A new agenda: Capitalisation is just the first step toward a risk-based financial system

In 2013 Ghana’s National Insurance Commission (NIC), the primary regulator of the Ghanaian insurance market, unveiled an ambitious set of regulatory goals. New standards on regulations, from fire insurance to minimum capital requirements for insurance companies, have been proposed. For the NIC, the shift is part of a broader move to improve integrated risk-based management. In doing so, the NIC hopes to encourage Ghana’s 43 insurance providers to develop a riskbased framework for managing coverage.

REVISED RULES: Perhaps the most important reform made in 2013 was the rollout of new regulations aimed at recapitalising of the sector, announced in February 2013 Nyamikeh Kyiamah, the commissioner of the NIC. The plan calls for an increase in the minimum capital requirements of insurance companies from $1m to $5m – although a push to reduce dollarisation in the economy means that the requirements will likely be pegged at GHS10m ($5.1m). This raised requirement is being put forward in part as a way of keeping pace with the needs of the growing market, as well as encouraging consolidation, particularly at the bottom end, where more than 30 firms compete for roughly a third of total premiums. “Minimum capital should be increased to GHS10m [$5.1m] to actually have the desired impact; otherwise, the insurance sector will never grow and be able to cater to bigger contracts. Currently, claims of GHS100,000 [$51,000] already pose a significant problem to most insurers,” Alfred Yaw Ofori-Kuragu, managing director of GLICO, told OBG. After the announcement that capital requirements would be raised five-fold, the NIC began circulating drafts of the proposed rule change to the nation’s insurance companies. Following exploratory discussions with industry figures, a final draft of the proposed legislation is currently with Parliament and expected to go into effect by the end of 2013. Once enacted, the NIC will give companies in the market one year to comply with the new capital requirements, which is expected to increase the capacity and size of the insurance industry.

DIFFERENT PATH: The move is also seen as the first step toward the full imposition of a risk-based insurance management system for the sector designed to ensure overall stability. While this shift will involve new policies from the NIC, the goal is to effect a wider change in the insurance culture within the country. While the economy is growing rapidly (GDP grew by an estimated 7.1% in 2012, according to the African Development Bank), there is a need to ensure that the pace of growth does not lead insurance companies to relax risk standards. Indeed, the NIC believes that a risk-based management form is a timely move to reduce residual risks, as well as improve the financial soundness of the market. This shift empowers the board of directors and the management to deal more effectively with insurance risks.

“The NIC has a number of goals for 2013, including developing a risk-based supervision model to regulate Ghana’s insurance industry, which will help focus its resources where they are most needed,” Michael K Andoh, head of supervision for the NIC, told OBG.

The transition from direct supervision, such as field visits, toward a risk-based approach, will be rolled out gradually. An initial wave of reforms was launched in the third quarter of 2012, when the NIC introduced mandatory international financial reporting standards, including the provision of 10 standardised supervision department returns, which will henceforth be submitted quarterly to the NIC by insurance providers.

STREAMLINED SYSTEM: More detail-oriented changes have also been put in place, in part to help improve accessibility and responsiveness by the sector to the needs of the retail market. The NIC has streamlined the process for filing a complaint against an insurance company; those wishing to file a complaint are now able to reach the NIC via a hotline. The complaint process has been further improved by reducing the amount of necessary documentation.