Ghana’s Insurance Industry Prepares Amid Assurances of Looming Reforms
The National Insurance Commission (NIC) will be imposing a new minimum capital requirement for insurance companies in March.Ahead of the definitive announcement, it is speculated that the new figure will be GHS 50 million (USD 9.1 million), a significant increase on the current GHS 15 million (USD 2.7 million).
Reforms will also affect reinsurers and insurance brokers, although to varying degrees. There are suggestions that the NIC is also working on increasing the number of compulsory insurance instruments.
There are plans by the Chartered Insurance Institute of Ghana (CIIG) to introduce a bill for professional standards, enabling the organisation to hold its members to account for malpractice.
Towards the end of January, the NIC released a comprehensive list of the companies that are in good standing with the NIC. This comprised of 22 life companies (all indigenous with the exception of 3 from South Africa, one German and one British), 29 non-life companies (one regional entity, one Nigerian, one German, one South African and one British)and 3 reinsurance companies (all indigenous).
Quality Life Assurance has launched 3 new microinsurance products aimed at the informal sector.
Upping the Minimum Caps
In addition to the minimum capital requirement increases of 333% for insurance companies, reinsurance firms and brokers will also face increases: notably, from GHC 40 million (USD 7.3 million) to GHC 125 million (USD 22.8 million) and from GHC 300,000 (USD 54,744) to GHC 500,000 (USD 91,240), respectively.
The planned directive is expected in March, which will detail not only the recapitalisation figures but also the length of time companies will be given to comply (most likely to be the end of the year).
The impending announcement was originally slated for last year but was delayed to allow for the banking sector to finish its recapitalisation exercise, that resulted in the number of licensed banks falling from 34 to 23.
Given the extra notice, 95% of companies have already taken steps towards increasing their capital. However, where there are companies struggling to meet the minimum requirement, the NIC is said to be favouring consolidations over other moves.
Forced Insurance Cover
Presently, insurance companies in Ghana underwrite two compulsory instruments: third party fire and third party motor insurance. Yet, there are calls by local firms for the net to be widened to include group life insurance, cover for high-rise buildingsand professional indemnity for healthcare workers. Such a move would provide a definite boost for the liquidity of insurance companies and the rate of penetration (currently only 2%).
The push by the CIIG to pass a bill to regulate professional standards in the industry will ensure that wrongdoing within the industry is sanctioned. The proposed changes would mean that insurers could be fined or even have licences removed for malpractice and face suspension from the CIIG. The passage of this bill will improve the image of the sector as a whole and therefore the representative body also. There are currently 571 companies registered in Ghana and the CIIG is keen to boost its membership to 870.
The putting in place of the minimum capital requirements from next month will likely result in fewer, more liquid and stable institutions. Indeed, there are 50+ registered insurance companies in Ghana, roughly the same number as in Nigeria, a country with six times the populationand more than seven times the GDP.
But the reforms may also leave companies seen to be on the wrong side of the political divide, behind. A former NIC department head told us: “the Commissioner of Insurance is a presidential appointee and, it is not unheard of for [him/her]to act favourably towards companies that are known to be friendly to their political beliefs. Therefore, I wouldn’t be surprised if this exercise results in the closure of mostly companies that were established [during] the 8 years [of the last] NDC government or those known to be friendly to the NDC.”
We are also likely to witness backlash from public/professional bodies at the extra cost implications of wider compulsory insurance cover, particularly if changes are imposed without consultation. We have already seen teachers and national service personnel show their displeasure at deductions at source.
The reputational risk and the financial implications that sanctions carry once the proposed bill likely becomes law this year, will stimulate better ethical standards and compliance, boosting trust and commercial activity within the sector. Such punitive measures will be entrenched in a revision of the 2006 Insurance Act, an impending amendment has been confirmed by the Commissioner of Insurance, Justice Yaw Ofori.
Nigeria: 184million; Ghana: 29.6million according to the World Bank.
Nigeria’s GDP: USD397.5bn in 2018; Ghana’s GDP: USD51.8bn, according to the IMF.