Insurance penetration not comforting

Insurance penetration in Ghana has gone down marginally for the first time in about a decade amidst the challenges in the economy, B&FT has gathered from its recent survey of the industry.

While the total premiums earned by the entire industry (life and general) increased by 23 percent from 2012-2013, rising from GH¢0.84billion to GH¢1.04billion, insurance penetration – which reflects the level of development in the sector – stood at 1.11 percent at the end of last year, falling from 1.13 percent in 2012 and below the African average of 3.5 percent.

The drop was on account of slower rate of growth in general insurance premiums compared to the growth of the economy.

Meanwhile, between 2012 and 2013, per capita spending on insurance – known technically as the density of insurance – rose from GH¢32.62 to GH¢39.24, continuing its rise from GH¢7.50 in 2006.

While the penetration rate has increased consistently since 2006 – when it registered 0.88 percent – the current ratio of barely 1 percent is very low compared to markets such as Kenya and South Africa, where penetration in 2013 stood at 15.4 percent and 3.4 percent respectively.

Nigeria – Africa’s biggest economy – is the only major market trailing Ghana in penetration of insurance. The trend in that market has been sluggish, with the ratio falling from 0.7 percent to 0.6 percent between 2012 and 2013.

In Ghana, the National Insurance Commission (NIC) has begun the implementation of a number of policies in a bid to boost confidence and trust to grow the industry.

Among others, the regulator has been championing micro-insurance – which targets low-income economic sectors – as a strategy to improve penetration and is currently working on a new industry law that takes cognizance of this little explored area.

It has also been trying to boost confidence through policies to strengthen claims-payment capacity of insurers. Since April this year, it has been implementing a “No premium, No Cover” policy that prohibits the sale of insurance on credit.

The NIC’s objective is to enable cash-strapped insurers promptly respond to claims – at least within a week when they fall due.

The regulator says it is concerned the level of premium debts owed by policyholders to insurers could hurt the industry, necessitating the implementation of the policy to protect the interest of all stakeholders – especially as the practice whereby insurers provide cover on credit exposes the industry to liquidity risks.

Additionally, the regulator has increased the minimum capital required to operate an insurance business from GH¢5 million to GH¢10 million, which could force some companies into mergers and acquisitions as the regulator seeks to ensure stability and strengthen the financial muscle of companies to underwrite bigger risks.

A World Bank report in 2012, titled “De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services,” said insurance companies in Ghana and other countries within the West African Monetary Zone (WAMZ) are too small and need to recapitalise to underwrite major transactions.

It added that in the WAMZ region, the regional financial market remains fragmented by the lack of an official cross-border payments system, by differences in the regulatory framework for financial institutions between countries, and the absence of information-sharing on credit across borders.

It said regulations and supervisory practices for the insurance sector are far from uniform across the region, which increases the costs of operating regionally and undermines the ability of the supervisory bodies to assess the risks posed by the cross-border activities of the institutions that they supervise.