s aggregate investment ratio from 70% in 2012 to the 84% shown in 2016 is a welcome development.
Importantly, the investments made by life insurance companies have proved productive, giving a yield of between 12% and 19% per year throughout this period. Likewise, non-life insurers have followed a similar trend, with investment income rising from GHS53m ($11.5m) in 2013 to GHS160m ($34.6m) in 2016, with the investment ratio climbing from 51% to 66% over the same period.
While strong investment performances have supported profits and helped the sector meet its liabilities, falling interest rates throughout 2017-18 have served as a reminder of the downside risk associated with a reliance on investment income to maintain a net profit. Those companies that have not diversified their portfolios and successfully readjusted their investment strategies to accommodate the new scenario will face increased profitability pressure if the downward interest rate trend continues.
Ghana’s insurance industry is well positioned to grow on the back of the nation’s continued economic expansion. While domestic oil and gas production is expected to contract in the short term, the World Bank estimates that the nation’s GDP growth for 2019 will reach 6.9%, comfortably above the 3.6% average forecast for sub-Saharan Africa. The sector may also receive a boost from new lines of compulsory insurance, which the NIC aims to introduce to enhance the protection of life and property, and increase insurance penetration.
“To best understand insurance penetration rates in Ghana, one needs to look at both the population’s ability to spend and their awareness of the real benefits,” James Wood, CEO at Edward Mensah, Wood & Associates, told OBG. “The market is expanding considerably – the middle class is growing and awareness of products, especially life insurance, is increasing.”
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