Insurance industry set for boom

Boahene Asamoah reviews the insurance industry since 2006, highlighting the significance of new entrants to the industry

There is a new buzz about the insurance industry today. As an important industry to everyone, businesses and individuals, one would have expected more serious activity until now. The industry seems to have been late responding to change, but it seems that it was worth the wait.

The Ghanaian insurance industry is expected to get more exciting as new players storm the market, and in most cases, as part of their market penetration strategy, taking over existing companies. It all seems to be working together for Ghana at the moment, with some industry watchers attributing the current foray into the insurance industry by bargain-hunting investors to the oil find.

The rush has got some industry experts talking, with some worried that if firms are not properly capitalised, they could collapse the industry in the future. Capitalisation is important for many reasons. As the Ghanaian economy develops with more people taking up insurance policies, some for the very first time, it is important that insurance companies are well endowed to meet the growing demand. What is important about capitalization also is that if the firm is well capitalised, it will be able to have more funds set aside for capacity development for example, all helping the industry to mature and grow fast.

But the worrying part if the new entrants, mostly foreign, do have the financial muscle to meet the growing challenges. In fact, they seem to have more capital than the local ones, which is causing anxiety among local industry players.

New entrants from especially Nigeria have made their presence felt in a big way, with more serious-minded approach to the business. It seems that they have taken a cue from their counterparts in the banking industry who have changed the face of banking in Ghana.

So far six major insurance companies have pitched tents in the country, and all of them in a big way. They are Capital Express Assurance Ghana Limited, who has bought controlling interest in Benefits Life Assurance Sector, while Regency Alliance Insurance Limited, another Nigerian firm has also bought controlling interest in Benefits Non-Life Business.
Industrial and General Insurance (IGI) Ghana Limited, which is a subsidiary of IGI Plc of Nigeria has bought controlling interesting in Network Assurance in both the Life and Non-Life businesses.
However, two other firms have set up their own operations in the country entirely from scratch, without taking over an existing trade. They are International Energy Insurance Company (IEI) and Equity Assurance Limited.
Other banking entities like Zenith Bank Plc, that already has a banking business in Ghana is expected to follow that by setting up an insurance company in the country. Zenith Bank has a subsidiary that deals in insurance.
Following the Insurance Law of 2006, Act 724, the separation of the Life and Non-Life business of insurance companies and the raising of the minimum capital to US$1 million for each of the businesses, the number of companies in the industry has increased from 24 to 37.
Interestingly, the oil find has brought about new businesses in the country with some experts in the oil insurance underwriting becoming a new hot bed for the insurance industry.
Again, the general good business climate in the country over the past five years that has led to a construction industry boom also presents some tremendous opportunities for insurance companies.
And performance has been good also. Over the past five years there has been a general increase in premium income. From 2002 to 2007 gross premium income for all businesses increased from GH¢47.2 million in 2002 to GH¢1.64 billion in 2006.
This represents a yearly average growth rate of 36.7 per cent; total gross premium for non life business however, increased by 270 per cent from GH¢38. 2 million in 2002 to GH¢141.5 million at the end of 2007.
For the life business gross premium increased from GH¢8.9 million in 2002 to GH¢68.6 million at the end of last year.
Analysts say the continuous increase in growth in the sector is an indication of the increase in public awareness and confidence in insurance products.
Over the past few years, there has been an emergence of new products that are tied to other investments such as the funeral insurance, which has received a lot patronage.
However, some industry players still believe that a lot more attention needs to be given to the life business because of its spiral effects.
According to market reports on the industry, the life business has the potential to generate wealth for the industry and encourage investments as a whole in the insurance industry because of its potential appeal to people looking at the premium income by class of business for the period 2002 to 2006.

Market watchers also believe that the companies from Nigeria could have a lot of impact on the Ghanaian market because of the excess funds they have for the industry. The Nigerian authorities on September 5, 2005, announced the recapitalisation of Insurance and Reinsurance companies. The new minimum paid-up share capital is as follows:
Class of Business, New Capital Base Life Insurance business 2 billion Naira, General Insurance Business 3 billion Naira, Reinsurance companies to 10 billion Naira.

It was also identified that the total market capitalization for the insurance industry then which stood at about N34 billion spread among 103 direct insurers and 4 reinsurers.
Indeed this is the present situation in Ghana; at least four international banks in the country, with the new capitalisation requirement could take more than half the number of insurance companies in the country.
However some industry experts believe that it would not be prudent for Ghanaian insurance firms to recapitalise only to take advantage of the oil business, although the experts believe that recapiatlisation was necessary.
The argument is that the oil business is a risky business and that should all the insurance companies underwrite such a business in the likely event of a disaster, claims from such disaster could wipe off the whole industry.
Experts say Ghanaian insurance firms must be encouraged to spread their risk, so that the industry is protected. Re-insurance provides that safety net for insurance companies, but there are always other pitfalls that should be checked.
While the economy presents some opportunities for the insurance industry, the challenge is how best to educate the Ghanaian public on the need to take insurance policies to protect themselves and their families.