Underwriting expansion: Increasing provision of insurance services is a key development goal

Six of the world’s 10 fastest-growing economies over the past decade were in sub-Saharan Africa, including Ghana. The nation’s growth is the result of commodity-fuelled expansion, which has been helping underwrite a surge in the country’s financial services sector, and the insurance market is no exception. While penetration is still modest by emerging market standards, headline indicators are improving significantly. Indeed, the nation’s gross domestic savings rate, according to a report released in 2012 by the World Bank, was a promising 9%. Trends in other emerging markets suggest that countries that have higher national savings rates, including money spent on the insurance sector, tend to see faster GDP growth.

RISING REVENUES: Figures from the National Insurance Commission (NIC), which regulates the sector, show that revenue from insurance premiums has averaged 32% growth over the past five years. Furthermore, a report from US-based market research firm Vocus noted that Ghana’s insurance sector saw a 38.1% increase in the life insurance segment over that same period, while personal and health insurance expanded by 24.4% when measured by compound annual growth rate (CAGR). Indeed, the sector is likely to see a CAGR of 20.4% for 2013. Current efforts, such as Ghana’s National Health Insurance Scheme (NHIS) and the new microinsurance initiative unveiled in 2013, play an important role in expanding the penetration rate for insurance, which currently stands at 5.4%; this is higher than the rate in nearby Nigeria, which stands at less than 1%, and of other economies in the region, like Kenya at 2.5%. However, this is still some way behind South Africa’s insurance penetration rate of 6%. This figure includes users of informal and traditional financial products like susu, a traditional form of savings found in Ghana; if only formalised products are included, Ghana’s insurance penetration stood at just over 2% at the start of 2013. Roughly 5% of the population is estimated to hold an insurance policy and the number of people who can afford a traditional policy is roughly double that. Still, the opportunity for growth, particularly given the country’s comparatively diverse financial networks, is significant.

KEY FIGURES: The sector continued to see strong growth in 2012, with the total assets of the insurance industry valued at GHS1.4bn ($719.7m) at the end of the year, up from roughly GHS948m ($487.4m) in 2010 and GHS1.14bn ($586.1m) in 2011. Thus, total assets experienced a year-on-year growth of some 18% from 2011 to 2012. By the end of 2012 the total capitalisation of the sector stood at roughly GHS491m ($252.4m), while the total gross premiums of the sector was around GHS855m ($439.5m). Premium incomes for the sector have also grown, increasing from GHS18m ($9.3m) a year in 2008 to GHS855m ($439.5m) by the end of 2012.

REGULATION: The NIC, which was established in 1989, is responsible for licensing, setting standards, and approving insurance premium and commission rates. Ghana is also a member of the International Association of Insurance Supervisors (IAIS), an international standard-setting organisation which was established in 1994. The first large-scale reform of the sector occurred in 2006 with the passage of the New Insurance Act 2006 (Act 724), which made fire and commercial building insurance mandatory for businesses and, arguably more importantly, opened the way for international actors to join the market.

The IAIS’s fourth set of Insurance Core Principles was passed in October 2012, and Ghana is keen to further its compliance with IAIS guidelines in order to demonstrate that its insurance sector is internationally competitive and to attract investment – factors which are both motivating further reforms.

REFORMS: Another driver of reform is the NIC’s plan to develop a risk-based management system for supervising the sector, in line with global trends in insurance regulation. The development of such a system within Ghana is ongoing and gradual, with the NIC first raising the subject in 2010, and the system likely to be fully implemented by early 2015. In a move designed to increase the NIC’s presence in key markets, the organisation opened a new office in Takoradi in 2012. The office will be the third regional NIC office in the country after Kumasi and Tamale. The agency’s headquarters are located in Accra.

EFFECTS OF REFORMS: One specific segment of the insurance market that has received increased attention in 2013 is fire insurance. With a large building boom in Accra and across the country, the demand for fire insurance has risen, as by law all buildings must have fire insurance. The NIC sponsored a workshop on this topic in 2013 to better inform the industry on this issue and to ensure fire marshals are involved in all building inspection processes. Efforts like these will hopefully address underlying issues of take-up of this line. “Compulsory fire insurance has not yet had the desired impact since there is no functioning enforcement mechanism in place,” Doris Awo Nkani, the CEO of State Insurance Company, told OBG.

