Like numerous other developing economies, Ghana’s low insurance penetration rate—0.54% in non-life and 0.48% in life—is a result of low expendable income, made worse by inflationary pressures. The insurance sector is, however, growing, with a CAGR in premiums of 9% predicted for 2014-18, driven mainly by strong GDP growth and expansion in the oil sector. In terms of the landscape, new minimum capital requirements—now at $5 million for insurance firms and $10 million for reinsurance firms—could result in mergers and acquisitions. Currently, there are 48 players in the sector, including 26 non-life insurers and 22 life insurers. On top of that are three reinsurance companies and 76 brokerage firms. The National Insurance Commission (NIC), the sector watchdog, told TBY that, despite the expectation of consolidation, entities are still applying to come into the market, something that its mandate does not currently allow it to control. The NIC is optimistic for the future, and “looking forward to growth of at least 20% [in 2016],” said CEO Lydia Lariba Bawa. And with the NIC keen to introduce new compulsory lines, it is clear why it has such high hopes for growth in the coming years. “We are looking at both the life and the non-life side in terms of the compulsory insurance issue,” continued Bawa, who also spoke of plans to set up an insurance database. The current premium mix is 54% non-life and 46% life, with a premium density per capita of $15, which is higher than that of Nigeria on $10 dollars and a 74% non-life to 26% life balance.
The size of the market stood at $0.4 billion as of 2014, according to an EY report, which also highlighted shareholder demands and volatility of returns as the top challenges moving forward. Indeed, Ghana’s insurers often struggle to extract payment from policyholders, hence the introduction by the NIC of the “no premium, no cover” policy on April 1, 2014. Having had similar success in Nigeria, the policy requires clients to pay up front for a premium before it becomes active, putting an end to the purchase of insurance products on credit. And despite initial fears of how it would impact profits, the NIC has since reported general satisfaction in the sector; “When we first started with this program of reform, I imagined our greatest challenge was going to be the public,” began NIC CEO Bawa, continuing, “[but] the public was no problem. It was the insurance industry that was concerned that they would lose clients.” And indeed, “Initially they did, and income fell when people could no longer afford cover. However, now the public has bought into the culture of budgeting for insurance.” This ties into a greater push for awareness, with initiatives having included designating October of 2015 “Insurance Awareness Month,” which also included educational programs run between the NIC and the Government Insurance Association, while the Minister of Finance also rolled up his sleeves and talked up the virtues of insurance coverage on television. The NIC has also established a complaints bureau with the mission of mediating between insurers and premium holders locked in dispute, in the hope of breaking the air of mistrust.
But other challenges exist beyond awareness. The informal nature of large swathes of Ghana’s economy—possibly up to 70% of the total economy—is a considerable hurdle many must overcome. George Kojo Addison, CEO of StarLife Assurance, shed some light on the difficulty facing insurers on the ground; “Companies [in the informal sector] have not been able to insure themselves because of the particular challenges. Most lack bank accounts; therefore, even if you sell policies to them, how they pay the premiums is a challenge.” Addison went on to suggest that, “if the banking system was changed to allow these businesses to have accounts it would make doing business with the informal sector easier. For now, the informal sector remains separate from the formal sector markets and competition is keen.” Addison also had words on how the sector is growing, highlighting that when StarLife Assurance began operating there “were fewer than 10 life assurance companies in Ghana,” yet, “that number has now doubled.” And while he sees positive growth in the sector overall, he believes, “it is not growing rapidly enough to cater for the rising number of companies,” further pointing to the need for consolidation. Addison also weighed in on the problem of awareness, suggesting that even those who buy policies do not fully appreciate the benefits. StarLife Assurance has thus taken to sponsoring insurance educational programs with the aim of fostering a better understanding of insurance in general.
Moving forward, and the positive indicators coming out of the insurance sector could herald an increase in foreign investment. In this regard, Nigeria is a strong example, having leveraged its solid demographics to attract FDI, backed up by generous investment incentives such as 100% ownership rights. And while Ghana is not quite there yet—the country only allows for 60% foreign ownership in the insurance industry—growth in the extractive industry could tempt in new capital. One of the biggest deals of recent years was the $5.5 million investment made by Leap-Frog Investments, which acquired a majority stake in small insurer Express Life Insurance Company with the aim of boosting its market share. Such deals will allow Ghanaian firms to boost their capital and take on larger risks, especially in the oil industry. In fact, bringing in foreign partners could be crucial to ensuring Ghanaian insurers are not locked out of the big ticket deals prevalent in the oil industry, as happened in Nigeria as hydrocarbon firms took their business to Europe.
The Ghanaian insurance landscape is set for change. There is no indication that the recent increase in minimum capital requirements will be the last, while persistent interest from local and foreign firms means mergers and acquisitions could hit headlines over 2016 and 2017. The government is also keen to boost awareness, while also calling on insurers to do more to ensure growth. New compulsory lines will also guarantee rising premiums, while much rides on local firms’ ability to lock down big risk business.