Growing at one of the fastest rates in Africa, Ghana’s insurance sector continues to do well despite the headwinds faced by the overall economy. Analysts and market participants are expecting years of solid performance as awareness, penetration and density increase toward global averages. Companies in the sector are reporting strong profits and good premium growth, while interest is high from international investors, with 2014 and 2015 characterised by a series of major transactions. Regulation is also improving, and the legal underpinnings of the sector are becoming stronger. Insurance in Ghana is set for continued growth, mergers and acquisitions, and improved coverage, and the country is likely to continue to be one of the better markets regionally.
Significant challenges remain, however. The country’s slowing growth rate and twin deficits are weighing on business performance, and with many Ghanaians struggling to get by and companies having difficulty getting credit, insurance sales are becoming less easy. Competition in the sector is also high, even though rules have been put in place to rid insurance of unethical practices. Legislative revision has also been delayed as the reform of state-related companies is proceeding slowly. Stephen Kyerematen, managing director of Activa International Insurance, told OBG, “Regulators can be slow, but that reflects the fact that they are cautious. But in the end, it is better to have solid regulations, because that will influence the rate of growth in the market.”
Long History
Ghana has a long history of insurance, with the first policies being offered by a British firm in 1924. Foreign companies eventually incorporated and were localised over time as the Ghanaian government sought to increase the role of domestic players in the sector. This was followed by a period of liberalisation in the 1980s and 1990s, which resulted in an influx of international players. The number of foreign insurers rose from two in 2006 to 16 currently. Nigerian companies have a particularly prominent presence in the sector, including Regency Alliance Insurance, which entered the market in 2006; Industrial and General Insurance Company Ghana, which came in 2007; Equity Assurance in 2008; and NEM Insurance in 2009. Companies from other countries are also present, including firms from Côte d’Ivoire, Cameroon, Germany, South Africa and the UK.
Regulation has been advancing for some time. The more protectionist laws, such as the Insurance Act of 1965, have been replaced by increasingly liberal legislation, such as the Insurance Act of 2006. Along the way, a number of subsidiary and related bills have been passed, such as the Motor Vehicles (Third Party Insurance) Act of 1958 and the Ghana Reinsurance Organisation Law of 1984. The Insurance Law of 1989 established the National Insurance Commission (NIC), the current regulator, while the practice of mandatory ceding to government reinsurers was ended in 2008. According to the World Trade Organisation, the sector is open, though only local companies can act as brokers, and local capacity must be exhausted before foreign insurance is utilised.
Indicators
The insurance business in Ghana has been strong of late. The sector overall has grown considerably faster than the country’s economy for a number of years, expanding more than 30% annually from 2008 to 2012. Between 2009 and 2013 the sector experienced a compound annual growth rate (CAGR) of 30.4%. That outpaces regional competitors such as Chad (2.3%), Côte d’Ivoire (3.9%), Cameroon (9.4%) and Uganda (18.8%), according to UK-based research firm Timetric. While 2014 growth was also strong, it was slower than in previous years. According to the NIC, in 2014 premiums in the life subsec-tor were up by around 23%. In the non-life subsector growth reached 13% in 2014. Expectations are that strong growth will continue into the future, with a CAGR of 23% for the forecast period of 2013-18.
The sector is highly concentrated, with 25 non-life companies and 21 life providers in the market as of June 2015, according to the regulator. KPMG reports the top five firms in the life subsector controlled about 80% of gross written premiums (GWPs) in 2012, which compares with 72.6% in 2010. The top life company in 2012 was SIC Life with 28.2%, followed by Enterprise Life Assurance (25%), Starlife Assurance (11.2%), GLICO Life Assurance (10.1%) and Provident Life Assurance (4.4%). The situation is the same on the non-life side of the business. Total concentration is lighter, with the top five insurers holding 60.6% of GWPs. The top five are: SIC Insurance (22.2%), Star Assurance (12.3%), Metropolitan Insurance (9%), Enterprise Insurance (8.7%) and Vanguard Assurance (8.4%). Comparatively, in South Africa the top five short-term (non-life) companies account for 74% of the business, while in Nigeria the numbers are lower, with the top five life companies controlling less than half the business in 2011, and less than a third of non-life lines, according to Ghana’s Cal Brokers.