Taken as a whole, these regulatory reforms mark the biggest shift in the insurance market since the passage of Act 724 in 2006, which legally separated the insurance sector into life and non-life institutions. At the same time, Act 724 also limited extreme pricecutting among the companies in the sector.

“The passage of the Insurance Act of 2006 (Act 724) was the best reform Ghana’s insurance industry could have hoped for at the time. The act brought specialisation to the insurance market through the separation of life insurance from non-life business, enabling the growth of the life business,” Tawiah Ben Ahmed, CEO of Colina Life Ghana, told OBG.

The sector’s two trade associations, the Ghana Insurers Association (GIA) and the Ghana Insurance Brokers Association (GIBA), are the bodies that have been tasked with lobbying, raising awareness and ensuring high standards of practice.

PROVIDERS: Ghana has one of the oldest insurance sectors in Africa, with one of the country’s insurance firms, Enterprise Insurance, tracing its roots back to UK-owned firms present in the country since 1924. The country’s domestic sector began to take off in the mid-1950s when the Gold Coast Insurance Company was founded. After independence, the company was incorporated by the public sector in 1962 and renamed the State Insurance Corporation, later known as State Insurance Company (SIC).

Today, SIC is Ghana’s largest non-life insurance earner. Since its founding, the number of private entities in the market has greatly expanded, with 43 domestic and foreign insurance companies operating in the country as of January 2013, of which 25 were nonlife and 18 were life insurance entities.

The market is largely consolidated, with the top five firms holding upwards of two-thirds of the market, leaving dozens of firms to compete for smaller customer bases. Current regulations require a division between life and non-life activities, but two firms hold large shares in both. The biggest four players on the non-life market based on gross premium income are the SIC, Star Assurance, Enterprise Insurance and StarLife Insurance, while SIC Life, Enterprise Life and GLICO Life comprise the top three in the life segment.

However, the sector has been continuing to expand. In June 2013 the NIC approved the creation of three brokerage firms: Metrix Brokerage and NDL Insurance Consult, which focus on non-life, and Felin Insurance Brokers. The regulator also licensed a new general insurance provider, Imperial General Assurance Company. With the inclusion of these new companies, the number of licensed sector entities active in the market stood at 47 as of June 2013.

FOREIGN INTEREST: Foreign investors have noted the growing opportunities for investment in the nation’s insurance sector. Indeed, according to Steve Kyerematen, managing director at Activa Insurance, Ghana’s “low penetration rates and well-established regulatory framework mean that international players are recognising the opportunities the Ghanaian insurance market offers.” In April 2012, for example, LeapFrog Investments, a Mauritius-based investing fund, made a $5.5m investment in Ghana’s Express Life Insurance Company, founded in 2007.

Unlike in other markets across the region, Ghana permits foreign ownership of insurance institutions and allows foreign entities to operate freely within the market, a situation made possible by the repeal of laws in the 1970s and 1980s that had previously required foreign firms to channel 20% of their business to the SIC. However, both domestic and foreign firms must still exhaust local capacity for reinsurance before seeking coverage abroad.

Presently, a handful of foreign firms are active in Ghana, including Germany-based Allianz, which has operated in Ghana since 2009, and Colina, the panAfrican insurance arm of Morocco’s CNIA Saada, which made Ghana its first foray into a country outside Africa’s Francophone states in 2010. Another panAfrican insurance company present in the Ghanaian market is Activa, which is based in Accra but also has a presence in 34 African countries. And in June 2013 UK-based Old Mutual announced it had acquired a Insurers' total assets, 2010-12 majority stake in Provident Life Assurance in Ghana. Sector players are also speculating on the possible entrance of US-headquartered AIG into the market, but no details about the move are currently available.

