Beyond the Sum Insured: A sober look at the real risk in Ghana's motor insurance pool

Ghana's motor insurance sector is currently grappling with a significant operational challenge that is quietly eroding its long-term stability. The industry’s traditional underwriting model, which bases premiums primarily on the market value of a vehicle, is no longer aligned with the primary driver of modern claims costs. While the market value of today’s vehicles has remained relatively stable, the cost to repair them has skyrocketed. This structural misalignment is not a theoretical problem; it is the primary driver of the financial instability and underwriting losses seen in Ghana’s motor insurance sector.

The Technology Gap: Why Market Value Fails

The core of the issue lies in the rapid advancement of automotive technology. Modern cars are increasingly packed with high tech sensors, cameras, and Advanced Driver Assistance Systems, commonly known as ADAS. These systems encompass a wide range of safety critical features, including autonomous emergency braking, adaptive cruise control, lane keeping assistance, and blind spot monitoring.

Historically, a minor fender bender in Ghana cost a few hundred cedis to fix. Today, that same minor impact often involves replacing or recalibrating complex, imported electronic components that can cost tens of thousands of cedis. Insurers are essentially underwriting policies based on the car’s market value while paying claims based on its technology value.

This reliance on Sum Insured as the primary calculation factor fails because it cannot distinguish between a low tech and a high tech version of the exact same vehicle. Consider a 2022 sedan with a market value of GHS 150,000. While the car is worth GHS 150,000 to buy, a minor collision that damages the front bumper, a radar sensor, and a headlight can result in a repair bill of GHS 45,000, which is nearly 30 percent of the car's total value for a minor accident.

To understand the disparity, consider a side swipe incident. On a base model vehicle, a damaged driving mirror is a straightforward GHS 1,500 replacement. However, on the exact same vehicle in a higher trim, that mirror contains a blind spot sensor and a 360 degree camera. The replacement cost jumps to GHS 15,000. The insurer, blind to these trim level differences at the point of underwriting, has priced a GHS 15,000 risk as if it were a GHS 1,500 one.

The Failure of the Status Quo

Simply raising premiums across the board is a temporary fix, not a solution. Doing so penalizes the owners of simpler, low tech vehicles while failing to capture the true risk of high tech models. The industry is facing substantial underwriting losses because it currently charges disproportionately too small premiums for the risks it underwrites. While premium undercutting to gain market share is a factor, the core issue is structural: the underwriting risk itself is mispriced because current models are obsolete. This local crisis proves that maintaining the status quo is not a viable option.

The Solution: Actuarial Precision through VIN Level Data

To solve this crisis, we must move beyond managing the repair process and focus on the point of underwriting. We must underwrite the technology, not just the car. This requires a transition to Vehicle Identification Number, or VIN, level data to identify a vehicle’s specific equipment and safety packages.

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Trim Level Actuarial Surcharges The most effective local solution is the implementation of a Trim Level Actuarial Surcharge. By using VIN data, underwriters can automatically identify if a vehicle is equipped with expensive ADAS components. This allows for a tech surcharge to be applied to the premium, ensuring that a 2022 model with a full sensor package has a higher technical premium than a base model of the same year, regardless of their identical market values. This approach addresses the valuation gap directly at the source, ensuring the premium collected is commensurate with the technical complexity of the vehicle.

Setting New Industry Standards Moving to VIN level underwriting requires significant change, and its success requires proactive leadership from the National Insurance Commission. By setting clear standards, the NIC provides the market certainty needed for insurers to make the necessary capital expenditure on new data systems. This is far preferable to the guaranteed, uncontrolled underwriting losses resulting from the current blind model.

The Global Precedent

This structural flaw is not unique to Ghana. In markets like South Africa, insurers have already warned that as vehicles incorporate advanced technology, repairs have gotten pricier, forcing them to move beyond simple market value underwriting. In Europe and the UK, the industry has solved the challenge of identifying ADAS features by using data services like LexisNexis® Vehicle Build. These services deliver vehicle specific information that is more detailed than what is currently available at the general VIN level in Ghana, allowing for accurate pricing of technology.

A Win for the Ghanaian Consumer

Crucially, this new model is not just a technical adjustment for insurers; it is a massive win for the Ghanaian consumer. It is fundamentally fairer because it ends a hidden, unfair subsidy. Currently, drivers of low tech, base model vehicles are forced to pay higher premiums to cover the high cost, sensor based repairs of luxury trim models. By decoupling the tech risk from the market value, we ensure that every driver pays a premium that truly reflects their specific vehicle’s repair profile.

Conclusion

By continuing to focus exclusively on a car’s market value, we are ignoring the most important factor: the technology in the car. Evolving our underwriting to include VIN level technology data and strategic actuarial surcharges is the only way to build a more stable, profitable, and fair insurance industry for all Ghanaians. Maintaining the status quo is not a viable option.