OBG talks to Lydia Lariba Bawa, Commissioner, National Insurance Commission (NIC)

Interview: Lydia Lariba Bawa

What role will microinsurance play in the development of the broader insurance sector?

LYDIA LARIBA BAWA: One of the major roles of microinsurance is to improve access to insurance for the majority of the population, most of whom are excluded from accessing conventional insurance services either because they are low income earners or because they operate in the informal sector. Microinsurance is also regarded as a means of developing the mainstream insurance sector. This is due to the fact that the small businesses of today, if well nurtured and protected from excessive risks, will grow to become the medium and large-scale businesses of tomorrow. Within the short term, it is expected that microinsurance will help cushion low income and informal sector operators from the major risks that they face in their fight against poverty. The effective implementation of microinsurance is therefore expected to speed up poverty reduction and wealth creation in the medium to long term.

What can be done to improve distribution channels for retail insurance products?

BAWA: In order to enhance the efficiency and success of distribution channels there needs to be a very flexible regulatory framework that will not just permit but also encourage innovation in the sector. There must be a conscious effort to develop effective, secure and affordable payment systems. In addition, insurance companies need to research which distribution channels will be suitable for each segment of their markets. This will help minimise or avoid the current “one size fits all” system whereby every person is expected to earn a regular income and operate a bank account before one qualifies to purchase an insurance policy. Some potential distribution channels that might be considered are telecommunications companies, which could work together with rural banks and microfinance institutions to access new clients.

How can the overall health of the insurance sector in Ghana be improved?

BAWA: The sector currently faces some significant challenges. These include huge premium debtors on the balance sheet of non-life companies, and this impairs their liquidity. Weak capitalisation also restricts their retention capacity and level of operation, which affects their efficiency.

What needs to be done to improve the health of the sector therefore seems obvious: risk management structures and systems; proper credit management; staff training to upgrade competence, skills and expertise; effective corporate governance; as well as adequate capitalisation levels. The reforms that might encourage these changes include the introduction of a risk-based capital framework, the implementation of a suitable risk-based supervision model and the adoption of international financial reporting standards. Whereas the International Financial Reporting Standards have been implemented, the Risk Based Supervision model and the Risk Based Capital framework are currently being formulated and will be implemented soon. These of course should come in addition to a legal and regulatory framework that complies with the International Association of Insurance Supervisors core principles.

What are the NIC’s priorities in terms of regulation and supervision?

BAWA: The NIC’s priorities in terms of regulation and supervision include, first and foremost, adequate capitalisation to ensure that insurance companies are financially sound. This will ensure that they will be in existence tomorrow to honour their obligations.

Another priority of the NIC is to educate consumers in order to ensure that people know what they are purchasing, especially their rights and obligations under an insurance contract. The NIC also encourages insurance companies to train their agents, thereby improving professional conduct.