Increasing Knowledge
Insurance penetration remains stubbornly low in Ghana. KPMG puts the figure at 2% in 2012, while the insurance commissioner placed the rate at under 1.5% in early 2015. Other countries in Africa had higher rates in 2012, according to KPMG, with Morocco at 2.97%, Kenya at 3.71% and Rwanda with 2.3%. The average for Africa is 3.56%. The figures for insurance density tell much the same story, with Ghana coming in at $31.20, Tunisia at $75, Angola with $54.80 and Gabon at $146.30. However, Ghana scores better than some of its peers and neighbours. Nigeria’s insurance penetration is 0.68% with density standing at $10.80. For Egypt the penetration rate is also 0.68% while density is $22.50. Ghana has seen these two indicators increase a good deal over the years, with penetration rising from 0.88% and density from $2.07 in 2006. Despite this growth and its mid-ranking position in Africa, awareness in Ghana is often felt to be low, and Ghanaians are not active consumers of insurance products.
Competition
At the same time, while highly concentrated, the sector has historically been competitive. Kwei Mensah Ashidam, acting managing director of SIC Insurance, told OBG, “Because of the extreme competition, rates are getting pushed down a lot. You see this a lot on the auto segment, which is basically rate driven.” However, over-competition is also a problem. Due to the large number of companies selling insurance and the fact that some of them have been under-capitalised and inexperienced, price cutting and other unethical practices are not uncommon on the margins. Some insurers have written policies without collecting the premium, essentially extending credit to the client. Others have been slow to pay claims and have used their legal departments to intimidate clients, according to reports in the local press. Issa Abdul-Rahman Anafure, managing director of SIC Life, told local press, “Insurance premium undercutting has become the order of the day and this is hurting the industry, for which reason the NIC must act now before the situation gets out of hand.”
Steps have been taken in recent years to curb abusive practices, as they are seen as destabilising and harmful for public perception of relevant products. A directive was issued in 2011 by the NIC forbidding the sale of policies on credit, while inspections have been made by the NIC to investigate cases of undercutting. More training for employees will also be required, and Godwin Amoo, CEO of Horizon Insurance Brokers, told OBG, “Proper training is key in the insurance market. Insurance is a knowledge-based business that requires the sharpest brokers to compete.”
Prudent Steps
In April 2014 the NIC again required insurance companies to collect the premium before taking on a risk under the “no premium, no cover” policy. The regulator became concerned after some insurers did not have the funds to cover potential claims or cover them in a timely manner, and by doing so they put themselves in danger of collapse. The NIC issued the regulation, stating that it was done to protect the industry. Mel Constant Kebe, Saham Insurance’s managing director, told OBG, “Large companies will adjust easily to the ‘No Premium, No Cover’ policy, as multinational corporations are accustomed to this practice in other countries. However, we will mostly likely see small and medium-sized enterprises reduce their sum insured and individuals purchase cover in shorter-term contracts.”
The sector’s debt is substantial. In March 2014 Lydia Lariba Bawa, head of the NIC, said the industry was owed a total of GHS130m ($36.07m). The sector has been vigorously fighting instructions from the NIC, countering that the regulation would defeat one of the main goals of the regulator in that it would be more difficult to increase insurance uptake and penetration. The impact of the campaign was swift and significant, with policies being cancelled for lack of payment. Banks loans, which were supposed to help clients finance insurance purchases, did not fill the gap. Nevertheless, over-competition remains an issue, with price discipline lacking, insurers continuing to cover risks beyond their means and credit still being extended in some cases. “The competition has been fierce,” Bode Oseni, CEO and managing director of Regency Alliance Insurance, told OBG.
Rate Rises
The sector is dealing with a number of issues that are less existential in nature, but are nevertheless causing concerns for insurers and the regulator. In early 2015 insurers proposed raising the cost of third-party liability insurance by as much as 600% starting from June 2015. The price of a policy for a private car, which had previously been GHS70 ($19) per year, was due to jump to GHS471 ($131). This was the first rate increase in five years and would have had significant knock-on effects for motor coverage, as comprehensive policies rise in correlation with the mandatory liability cover, which forms part of the package. According to comments that were made to the local press in June 2015 by Atsu Kosi Menyawovor, CEO of the Ghana Insurer’s Association (GIA), the change was being implemented because premiums had been too low and the accident rate too high. He also noted that the courts had ordered damages as high as GHS10m ($2.8m) be paid for policies which cost just GHS53 ($15) a year.
