What is Ghana doing to broaden its insurance penetration?

Ghana is well positioned to develop its insurance sector – an imperative made more pressing in recent years due to the Covid-19 pandemic and increasingly frequent weather disasters linked to climate change. According to a 2021 survey conducted by the UN Development Programme, around 70% of Ghanaians do not have access to insurance of any kind, and many of the products available in the market do not respond to the needs of the population. Even so, the sector’s value grew 10-fold between 2011 and 2021. The market has been able to expand its breadth through the introduction of micro-insurance, bringing customers previously underserved by traditional financial services into the fold.

The digitalisation of services should also help to expand the industry’s consumer base, especially due to the fact that many financial offerings shifted online after the outbreak of Covid-19. While banks in Ghana offer a wide variety of digital services, the country’s insurance industry lags behind in this respect. The restrictions on movement and physical contact made necessary by pandemic have exacerbated this gap, negatively impacting business-to-consumer interactions and insurance sector revenue. To address this, insurance firms have prioritised the acceleration of the adoption of digital tools to make their offerings more accessible and the sector more resilient to shocks.

Structure & Oversight

The National Insurance Commission (NIC) oversees Ghana’s insurance sector, which comprised 49 insurance providers – 29 in the non-life and 20 in the life segment – as of late 2021. There were also three reinsurers, 103 brokerages and around 7000 agents licensed to operate in the country.

Public and private pension schemes are integrated in Ghana and run separately from insurance activities. They function according to a three-tiered system, overseen and managed by the National Pensions Regulatory Authority, and the Social Security and National Insurance Trust. The first tier is publicly administered and contributed to by all formal sector workers through compulsory payments, and operates on a pay-as-you-go basis. The second tier receives contributions from both workers and employers, with payments made either incrementally each month or in lump sums. The third tier involves voluntary, tax-deductible individual payments. The administration of tiers two and three is handled by private enterprises.

Regulations

The authorities have worked to overhaul insurance-related legislation to facilitate growth. The Insurance Act of 2021 aims to modernise the sector and increase penetration through the introduction of a special licence for companies with new or innovative products or services, among other measures (see analysis). It added three compulsory products: public liability, professional indemnity and marine cargo insurance. Prior to the law, only auto and fire insurance were required. Also included in the legislation was the creation of the Insurance Education Fund to provide support for training the industry’s workforce and the Agriculture Insurance Fund to develop that segment.

In addition to promoting modernisation, the NIC is working to bolster the sector’s financial stability. In 2019 it announced it would increase minimum capital requirements for insurance firms from GHS15m ($2.6m) to GHS50m ($8.5m), while reinsurers would need GHS125m ($21.4m), up from GHS40m ($6.8m), and brokers GHS500,000 ($85,500), up from GHS300,000 ($51,300). The NIC had set a compliance deadline of June 2021, but in January of that year the sector received a six-month reprieve, with the new requirements set to come into force in January 2022. “Companies that have not already met the new minimum capital requirements plan to raise the missing capital either through private placements, the issue of additional shares, capital markets or some form of merger,” Kyeame Ghansah, head of research at the NIC, told OBG.

Performance & Size

Insurance penetration – gross premium as a share of GDP – has remained at around 1% since 2016, according to a November 2021 report from the Bank of Ghana (BoG), the country’s central bank. To put that figure into regional context, South Africa has the continent’s highest penetration rate, at 17%, followed by Namibia with 6.3%. Ghana’s relatively low premium are partially responsible for the country’s muted penetration; for example, life insurance has a coverage rate of 32%, according to the NIC.

NIC data shows that total industry assets grew by 17% between 2019 and 2020, from GHS7.6bn ($1.3bn) to GHS8.6bn ($1.7bn). Life companies contributed some GHS4.6bn ($786.1m) to the 2020 figure, up 20% over 2019; non-life GHS3.2bn ($546.9m), up 10%; and reinsurance GHS900m ($153.8m). Gross premium, meanwhile, increased from GHS3.5bn ($598.2m) in 2019 to GHS4.2bn ($717.8m) in 2020, mirroring the 21% growth experienced in 2019. Of 2020 total gross premium, non-life accounted for GHS2.2bn ($376m) and life GHS2bn ($341.8m) – 22% more than in 2019. The sector closed 2020 with a capital base of GHS2.9bn ($495.6m), compared to GHS2.5bn ($427.3m) in 2019.

Distribution Channels

The most recent available NIC data shows that individual agents and those tied to insurance companies distributed 61% of life insurance products in 2019, while direct business, bancassurance and brokers were responsible for 13%, 13% and 8%, respectively. Life insurance in Ghana is also distributed by telecom companies and corporate agents. Brokers were the top distributors of non-life products, accounting for 44% of premium distribution. Individual and tied agents, and corporate agents weighed in at 27% and 23%, respectively. The pandemic constricted premium inflows, but as the economy recovered starting in late 2020 industry revenue have begun to improve in kind.