PROMISING TRENDS: The insurance sector saw robust growth in the past five years, and a number of economic factors including increased urbanisation and greater public awareness of insurance suggest this will continue. A study conducted by Ghana’s Institute of Statistical, Social and Economic Research ( ISSER) in 2012 noted an increasing knowledge and interest towards insurance projects among those under the age of 34, suggesting that the low usage of insurance could be a generational issue, pointing to a bright future ahead for the industry.

However, simplifying the claims process and promoting awareness of products and their benefits will continue to be key tasks for the Ghanaian insurance sector. ISSER research has suggested that insurance knowledge among the public continues to lag, with women exhibiting low awareness, as did those living in the capital region, a surprising finding.

MOVEMENT: Yet within emerging markets, there is a strong correlation between urbanisation and increased interest in financial services. According to figures from the World Bank, some 51% of Ghana’s population of 25m live in cities or small towns as of 2011; a figure that continues to rise rapidly, with the country seeing an urbanisation rate of 4% per year. At this rate, the number of Ghanaians living in urban areas is set to double by 2030.

Naturally, this rapid rural-urban shift will mean more potential customers for the insurance sector, although ensuring a more geographically equitable distribution of insurance products for the informal sector remains a challenge. For example, in the microinsurance sector, a study conducted by the German Society for International Cooperation (Gesellschaft für Internationale Zusammenarbeit, GIZ) that was completed in 2012 found there are 22 offices offering microinsurance products in the Greater Accra Region, compared with only a single office selling such products in the country’s Northern Region.

NEW NICHES: Given the cost-sensitivity of retail insurance activity in Ghana, microinsurance is another segment that is serving as an important growth driver (see analysis). According to government statistics, between 160,000 and 250,000 Ghanaians had a microinsurance policy in 2010. Since then, however, the market has expanded. For example, MicroEnsure, an intermediary that focuses on designing policies, passed the 1m-customer threshold in mid-2012.

On the other side of the spectrum, growth in the energy sector has helped nudge expansion in nonlife segments. Some 21 non-life members of the GIA formed a consortium in 2009 to cover risks for the oil and gas industry, and though they are taking on only a small proportion of the overall risk, this move has helped further the country’s aim of developing the economy, and underscored Ghana’s ambitions to extract maximum value from its hydrocarbons deposits.

Capacity remains an issue, however. By June 2010 Tullow Oil and Gas, the leading producer at Ghana’s Jubilee field, had bought insurance worth $1.18bn, which is far beyond the collective capacity of Ghana’s entire insurance sector, even after the coming capitalisation increase. At the new minimum capital requirement of $5m per firm, and assuming all of the current 43 licensed insurers in the country reach that level, the paid-up capital of the entire industry is only about 18% of Tullow’s needs. The GIA group has since generated more than $2m in income, but it only captured a small portion of the overall energy sector’s risk.

Another niche market is the provision of takaful, or sharia-compliant insurance, which eschews interest payments and in Ghana involves pooled risk. Metropolitan Life Insurance was the first company in Ghana to offer this service, followed by Unique Life, which began promoting its UL ife Family Takaful in 2012. The coverage can either be used to provide for the elderly or as a college fund for children. The sector, although relatively small, has the potential to attract increased subscriptions from Ghana’s large Muslim community; Ghanaians of other faiths have also shown interest in these products.

THE GOOD LIFE: As in many West African nations, Ghana’s life insurance sector is developing at a much more rapid pace than the non-life sector. “The life assurance business is growing at a much faster rate than ever before. Society has become more affluent than in the past, and people previously had no incentive to save, but this has changed with the growing middle class,” Charles Oduro, the managing director of KEK Insurance Brokers, told OBG.

According to the NIC’s 2011 annual report, the most recent available, the life sector grew by 44.2%, compared to 32.3% by the non-life sector. These results show that the gap between the life and non-life sector is narrowing. In 2010 the life sector expanded by some 53% while non-life rose by 22.6%.

RETAIL PREMIUMS: A 2012 survey conducted by the ISSER ranked life insurance, funeral insurance and automobile insurance as the most popular types of policies. This is borne out in part by the size of retail premium income. The NIC’s annual report for 2011 states that life, funeral and health insurance accounted for 43% of the insurance sector premium income distribution in 2011 – a figure that was followed by motor insurance, a mandatory segment that made up 25.8% of the premiums and generated more than GHS162m ($83.3m) in revenue in 2011.

