Can Ghana's new legislative framework modernise the insurance market?

Ghana’s National Insurance Commission (NIC) has been working in recent years to implement a series of changes aimed at enhancing access to coverage, diversifying products and bolstering awareness in the general public about the importance of insurance. The Covid-19 pandemic further underscored the need to bolster the market. “The financial sector and insurance companies in particular have shown resilience throughout 2021,” Yasmin Essilfie-Mensah, executive director of Accra-based insurance firm Edward Mensah, Wood & Associates, told OBG. “The pandemic has brought awareness of the importance of having health insurance at a time when private health provision has seen significant growth.” Even with these efforts, however, there remains room for improvement amid persistently low penetration rates.

Legislation

Ghana’s Insurance Act of 2021 is the new overarching policy framework aimed at modernising the country’s insurance industry. Through the law the NIC aims to boost both insurance penetration and the industry’s contribution to GDP. The law introduced three new categories of compulsory insurance – for public liability, professional indemnity and marine cargo – which are expected to support growth in the sector while increasing coverage for individuals and commercial entities.

Public liability insurance will protect businesses from liability related to persons incurring injury or property damage through contact with the insured businesses’ operations or premises. Professional indemnity insurance will cover businesses that employs professionals – such as doctors, lawyers and accountants – whose errors, negligence, omissions or breaches could cause loss or damage to clients. For marine cargo, the legislation mandated that insurance for imported cargo shipments be purchased from Ghanaian firms. As of mid-2021 approximately 6% of importers purchased such policies from local companies, according to the NIC, highlighting the potential to not only support the segment, but also bring in foreign exchange. This is particularly important in light of new minimum capital requirements aimed at bolstering local capacity.

Agriculture

Increasingly intense adverse weather events and droughts have been increasingly a problem for Ghana’s agriculture sector. To help rural and farm-oriented communities cope with these pressures, the Insurance Act established the Agriculture Insurance Fund to subsidise agricultural insurance premium, educate farmers on the importance of agricultural insurance, train extension officers and bolster the capacity of state institutions to provide the necessary information for the initiative’s successful implementation. It also provided financing to the Ghana Insurance College. Moreover, legislation aimed at facilitating access to agriculture insurance is being drafted, according to the NIC.

New Database

Building on efforts to diversify offerings, the NIC has made changes aimed at supporting digitalisation. The Motor Insurance Database (MID) went into operation on January 1, 2020, centralising vehicle registration records and facilitating the tighter regulation of compulsory third-party motor insurance. Prior to the database rollout, fake vehicle insurance policies were common. The MID allows citizens, law enforcement and security agencies to perform on-the-spot verification of vehicle insurance via text message or by scanning insurance stickers’ QR codes. Since the MID’s implementation, premium rates, set by the NIC, have risen. The commission attributed this to more companies complying with mandated rates rather than undervaluing vehicles to stand out amid fierce competition, as had traditionally been the case. Under previous market conditions, insurers were at times unable to honour claims, particularly those related to severe injury or death, as unrealistic premium levels resulted in insufficient liquidity and thus contributed to a lack of public trust.