Non-life

The five largest non-life insurance companies by assets at the end of the second quarter of 2021 were SIC Insurance (GHS561.6m, $96m), Star Assurance (GHS506m, $86.5m), Enterprise Insurance (GHS384.5m, $65.7m), Hollard Insurance Ghana (GHS266.9m, $45.6m) and Ghana Union Assurance (GHS192.9m, $33m). The market is highly concentrated, with the combined market share of these firms totalling around 48%.

Business line premium was also concentrated, with motor insurance accounting for more than 50% of non-oil, non-life premium, at GHS648.2m ($110.8m), followed by fire, theft and property (GHS296.5m, $50.6m); engineering (GHS78.3m, $13.4m); liability (GHS69.4m, $11.9m); marine and aviation (GHS57.5m, $9.8m); personal, accident, health and medical (GHS51.7m, $8.8m); bonds and financial guarantees (GHS49.2m, $8.4m); and other lines (GHS10m, $1.7m).

Life

Ghana’s life insurance segment was even more concentrated than non-life at the end of the second quarter of 2021, with the five largest companies measured by total assets accounting for 71.1% of the market. The largest life insurance operations were Enterprise Life Assurance (GHS1.1bn, $188m), StarLife Assurance (GHS1bn, $179.9m), SIC Life Insurance (GHS921.7m, $157.5m), Glico Life Insurance (GHS446.2m, $76.3m) and Old Mutual Assurance Ghana (GHS344.3m, $58.8m).

Premium inflows were dominated by the universal life and investment product line, which registered GHS597.2m ($102.1m) and accounted for close to 50% of gross life premium. This was followed by whole life and endowment (GHS333m, $56.8m), group life (GHS95.4m, $26.3m), term (GHS71.8m, $12.3m), credit life (GHS49.7m, $8.5m), dread disease (GHS313,000, $53,500), disability and income protection (GHS134,000, $22,900), and others (GHS65m, $11.1m).

Technology

Insurance technology, or insurtech, helps firms use digital technology and data collection to provide personalised policies, and a range of insurtech products have been introduced to the market in recent years. For example, in April 2021 Hollard Life – a pan-African insurance provider and the fourth-largest non-life provider in Ghana – partnered with financial technology firm Cassava Fintech and Vodafone Cash to create MeBano, a micro-insurance programme that provides funeral and disability coverage for the underserved. Hollard Ghana also partnered with e-commerce giant Jumia to sell general and life insurance products in June 2021. With the global insurtech market valued at over $9.4bn in 2020 and set to grow at a compound annual growth rate of 32.7% to $158bn by 2030, Ghanaian insurers are keen to implement insurtech solutions in their business models. Indeed, the simplification of payments through digital channels is a key area of focus for the industry as it looks towards innovative technologies to broaden its client base.

Oil & Gas

In 2019 the NIC issued regulations to enable Ghana to harness the potential of its oil and gas insurance industry more efficiently, and provide a more equitable profit model for the Ghana Oil and Gas Insurance Pool (GOGIP). Established in 2010, GOGIP comprises 22 non-life providers and allows them to combine resources, and underwrite the large and complex insurance policies required by oil and gas operators. Prior to the reforms, member companies received profits in proportion to company size, but under the new guidelines insurers responsible for securing business for GOGIP are paid a commission of 4% of the initial premium by other firms granted part of the business. Due to the complexities and level of capital involved in providing cover for oil and gas operations, GOGIP has played an important role in boosting both the financial and intellectual capacity of the reinsurance market by investing heavily in training for local companies.

Reinsurance

A substantial portion of the implicit risk assumed by Ghanaian insurers has traditionally been transferred to foreign reinsurers, resulting in foreign exchange outflows. The transfer of risk to foreign reinsurers also exposes the domestic sector to exchange rate volatility. In order to alleviate this imbalance, the NIC has mandated that insurers exhaust local reinsurance capacity before looking to overseas reinsurers. Kwabena Larbi, the head of technical at GOGIP, told local media in August 2021 that between 2018 and 2021 domestic underwriting capacity expanded from $30m to $200m. The proportion of the local reinsurance market’s risk retention on assets also grew over this period, from 2% to 7%. It is hoped that new capital requirements will help the sector build on this momentum and further reverse foreign exchange outflows.

Outlook

Buoyed by successive years of sustained growth, the future looks promising for Ghana’s insurance sector, but challenges remain. “Insurance penetration hovering around 1% highlights significant potential for growth,” Shaibu Ali, managing director of KEK Insurance Brokers, told OBG. “At the same time, the sector is facing the challenges of limited liquidity and the potential for further economic contraction to postpone new contracts as consumer spending is diverted to more immediate needs.” Much depends on the rollout of reforms implemented in recent years, as well as the sector’s ability to adapt to Ghanaians’ specific needs. Improved access, the introduction of more relevant products and enhanced information dissemination are vital if the country is to improve upon its relatively low penetration. Encouragingly, the pandemic injected an added sense of urgency to create a more modern, dynamic insurance sector that is well equipped to serve individuals and businesses alike.