An additional change in policy would see insurers’ price policies by the day and offer terms as short as one month, as opposed to the annual coverage previously available. However, this arrangement would lead to increased prices due to higher administration and processing costs, estimated to add 10-20% to what the end-user has to pay. The rates quoted in the press in June 2015 were GHS1.58 ($0.44) per day for taxis, GHS1.60 ($0.44) per day for minibuses and GHS0.70 per day ($0.19) for motorcycles.
The industry also noted that the increase in prices was in part the result of the lower cedi and higher inflation, leading to more expensive repairs. Charles Oduro, managing director of Kek Insurance, which offers auto coverage, told OBG, “The currency depreciation makes us unsure of where to set premiums for 2015. This makes it difficult for our customers.”
However, after deliberations between interested parties, including the industry association and the regulator, it was decided that the rate increase would not be as severe as first expected. In July 2015 it was announced that policy prices would rise by 300% and that the increase would be effective over a two-year period. The premium rate was set at GHS252 ($70) annually for private cars and GHS367 ($102) per year for minibuses and taxis. Existing policyholders are also qualified to receive a 50% discount, meaning that the total rise would be 150%.
The compromise came after a threat from commercial drivers, who were represented by the Fuel Tanker Drivers Association and the Ghana Private Road Transport Union, to strike over the rate rise and the possibility that drivers would simply establish their own insurance company to avoid higher costs. During the last increase in 2010, rates also went up by more than 100% and resulted in significant protests.
Compulsary Lines
Fire insurance is also compulsory under the law. According to the Insurance Act of 2006, Section 184, all private commercial buildings must be covered against fire, collapse, earthquakes, floods and storms. An official certificate must be displayed in the building. In 2011 the NIC issued a directive instructing all commercial buildings under construction to be covered against these risks. Enforcement has been difficult, however. In January 2015 a fire broke out at Central Medical Stores facility, the main repository for the country’s medical supplies, and it transpired the site was not insured. The NIC later ruled that because the building was owned by the government it was not covered by the statute. The GIA told the local press that the asset should have been insured under the law, arguing that public property is included in the statute. Eric Addo-Mensah, COO of Midas Insurance Group, told OBG, “The government has very few buildings insured, and there is no mandate for it. This is a threat to national resources and new policies should be implemented.”
The Ghana Health Service said it had been in the process of acquiring an insurance policy when the fire broke out. Oseni told OBG, “The insurance sector has the right laws in place, but the lack of enforcement is the greatest challenge. The proper enforcement of public building insurance, for example, will create more opportunities in Ghanaian insurance.”
The industry is calling for better enforcement and broader coverage, noting that the Ministry of Foreign Affairs building in Accra also caught fire in 2009. It also believes private homes should be required to be insured. The lack of fire insurance was dramatically and tragically illustrated in June 2015, when an estimated 150 people were killed when a petrol station exploded in Accra. Many of the victims were taking shelter from heavy rain and floods. The disaster brought to the fore the fact that few commercial facilities, and individuals, are insured.
Industry executives have said there is no longer any excuse to avoid insurance. According to comments made to local press by Prince Adeyemi Adetuwo, managing director of Equity Assurance, clients are now wealthy enough to afford insurance, while insurance companies are paying claims. The argument that it is not worth buying insurance is no longer valid, he argued. “We need to reach out to the people more through publicity campaigns about the essence of insurance and let people know that insurance is not what it used to be. Insurance is rapidly changing and people must be made aware,” he said.
