Access for all: Microinsurance is set to play a major role in increasing financial inclusion

In a ceremony held on February 6, 2013 the government declared a national microfinance day as it released new rules for the microinsurance sector. The National Insurance Commission (NIC) – the primary government agency behind the push – sees the new emphasis on microinsurance as part of a broader effort to expand insurance penetration rates in the country by targeting the informal sector and those with lower incomes. West Africa has traditionally lagged behind Southern and East Africa in terms of microinsurance, but microfinance penetration rates are growing rapidly as the sector taps new markets.

GROWTH: Indeed, West Africa saw the highest growth rate for microinsurance among the various regions across the continent between 2008 and 2012. According to the “Landscape of Microinsurance in Africa 2012” report, a study by Making Finance Work for Africa and the Munich Re Foundation, the microinsurance sector in West Africa expanded by more than 250% during this period and covered some 4.4m individuals as of 2012.

The NIC also unveiled the Market Conduct ( Microinsurance) Rules. This document is designed to close regulatory gaps and formalise business practices within the sector, as well as clarify the distinction between a microinsurance product and an insurance product in the Ghanaian context.

FRAGMENTATION: Ghana has a fairly well developed microfinance sector, with well over 500 such institutions operating in the country as of January 2013. Traditionally, the sector was populated by dedicated providers, but now traditional firms have been licensed to provide microinsurance products as well. The sector is highly fragmented, with only a few institutions having client rosters in the thousands.

Less than 10% – around 18 institutions – have over 20,000 clients. MicroEnsure, an international microinsurance company that began operations in Ghana in 2007, is one example. Growing from just 30,000 customers in 2008 to 1m by April 2012, it represents one of the country’s most successful microinsurance ventures. A further 15 firms have between 10,000 and 20,000 clients. At the start of 2012 some 1.7m risks were covered by microinsurance schemes, according to the NIC.

The German Society for International Cooperation (Gesellschaft für Internationale Zusammenarbeit, GIZ) has taken a significant role in helping improve transparency and foster growth in the microfinance sector, collaborating with the NIC in developing new regulations as well as a handbook of best practices, among other things. The GIZ and the NIC jointly conducted the first-ever market survey of Ghana’s microinsurance market in 2012. The findings of the survey were applied in the development of the NIC’s framework for regulating microinsurance, which was unveiled in 2013.

NEW PRODUCTS: For instance, the rules call for all claims to be paid or a written refusal issued within 10 days of a filing, a timeframe that microinsurance providers have already adopted, according to a survey conducted in 2012. This should help providers gain the confidence of potential customers. “The public is concerned with their claims taking too much time to be settled,” said Mel Kebe, the managing director of Colina General.

As of February 2013, 11 entities in Ghana had officially registered as microinsurance providers. The NIC’s new framework for regulating the segment will also allow the number of microinsurance products on the market to expand greatly from the 16 different products available at present.

Those seeking to develop microinsurance products in Ghana must overcome several challenges, given the nature of the customer base. More than twothirds of microinsurance policyholders are selfemployed, and the target clientele are largely involved in the informal sector and often exhibit high costsensitivity. According to a study by the GIZ, health coverage is the primary insurance concern for those working in Ghana’s informal sector. The farming sector, for example, employs more than half of the total workforce and a large number of Ghanaians also work in small or micro-enterprises.

ECONOMIES OF SCALE: The National Board for Small-Scale Industries defines a small enterprise as having six to 29 employees, while a micro-enterprise is defined as having a maximum of five employees. Workers with irregular incomes or employed in small businesses often find it difficult to pay the higher premiums of more standard insurance products. As incomes can be sporadic, regular premium payments – even low ones – can be problematic for informal sector workers. Therefore, because of the low premiums involved with microinsurance, and the risk of non-payment, providers must achieve economies of scale to make the venture profitable.

“Non-performing premiums are an issue, resulting in the need for wider cooperation and information-sharing, so customers can be blacklisted – rather than simply moving on to another company that hands them a new policy,” said James Wood, managing director of Edward Mensah and Associates.

Finally, a significant number of Ghana’s informal entrepreneurs work in traditional markets. In May 2013, and again in June of the same year, large markets in Accra and Kumasi were struck by large fires that had significant negative effects on the informal entrepreneurs working there. The NIC has since sought to encourage the development of insurance products to cover such events.

“If we consider the layout of Katamatu Market or the market around Kwame Nkrumah, both are densely packed during business hours. If traffic lanes could be made wider to allow access by emergency response vehicles or if electrical connections could be improved and controlled, more opportunities to insure this sector could be made available,” Michael K Andoh, head of supervision for the NIC, told OBG.

Despite the lack of standardisation, some microinsurance vendors have already begun targeting this sector. For example, Star Microinsurance paid out GHS350,000 ($179,935) worth in claims to vendors affected by the fires; all outstanding loans were paid off plus one month interest.

FURTHER OPPORTUNITIES: The most successful microinsurance ventures in Ghana in recent years have seen the country’s telecommunications providers, including Tigo and MTN, offer life insurance to their customers. Such programmes are designed to promote customer loyalty and reward frequent users, and the policies are available at a small additional fee. Developing more creative products to meet the needs of the informal sector and developing proper distribution channels will continue to be the primary challenges facing the segment.

With the support of the recent regulations under development by the NIC, microinsurance will continue to meet the needs of underserved communities and will likely play a key role in the development of the nation’s wider policy of financial inclusion.