Ghana’s insurance regulator shows some muscle with new directive

The Ghanaian authority has taken the lead from its Nigerian counterpart that implemented the same policy last year. Concerns about the insurance industry’s stability came to the fore as companies issuing non-life insurance products recorded high amounts of unpaid premiums, 50% of which were bad debts. Companies then found themselves having difficulties paying claims because of the lack of liquidity. The regulation will mean that insurers will no longer be able to offer products that allow customers to pay their premium over a period of time, as has been the case for years. According to Lydia Bawa, Head of the NIC, local insurance companies are owed roughly GH¢130million ($47.8mn) in premium debts as of 2012. Claims paid for the same period are about GH¢99.8mn.hideMs Bawa, who took up the position less than a year ago, said that the unpaid premiums of policyholders have an effect on reinsurers as insurance companies themselves are unable to pay their own reinsurance premiums. This then means that the reinsurers cannot pay their retrocessionaires. The domino effect of the rolling debt has increased the credit risk of the sector and uncertainty for all involved parties. “They realised that this could actually bring the industry down to its knees,” Armah Akotey, Vice President of Databank told Commercial Risk Africa. “Market players would do whatever it takes in order to ensure we survive and make progress. The regulator is playing catch up.” But the Commission is poorly resourced and has a tough time regulating the sector. Many of the larger insurance companies have more staff than that of the NIC, thus enforcing the new regulation could prove difficult. Doris Aggrey Ahiati, Vice President and Head of Research for Databank, predicts that the directive will open the way for micro-finance companies to fill in the gap and insure people who are unable to afford to pay high premiums upfront. “It [encourages] companies to come up with creative products that are less expensive and have more flexible payment terms and also allow the insured to access claims at a faster pace.” Though she expects that the rate of growth of the industry may not continue as it has in recent years – growth has been between 13 percent to15 percent. The country has an insurance penetration rate of less than 2 percent and some 80 percent of the working population is said to work in the informal sector, a potentially large market in which micro-insurers could operate. “I think in the long term it will be profitable.” [Currently] the probability of the insured event occurring and you being required to cover these occurring events with only half of the premiums that you should have received against these payments, puts a strain on these insurance companies,” Ms Aggrey Ahiati explained.“This is too risky. I think it’s one of the things the new act has done, to tighten the risk management procedures of the insurance companies.” Insurance companies have been ordered by the Commission to get their books in order by the end of this year by either collecting the premiums or writing them off as bad debt. NIC has also introduced reprimands for companies that do not comply with the new measures including charges to insurers ten times the amount allocated for cover if the policy is granted without a premium being collected first. Speaking about the capacity of the insurance industry to expand as the country’s economy grows Mr Akotey says that: “If you push you can cause growth, but if you allow the players to be comfortable, you will not.” Though the country’s economy is growing by 7.1% (for 2013) and the insurance industry by roughly double that amount, the sector is not fully capitalising and taking advantage of the growth. In 2012 the industry took in GH¢851mn in premium income up from the previous year’s GH¢628mn. Capitalisation was GH¢538mn in 2011 from GH¢434mn in 2011. “For the industry to grow in the next thirty years, first of all resource the regulator both financially and with human resources. Then you take care of the players in the industry. You’ll have a strong regulator who is in tune with best practices.” Mr Akotey suggests that: “If you want to grow and raise capital you can actually get good and well-renowned insurance companies that see growth opportunities in Ghana and are willing to buy into the [local] company.”

Ghana’s insurance regulator shows some muscle with new directive

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