Guarantee Obligations
Alongside the issues confronting the sector as a whole, publicly owned SIC, the country’s largest general insurer, faces other challenges as well. Despite delivering a solid performance in recent years, SIC has nonetheless had to grapple with a high-profile dispute. In March 2013 SIC issued a credit guarantee for a GHS19.3m ($5.35m) loan made by Ivory Finance to ITAL Construct, a local construction company. ITAL had received a contract to build 4120 housing units, and seven insurance companies joined SIC in the transaction. When ITAL failed to meet its obligations to Ivory Finance, SIC was ordered by the court to pay the amount of the guarantee. Ivory Finance is currently looking for GHS232m ($64.38m) in compensation as it is claiming interest and fees on top of the original principal. However, SIC has argued that its obligation is capped at the original sum, delaying the payment for what it considers to be a fraudulent transaction. The matter has proceeded to go to the Commercial Court. However, in spite of the immediate challenges, the company has managed to remain solid despite the problems surrounding the guarantee. It reported that its premium income had increased by 17.85% in 2014, while reinsurance premiums were up 12%.
Regulation
The regulation of the sector is continuing to evolve. For a number of years, since at least 2012, the authorities have been working on passing a new insurance law. The main focus of the new law is micro and agricultural insurance, while the bill overall will incorporate Insurance Core Principals of the International Association of Insurance Supervisors. According to comments published by the NIC, the current act is outdated and has significant problems, and the new act would improve overall governance and upgrade the regulatory structure to bring clarity to its operations. The NIC itself would see some changes, including to its name, becoming the Ghana Insurance Regulatory Authority.
The new act will also take aim at the governance of the insurers themselves, as existing legislation does not provide guidance on the matter. Insurers will be required to establish formal risk management policies, separate oversight from management and publish a code of corporate governance. Many firms have already taken the first step. Ashidam told OBG, “We have created a risk assessment department, which helps our customers manage risks in a kind of partnership. This is good for them and good for us. This is something that would be helpful for the whole industry, which is in need of more risk-based supervision.”
Insurers said that as of early 2015 the NIC was already pushing them on risk management policies, but the companies themselves have stated that their practices are still quite rudimentary and that little has been invested in creating the right systems, policies and frameworks. While risk management has become a major focus in recent years, it will take a significant period of time before such firms are able to operate at international levels.
The new act will include a microinsurance framework, which has already been published ahead of the passage of the law itself. It will allow insurers to designate products as microinsurance if they meet three criteria: aimed at low-income groups; affordable; and accessible. Unlicensed intermediaries will be permitted to sell products, which will be sold to communities rather than to individuals. The law will require that the language used in the policies is simple. It also limits exceptions and commits providers to handling claims within seven days of receipt, and making payments within 10 days of receipt (see analysis).
Preparing For Change
Although the draft insurance law has been much discussed, it has not yet been passed. Yet many of the elements of the law have still found their way into the market. In addition to more sophisticated solvency requirements (see analysis), a transitional microinsurance framework was instituted in 2013 to allow for the development of more innovative policies and flexibility. Other administrative efforts have been made, but to mixed reception. Beginning in 2013, the government instructed ministries, departments and agencies to purchase insurance from state-owned or state-invested insurance companies only. This requirement has been contested by some in the sector, particularly given the potential impact it would have on the private sector and the spread and distribution of risk. Large state enterprises will be forced to put all their risks in one place. If an insurer, such as SIC, were to fail, that would mean trouble for the insured.
Members of the GIA and the Ghana Insurance Brokers Association wrote a letter to President John Dramani Mahama in December 2013, stating, “It is our respectful opinion that the current directive is completely at variance with the positive effect that your government is making to promote the private sector as the engine of growth.” David Dankwa, a financial journalist for local news site Joy Online, wrote in May 2014, “It is only wise for an agency such as the Ghana National Petroleum Authority, which owns some sizeable assets within the energy and oil industry, to purchase insurance from multiple insurance companies, and not be forced into doing business with a single insurer. In fact, it makes even more sense for an agency, public or private – assuming they are run by prudent-minded individuals – to insure its risks with a mix of domestic and foreign insurance companies.” Even beyond questions of prudence, it may be a simple case of decreased capability. Oduro told OBG, “Mining was the single biggest insurance customer in Ghana until the oil and gas sector began to take off, but local companies are still only able to insure an estimated 1% of the larger projects.”