The NIC monitors this high-turnover segment and requires insurers to pay claims within 90 days. If maritime insurance is included with automobile insurance, the total transport sector rises to 30.4% of the market, followed by accident (12.6%) and fire (12.4%). Other types of insurance, such as travel insurance, bonds, home insurance and other niche markets, mark fast-growing segments of the insurance market. These lines of insurance constituted just 0.2% of the market in 2007 but made up 1.6% of the market in 2011, according to the most recent figures from the NIC.

A number of business opportunities for insurance companies are currently underexploited. “One underdeveloped opportunity within the insurance sector is home insurance. Perhaps only 5% of households utilise home insurance at present, and this is mostly occurring in urban areas. However, home insurance and other types of niche insurance have been growing rapidly, in line with the increasing incomes of the population vis-à-vis disasters, such as fire outbreaks and floods in the country,” Martin Amoah, the operations director for Allianz Ghana, told OBG.

However, despite the opportunities presented by the growing middle class, the retail sector accounts for just 10% of the market, which means insurers are essentially chasing after the same public sector and commercial opportunities. As these are large-scale accounts, the market can be prone to high fluctuations if a customer switches providers. Players in the market that rely heavily on multinational corporations are at risk from these wide variations in premium income, prompting an increasing focus on retail and small and medium-sized enterprise activity.

REINSURANCE: The reinsurance sector benefits in large part from regulations that require insurers to exhaust local capacity for reinsurance before looking abroad. As a result, local firm Ghana Re has a market share of more than 80%, but the legal environment that has compelled it to take business from local insurers has not required it to develop a sales force or heed competitive concerns. This arrangement has come with its fair share of costs, among which are that some insurers fail to pay what is owed. Premiums from outstanding debtors represented 57% of the total in 2010. Competition in the sector is growing; the domestic firm Mainstream Reinsurance, which launched in 1995, has experienced steady, continued growth in the intervening years.

HYDROCARBONS: The discovery of oil and gas offshore of Ghana has changed the dynamics of the country’s insurance sector and reinsurance in particular. By their very nature, oil and gas projects are large-scale and high-risk projects. This discovery has therefore highlighted the need for expanded reinsurance capacity within Ghana, since the country’s local reinsurance market – like the insurance sector more broadly – often cannot retain demand due to the capital-intensive nature of these projects.

Ghanaian insurance companies are not allowed to hold more than 5% of their assets abroad, an issue which affects the two domestic reinsurance companies, Mainstream Reinsurance and Ghana Re. The oil and gas boom has, however, also raised interest in Ghana among international insurers, including AIG, which is planning to offer its own reinsurance business in the country. Other major reinsurance firms, such as Marsh, Munich Re and Swiss Reinsurance, have already been involved in reinsurance efforts in Ghana. Munich Re maintains a liaison office in Ghana.

STAFFING: The insurance sector is experiencing two human resource challenges. Traditionally, the insurance industry has seen a great deal of employee turnover, and the limited availability of qualified staff in the country is often compounded by the fact that they are regularly poached by new entrants to the market. The Ghana Insurance College (GIC) was formed out of the combined efforts of four key stakeholders, GIBA, the NIC, GIA and the Insurance Institute of Ghana, in part to standardise education and procedures within the insurance industry. In April 2013 the GIC graduated its fifth class of students.

There are also regional institutes that have helped train staff, including the West African Insurance Institute, which is based in Gambia. Scores of Ghanaians have attended the institute since its establishment in 1991. Furthermore, staff training and professional development programmes are increasingly being rolled out, which should help improve quality.

The nation’s major reinsurance companies, such as Ghana Re, annually offer courses on existing and emerging insurance products on the market. The 2011 survey of the Actuarial Society of Ghana noted that of the organisation’s 98 members, some 66 were students trained or actively training in the profession. Prospective graduates of these institutions will begin their careers in the domestic insurance sector, after having received the training necessary to deal with the recent series of broad reforms.

