Statistics attest that Ghana insurance sector performance currently is far below average despite heavy investment and intervention by various stakeholders in the country.
While insurance asset ownership is merely 5% in the financial sector, penetration as a percentage to GDP is still below 2%, hovering around 1.85% as at the end of the first quarter of 2016.
This shows that, in terms of insurance penetration as a percentage to GDP, Ghana is behind peer countries like South Africa (14.5%), Mauritius (7.5%), and Namibia (5.7%) according to Africa Insurance Organisation, 2014.
This is against expectations of many financial experts and stakeholders in the country.
Madam Lydia Lariba Bawa, National Insurance Commissioner is one such person. She heavily lamented during an insurance conference that “until we find a suitable and innovative means of reaching out to the informal sector, it will be extremely difficult for us to take insurance to the next level of our development.”
Ghana’s insurance landscape focuses largely on the formal sector and white collar workers, ignoring the informal sector, notably the drivers, hawkers, vendors who constitute the majority of Ghana workforce.
Eventually it is their expensive premiums and complicated underwritings which compel this low income bracket to shy away, causing the poor uptake among Ghanaians.
In wake of this, experts and financial analysts in and outside Ghana, have shared the view that, a fierce attention on micro insurance is a key to Ghana’s insurance growth since the large working population is the informal sector.
A recent study by Lloyds 360 risk insight themed ‘exploring opportunities in microinsurance’ revealed “low income are potential market for financial services and also are effective consumers’ so far as appropriate products, processes, and knowledge are given.”
It further noted emphatically that “micro-insurance is effective even in markets with little experience of insurance, as long as products, procedures and policies are simple, the premiums are low, the administration is efficient and distribution channels are innovative”.
Undeniably, it means if procedures and administration works perfectly, microinsurance can progressively grow to give momentum to the whole insurance sector in Ghana since over 80% of the country workforce is low income individuals of which almost all are uninsured.
In Uganda for instance, micro insurance caused a huge turnaround of the whole insurance sector in the year 1997 when American International Group (AIG), one of the world’s insurance giants partnered with a local microfinance company called FINCA to introduce affordable personal accident products, health and agricultural products to the locals.
With the right procedure and administration, the products proved very successful, especially, the personal accident products not only to the company, by contributing 17% of its profit, but more importantly, served as a hedge to over millions of low income individuals who were covered in no time.
This however, attracted much attention in the micro insurance sector, where most MFI’s in Uganda started offering micro insurance products to their clients.
Moreover it encouraged other large insurers to enter the market in several other countries, leading to a massive coverage, a little above 1.6 billion clients in three countries.
This shows that micro insurance has the potential to simultaneously shoot up insurance penetration in Ghana and also ensure massive financial inclusion, thus serving as a protection tool for low income populations previously unable to hedge against life uncertainties like bad harvest, death, sicknesses or natural disaster that can rapidly eradicate gains against poverty.
Micro insurance is gradually picking up in Ghana. Currently, traditional insurance companies and some telecom companies are involved in delivering a range of micro insurance products to this low income bracket. Products such as health, agriculture, credit protection and investment are notable on the market.
Data according to the National Insurance Commission revealed that over 7.5 million people are already covered with at least a policy. This explains the huge potential for microinsurance in Ghana.
Drawing from the MFIs and the National Health Insurance success story, especially its high patronage among the informal sector, experts has tipped Ghana as a viable market for this segment but unfortunately, coverage to the poor farmers, traders, casual workers at the rural areas who are the main market is proving difficult. It is very urban centric.
For National health insurance to cover over 40% of people living in Ghana is significantly because of its strategic delivery models to reach the rural communities in the country.
As Roland Steinmann, a senior consultant at MicroInsurance Center puts it, “Good products, marketing and financial literacy of clients are prerequisites but delivery is the key to turning microinsurance potential into a real business,” hence the need for Ghanaian insures to reconsider distribution and device innovative models to ensure that needed expansion.
Ghana insurance delivery is still largely driven by intermediary’s brokerage and traditional sales agents to prospective clients. This has been considered by some analysts as a severe limitation to reaching large people, especially in rural areas.
Although these traditional models are still in use globally, some countries have devised several innovative delivery models which have been successful in regards to creating insurance awareness and delivery.
MFIs, mobile phones, retailers, churches, funeral parlours, community based organization and even NGOs have been fully involved to reaching the low income population mostly at the rural communities.
In South Africa for example, Hollard insurance and PEP, a popular clothing retail shop in South Africa collaborating to deliver low cost insurance policies to its clients is one of the most successful examples of microinsurance distribution innovation in the country.
Today, with over 64% coverage ratio as a percentage to the country’s population, South Africa boasts not only the highest coverage ratio in the southern Africa region, but on the entire African continent
Massive penetration is very likely to be achieved in Ghana if the call of NIC Boss, Madam Lariba Bawa, – “I want NGOs operating in the rural areas to register and we will license them so that they can reach the rural people” – is honored to ensure that involvement and collaboration between sectors for further expansion of microinsurance in the country.
It is evident that, microinsurance contributes hugely to wealth creation; however, expanding to, and insuring the low-income population will ensure poverty reduction.