Niche Opportunities
Despite the difficulties in the sector and the associated challenges, insurance in Ghana is seen as offering significant opportunities, including in niche areas like funeral cover. With costs in the range of $4500-6000, average funeral expenses are more than three times per capita GDP. Given high social pressures to hold expensive ceremonies, policies offering a payout upon death are popular. In the absence of such coverage, families often find themselves with crushing debts.
Mobile Channels
As in many parts of the developing world, one of the new and promising distribution channels and niche markets is the mobile phone. Kwame-Gazo Agbenyadzie, CEO of Metropolitan Insurance, told OBG, “Mobile market insurance is growing and regional players are taking notice and experimenting with new offerings.”
Tigo Insurance, for example, has a free policy that kicks in as customers purchase credit, which was rolled out in 2011. This was followed by the introduction of a second product that is purchased using phone credits, which comes with a higher payout. The policies have been developed in cooperation with local player Vanguard Life Assurance, with the platform provided by Swedish mobile microinsurance firm Bima. Tigo also now offers two products with its Hospital Support Plan, which costs GHS0.70 ($0.20) per month. In exchange, the insurer will pay GHS20 ($5.55) per day for every hospital stay over two days in length. Claims are paid within 72 hours. The company also offers a life product.
Mobile operator Airtel Ghana also distributes insurance products. Its programme is solely based on airtime purchases. Those buying GHS5-9.99 ($ 1-3) per month, receive GHS250 ($69) in life cover, GHS250 ($69) in accident cover and GHS25 ($7) in hospital cover. Those purchasing GHS10-19.99 ($3-6) per month will receive GHS500 ($139) in life and accident cover and GHS50 ($14) in hospital cover. Those spending GHS20-49.99 ($6-14) will receive GHS1250 ($347) for life and accident cover and GHS100 ($28) in hospital cover. Those spending more than GHS50 ($14) a month will get GHS2500 ($694) of life and hospital cover and GHS150 ($42) of hospital cover. Airtel has partnered with MicroEnsure and Enterprise Life Assurance to offer these products.
Sharp Turns Ahead
The NIC, however, has some concerns about these policies. While it is encouraged by the sales being developed on mobile platforms, it worries about transparency and consumer protection. The buyers of such products have no paper trail of the transactions, only SMS confirmation messages. In the event of a dispute, they would have very little to show to the regulator or a court. The NIC also has concerns about continuity. If any of the parties involved, including the insurer or the mobile phone company, decide to discontinue their participation, the consumer would be left exposed.
With so many institutions in the value chain, many points of potential failure exist. Microinsurance in Ghana will always be challenged by the problems faced in similar markets globally. The cost of distribution is high, it is difficult to properly evaluate risk and the policies themselves tend to be expensive for the coverage offered. But with better distribution, tighter regulation and more competition, capacity and capabilities should increase, giving more scope for pricing to move in line with traditional segments.
New Mergers
Foreign investors are also becoming more interested in the sector and have made and are planning to make additional investments. The relative stability of Ghana, a low penetration rate, relatively high returns and the general African growth story are becoming particularly attractive to companies operating in more stagnant markets where returns are low. According to a report by PwC, Ghana is one of the top targets for South African insurers. Joseph Kusi-Tieku, CEO of GN Reinsurance, told OBG, “The total insurance industry’s premium still translates to less than 2% penetration, and it is equal to even 1% of our GDP. Needless to say, this means that there is considerable room for growth.”
In January 2015 IVM Intersurer bought a 51% stake in Metropolitan Insurance Company (MET), a composite insurer founded in 1994 as Madison Insurance that is ranked among the top five in the country. IVM is the Netherlands-based arm of Hollard Insurance, South Africa’s largest insurance group. Hollard and MET have been working together for some time, in an arrangement to distribute products via Barclays Bank of Ghana. The company has said that it will use its new acquisition as a base from which to develop business regionally, especially in Nigeria. It also hopes to help MET improve its business by assisting it with the development of new products, the expansion of lines and the growth of bancassurance.