SAFETY NET: Ghana has also launched several government-run social programmes which significantly affect the insurance market, the first being the NHIS in 2003, which grew to incorporate several community-based insurance programmes that were begun in the 1990s. Until that time, the Ghanaian medical system had been built around the “cash and carry” model, which required prompt payments for each medical service received by a patient.

The NHIS aims to reach universal coverage, which may involve reducing the role of privately managed schemes in the long term. However, this is a slow transition, and serving Ghanaians who want supplementary coverage will be a market consideration for the foreseeable future. The NHIS estimates that 66.4% of the population is registered in the scheme. Figures for active members are lower, however, at 53.6% of the population. The National Health Insurance Authority (NHIA) is responsible for accrediting both public and private hospitals to take part in the system (2647 were certified as of 2010), and the authority also acts as a regulator for private health schemes.

Claims processing and member registration takes place at district-level branches, which are somewhat autonomous and retain decision-making powers within their coverage areas. The NHIS was operational in 145 districts as of the mid-2010, according to the NHIS website, the most recent data available at the time of writing. Approximately 15.6 people are members, with 48.9% younger than 18 and 6.5% above the age of 70. Membership is free for these two demographic groups. Around 29.2% of members come from the informal sector and must pay fees to receive medical services, unlike formal sector workers, who pay through automatic salary contributions. Pregnant Gross premiums, 2010-12 women and mothers of infants of up to three months old also receive free health care under the NHIS. Enrolment fees are charged at a rate that is determined according to income, which ranges from GHS7.20 ($3.70) to GHS48 ($24.70).

Under Ghanaian law, all citizens are required to sign up for the scheme, but implementation of that law is happening gradually, and as of now there are no penalties for ignoring it. Claims payments have surged from GHS7.6m ($3.9m) in 2005 to GHS394.3m ($202.7m) in 2010, accounting for 76.2% of expenditure on the year, according to the NHIA.

Another reform that affects the sector was the 2009 passage of the National Pensions Act (Act 766), which restructured not only the country’s Social Security and National Insurance Trust (SSNIT) but also the way in which pensions were managed. The board of the National Pensions Regulatory Authority (NPRA), which was created to oversee the pension scheme, was inaugurated in August 2009, followed by the launch of the scheme one month later.

PENSION PLAN: The SSNIT has long been part of an ambitious plan to provide Ghanaians with a pension scheme comparable to OECD countries. Still, penetration remains a problem, with well over half the workforce employed in the informal sector. Under the national pension plan, workers can receive benefits ranging from a minimum of GHS100 ($51.40) to a maximum of GHS13,000 ($6683) per month. The exact amount is calculated by examining the three years of highest average income during the individual’s career. An exception is made for the lowest segment of the scheme, for which the amount of GHS100 ($51.40) per month is guaranteed regardless of a recipient’s average earning over his or her employment history.

Following the 2009 reform, the SSNIT is now primarily tasked with overseeing the first tier of Ghana’s mandatory contributory pension scheme. The SSNITmanaged first tier is the largest of the three, receiving 11% of the employer contribution, and is known as the District-Wide Mutual Scheme. The second tier, known as the Private Mutual Scheme, is mandatory but privately managed. Finally, the third tier consists of voluntary and privately managed coverage.

MAKING A CONTRIBUTION: Under the terms of the act, each worker is expected to contribute 5.5% of his or her basic annual salary to the pension scheme, while the employer contributes an additional 13% of the value of the employee’s salary on behalf of the employee. Of this, 11% is remitted to the first tier and 5% is diverted to the second tier and 2.5% is transferred to the National Health Insurance Fund for the provision of health care. Thus, the minimum contribution is supposed to be 18.5% of the monthly equivalent of the national daily minimum wage. However, collecting this payment from workers in the informal sector has proved to be a challenge.

The minimum contribution period for the scheme is 15 years in aggregate, with workers entering the scheme between the ages of 15 and 45. The programme also provides for dependents of workers who die before retirement, or if a pensioner dies before reaching the age of 75. Having reached the age of 72, a pensioner must submit life certificates twice annually to continue to receive their pensions.

