Insurance competition deepens

Competition in Ghana’s non-life insurance industry deepened in the year gone by as companies with relatively lower business volumes continued to chip away at the market share of the biggest five.

Four years ago, the biggest five – made up of SIC, Enterprise, Star Assurance, Metropolitan and Vanguard – accounted for 63 percent of the industry’s underwriting revenues; but this ratio has declined gradually and reached 57 percent last year.

In the same period, the five lowest premium-earning companies saw their share of industry underwriting revenues rise from 2.7 percent to 3.3 percent.

The Business & Financial Times has also analysed the level of market concentration and competition in the non-life insurance market using the Herfindahl-Hirschman Index (HHI) and found that competition picked up in each of the last four years as revenue streams became less concentrated.

The HHI is a measure of market competition which is popular among regulators. It is a numerical figure that ranges from 0 to 10,000 – whereby a lower HHI indicates lower market concentration and higher competition.

An industry with HHI of less than 1,000 is generally regarded as competitive.

According to B&FT’s analysis, the non-life industry HHI stood at 1,051.77 in 2010. In 2011 it reduced to 1,004.15; then it fell to 939.29 in 2012, before plummeting further to 833.28 last year.

The boost to competition is due to SIC, the stated-owned insurer, losing market share even as companies outside the top-five made gains.

SIC remains the biggest insurer but it underwrote 17 percent of industry risks in 2013, compared to 25 percent in 2009. In the same period, the market share of Enterprise, the second-largest non-life underwriter, jumped from 10 percent to 11 percent.

Vanguard, Ghana Union, Activa and Millennium Insurance – a Jospong Group subsidiary which was licensed in 2011 – are among companies that grew market share last year.

Rising competition in the industry is seen as beneficial to consumers, as it encourages innovation among the companies, who are also less inclined to charge excessive premiums in order not to lose clients to competitors.

Competition gives policyholders more choice, while the resulting innovation increases product variety.

Competition is also good for the companies because it tends to induce higher productivity and efficiency. B&FT’s analysis shows industry efficiency, measured by premium revenue per worker, has been improving and surged from less than GH¢200,000 in 2010 to GH¢301,000 last year.

In the same period, underwriting revenue more than doubled from GH¢271million to GH¢571million – even though as a share of GDP it registered 0.6 percent in both 2010 and 2013.

The other way competition benefits insurers is that as firms underwrite more business, they increase the scale of their operations, which enhances their ability to underwrite risks that previously were too large.

But competition has also produced a negative consequence for the industry: substantial premium debts due to companies selling insurance on credit in the scramble for business.

This practice boosted premium debts owed by policyholders to a high of 39 percent of gross revenues in 2010.

Following huge write-offs of some of the debts by companies and a clampdown by the regulator last year through its policy known as “No Premium, No Cover”, this ratio was trimmed down to 25 percent in 2013.