The biggest acquisition in recent years was the purchase of a 40% stake in Enterprise Insurance, a non-life company, by Sanlam Emerging Markets for $20.74m. Sanlam already had significant interests in the group, owning 49% of Enterprise Life and 40% of Enterprise’s pension administration arm. The company added that it is also looking for other acquisitions elsewhere in Africa, such as in Kenya, Angola, Mozambique and Zimbabwe, because of slow growth and low yields in its home market and in the developed markets of the West and Asia. In late 2013 Prudential Insurance Company of America bought Ghana’s Express Life. Around the same time, Old Mutual, a South African company, acquired a controlling interest in Provident Life Assurance. Like Sanlam, Old Mutual is expanding on the continent. It has multiple listings and a presence in about 20 countries. Meanwhile, AXA is taking a serious look at the market and was in touch in early 2015 with SIC over possible collaboration. The French firm said that it is interested in growing in the emerging markets, especially in Anglophone countries.
The presence of foreign insurers is seen as bringing many benefits to the market, including improving service, introducing new and innovative products, and supplying capital and expertise. Addo-Mensah told OBG, “Mergers and acquisitions are inevitable and necessary to see further growth in the sector. There will be stronger product offerings and services following consolidation.”
However, other players advise additional support for local firms. Agbenyadzie told OBG, “There should be a two-tiered system put in place for multinational insurers entering the market. Otherwise, smaller Ghanaian firms could not compete in the market, creating no value addition.”
Coming Together
Consolidation is also seen as an emerging trend. Because of rising capital requirements, increased competition and higher costs, especially related to technology and compliance, companies may find it necessary to sell or merge. The total number of companies in the sector is expected to fall. Ghanaian companies are hesitant to undertake the relevant transactions with each other and such deals have been few and far between. While domestic providers know that mergers are the best way to grow, they are hesitant to combine with other local companies, instead tending to look for international partners instead. “Growing organically is not easy. So we are looking at acquisition, mergers and other business arrangements,” said Oseni. “We are open. If anyone talks, we are ready to listen.”
In 2015 it was reported that mutual insurance schemes would have to convert to commercial schemes, with the deadline set for September 2015, according to news reports. The new requirements are some of the most stringent so far, not only in terms of nominal levels to be met, but also in terms of the measures being monitored. Because of the sophistication of the requirements, it will be increasingly difficult for smaller insurers to undertake larger transactions without significantly increasing their capital. The private sector believes this new framework could be what finally encourages mergers and ends aggressive underwriting practices. A.J. Kruger, CEO of Metropolitan Life, said in comments to the local press in early 2015 that the new requirements would change the landscape of the sector and that his company was prepared for the changes. He said, “The December 2015 deadline for insurance companies to recapitalise and the September deadline by the NHIA for mutual schemes to convert to commercial schemes will see the number of companies operating in this space certainly reduce, as not all of the current players will meet the new requirements.”
However, not all players share a wholly positive outlook on this expected development. James Wood, managing director at Edward Mensah Wood Associates told OBG, “Consolidation among Ghana’s brokers will not come about via mergers or acquisitions. The culture favours full ownership,” while Amoo told OBG, “Consolidation should not be expected in the short term. Governance is not clear in most small brokerages, and influence by other workers could possibly destroy one company’s corporate culture.”
Contagion
The Ghana pension system is also facing significant problems. Reforms over the last few years have seen the programme transform, from a simple social security system to an international best practices three-tiered pension system. However, the scheme is still under strain. According to press reports, the government has borrowed GHS1.3bn ($360.8m) from the pension programme.
In addition, the National Pensions Regulatory Authority (NPRA) is also chronically underfunded, and the NPRA and Social Security and National Insurance Trust are currently working out how contribution credits will be assigned under the new system. Private sector programmes are also developing and becoming more popular among the growing middle class. Kusi-Tieku told OBG, “The middle class will drive Ghana’s insurance market both directly and indirectly. A stronger and more educated workforce sees the value of life and property insurance. This class of people will also demand more from government and this will drive public sector growth in the construction and infrastructure industries.”
However, they still miss several segments of society and are affordable for only a small percentage of Ghanaians. Ensuring that the NHIS and the pension system remain solvent and, in addition, provide real, material benefits is a key task for the government.
Outlook
The Ghana insurance sector is in a good position and looks set for further growth and expansion. It is likely that the sector will become increasingly sophisticated over time. Foreign companies are also entering the market, which should contribute to stability and help to lead product design and pricing.
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