In fact, three types of payments exist: old age, disability (under certain conditions for lump-sum payments to survivors in the event of early death) and early retirement. In Ghana the average age of retirement is 55, with the mandatory age for retirement being 60, though certain exemptions are applicable for military personnel and the self-employed. The maximum period for which one can receive such benefits was extended in 2013 from 12 years to 15 years.

REVENUE STREAMS: The SSNIT collected GHS852m ($438m) for the period 2008-13, and this was paid into the Bank of Ghana. However, much of this amount has now been designated for the second tier of the scheme, according to the Insurance Trust’s own figures. Thus, the SSNIT’s main goal at present is to increase the number of workers paying into the system. The key for increasing growth will be to develop models that involve more workers in the informal sector, who account for as much as 70% of the workers in the economy if farmers are included.

One possible additional source of revenue is to boost contributions from delinquent employers. In 2013 the SSNIT moved to crack down on employers who deduct SSNIT payments from their employees’ salaries but fail to remit the proceeds to the government. The SSNIT was owed GHS426m ($219m) in unpaid contributions as of February 2013. The failure of an employer to abide by the plan carried a penalty of a GHS30,000 ($15,423) fine or five years imprisonment. However, the SSNIT’s mandate is strictly for the first tier of the scheme. In June 2013 the SSNIT launched a public awareness campaign to increase employee knowledge of their rights as workers. Starting in 2013, non-contributing employers are to be listed in national newspapers and a phone line established for workers to report delinquent employees.

INVESTMENT GUIDELINES: Investment will also be key to growing the term, but regulations covering where pension assets can be invested are strict. “The NPRA has maintained strict guidelines with regard to how money can be invested into industry or oil and gas – and for good reasons, for the time being. Only 10% can be used on in equities. Additionally, pension funds must remain strictly diversified; more than a certain percentage cannot be invested into a specific sector, for example 5% into private equity projects.

Moreover, there are requirements to keep up to 95% of the assets of pension funds within Ghana,” Simon K A Ayivi, chief operating officer of Axis Pension Trust, told OBG. In March 2012 the NPRA announced supervisor guidelines for the three-tier system, which licensed nine companies as corporate trustees; seven banks as pension fund custodians; and 29 companies as pension fund managers. With rising demand for providing a stronger social safety net within Ghana, the Trades Union Congress proposed that the government should consider introducing the Basic Income Grant for all Ghanaians over 60 who have no alternative form of pension.

AGRICULTURE: Commodities, whether agricultural, mineral or hydrocarbons, make up an important part of the Ghanaian economy, but they can often prove a high-risk investment. While the focus in recent years has been on extending coverage and improving insurance capacity for the extractive sectors, another recently developed risk pool in Ghana concerns agriculture, a sector that can have turbulent fortunes.

Accessible agricultural insurance in Ghana is crucial, given that farmers constitute 55.8% of the workforce in the country, according to the GIZ.

In 2011 an agricultural pool was developed under a public-private partnership that included 19 non-life firms, including the Switzerland-based firm Swiss Re, the Ministry of Food and Agriculture, the Ministry of Finance and Economic Planning, the Ghana Meteorological Agency, the NIC and the GIZ.

Unlike insurance pools seen in other countries, the crop insurance vehicle designed for Ghana uses rainfall measurements, not physical inspections, to judge the claims which are made against insurance. Geospatial representations of rainfall patterns allow for the mapping of areas with potential claimants. Important to the success of the programme has been Ghana’s large network of 300 weather stations, of which some 36 are automated stations provided by the GIZ to support this new insurance programme.

OUTLOOK: Ghana’s growth over the past two decades has been impressive. The country halved the number of citizens living in poverty between 1991 and 2005, has seen a jump in educational indicators and a strong increase in urbanisation rates, all of which point to rising demand for insurance services in Ghana.

Meanwhile, as Ghana’s life insurance sector averaged 40% growth over the past five years, it would not be inconsistent given this trend for the sector to continue to see strong expansion over the medium term. Staff training, a concentrated market as well as a lack of capacity continue to be constraints, but recent reforms to boost capitalisation, encourage consolidation and improve awareness are set to help pave the way for continued increases in premiums.