Micro-insurance products and services increase access for Ghana's previously underserved populations

Micro-insurance represents a new development path for Ghana’s insurance industry, and protecting workers and businesses from unforeseen events, such as flood or drought, is emerging as a policy priority for regional governments. Low median incomes have traditionally excluded many Ghanaians from financial services, but the emergence of the microfinance industry in the late 20th century has greatly enhanced access to an array of products and services. Financial inclusion levels in Ghana remain low by international standards, but they have been growing rapidly – particularly in historically underserved rural and remote areas.

According to the World Bank, rural access to formal financial accounts in Ghana doubled between 2011 and 2017, due to a rising market share of non-bank financial institutions. This included telecoms companies that provided insurers with a new means by which to collect premium. On the ground this development is most visible in the rapid growth in the number of mobile money agents, which rose from around 6000 in 2012 to more than 150,000 in 2017 — a 25-fold increase. This development is significant both for insurers and government policy planners seeking to address social and poverty challenges in the country.

Regulatory Drive

The National Insurance Commission (NIC) sees the potential usefulness of microfinance as a means to raise the penetration rate above its current level of around 1% of GDP. Recent years have seen the regulator take a number of steps to promote the concept, starting with the publication of the Micro-insurance Market Conduct Rules in 2013. Developed with the aid of German development agency GIZ, the rules established the basis for a rapid expansion of the industry. A 2014 Micro-insurance Landscape Survey, carried out by the NIC, the GIZ and private sector consultants, found that there were 13 micro-insurance providers in the country, with the main product lines offered being life (non-credit), credit-life and hospitalisation. Delivery channels included a mix of sales representatives and commissioned staff directly employed by the insurers, as well as numerous external channels, such as agents, mobile network operators, microfinance institutions (MFIs), post offices, and business and faith-based groups. The survey also revealed that 60% of clients earned an average monthly income of GHS600 ($116) or less, demonstrating the importance of micro-insurance to the government’s wider goal of boosting financial inclusion in the country.

Mobile Revolution

Collaboration between policy providers and mobile network operators (MNOs) has created a number of advantages: MNO networks provide low-cost access to large numbers of clients; co-branding with established MNOs can build confidence in micro-insurance products; airtime dealers and mobile money agents can educate customers about the concept; and insurers can disburse payouts into mobile money accounts or over the counter. Micro-insurers use various mobile technology payment options to distribute their products. Stored-value mobile money accounts enable customers in low-income countries to pay for their insurance policies as if they were using a conventional bank account. Airtime dealers and mobile money agents can also act as a physical sales channel, as well as collect premium from customers. In some countries, subscribers are able to use their existing pre- or post-paid mobile accounts to purchase policies. Lastly, insurers could find that the easiest route to revenue is to allow MNOs to meet costs of insurance coverage for their customers. Using this model, mobile operators offer their subscribers insurance cover as a loyalty reward – a particularly useful strategy in markets where customers tend to have more than one SIM card and subscriber turnover is high.

Regional Pioneer

As an early adopter of mobile micro-insurance technology in 2011, Ghana has emerged as one of Africa’s leading mobile micro-insurance markets. That year mobile operator MTN, with South Africa’s Hollard Insurance Company, the UK company MicroEnsure Holdings and mobile wallet firm MFS Africa launched miLife Insurance on MTN’s mobile money platform. Customers were able to buy life insurance, initiate claims and make premium payments through their mobile phones. miLife policies were underwritten by Ghana’s Golden Life Assurance Company with support from Hollard International.

Since then, other MNOs have deployed different mobile models in the country. Tigo Ghana entered the arena by providing loyalty-based life insurance cover up to GHS1000 ($194) for pre-paid subscribers and a family member, underwritten by Ghana’s Vanguard Life Assurance with support from mobile health insurance providers BIMA Ghana and MicroEnsure.

Barriers to Growth

Ghana’s low penetration rate means that there is significant potential for micro-insurance growth; however, uptake faces a number of hurdles. One of the most significant is the large number of risk-mitigating options already available to low-income Ghanaians. These include the savings and microcredit accounts offered by banks and MFIs, social security and safety nets, and informal risk pooling. Customers’ lack of awareness of the products on offer is another challenge. While the insurance industry has not suffered the same capital challenges as seen in the banking industry (see Banking chapter), the perception of mismanagement in the wider financial services industry threatens to undermine the willingness of potential customers to pay premium. In addition, the conduct of a handful of insurance companies may work to exacerbate the industry’s perception problem. In 2018 the NIC received a total of 1069 complaints against regulated insurance entities, compared to just 256 the previous year. Disputes between insurers and their customers included failures to cease deductions after insurance policies were surrendered, and cases where the benefits promised by insurance companies differed from benefits contained in policy documents.

There are also a number of supply-side challenges to the growth of micro-insurance. These include the difficulty of product design and pricing in a rapidly evolving market, the need to establish a pool large enough to adequately balance risk, and a tendency within the industry to concentrate on products that are easily distributed and profitable, such as credit-life, while ignoring the most pressing risks faced by customers.

Changing Market

Ghana’s mobile micro-insurance offerings have evolved since their launch nearly a decade ago. MTN continues to offer the rebranded miLife products to customers through its mobile wallet, MoMo. In 2018 the MNO teamed up with provider aYo Ghana to launch aYo Recharge with Care, which enables MTN subscribers to buy life and hospitalisation cover anytime they top up their airtime. Tigo, meanwhile, merged with Indian global telecoms firm Airtel in 2017 to form AirtelTigo, which subsequently issued a tender to secure an exclusive insurance partner. The bid was won by BIMA Ghana, which now provides coverage to around 47% of AirtelTigo’s customers.

While micro-insurers continue to attract customers through partnerships with MNOs, given increasingly saturated customer pools, they are seeking to reduce their reliance on single networks. BIMA, for example, currently secures around 80% of its revenue from Tigo airtime transactions, but is aiming to generate 50% of revenue in the short term from mobile money transactions. Over the longer term, MNOs and insurers operating in the micro-insurance sphere face a more fundamental strategic challenge as they set about expanding products from basic life and health offerings.