Insurance penetration stagnates for five years at 1%

  • Industry player calls for more education and innovation

Even though the insurance industry continues to record annual growth, its contribution to the overall economy – measured by premium income to GDP, otherwise known as insurance penetration – has remained around 1 percent since 2014, data from the Bank of Ghana have shown.

The Financial Stability Review report (December 2019) has shown that the industry’s growth in premium income increased from 18 percent at end-December 2018 to 22 percent at end-December 2019, with total assets also growing at an annual rate of 19 percent to GH¢6.54billion within the same period.

Despite this growth, however, insurance penetration has remained unchanged for the past five years (2014-2019) at around 1 percent.

The low level of insurance penetration, the report says, indicates there is huge potential for the industry to grow if opportunities are tapped. For the industry to change what has become the status quo, Founder and CEO of Africa Sureties and Insurance Advisory Company (ASIAC) Ltd., Solomon Lartey, told the B&FT in an interview that players in the industry must intensify education and sensitisation efforts, in addition to prompt settlement of claims, in order to increase trust in the sector and attract more potential clients.

“The primary thing is education. The more people know about insurance, the more they will be interested. The second thing is that insurance companies should try to create a more positive image. At the moment, everybody thinks insurance companies are there to cheat and abandon you when you are in trouble. So, the insurance companies must work hard to change this perception for people to really understand what insurance is and their role. Once people understand and the insurance company pay claims promptly, it leads to a positive image.

“And the third thing is legal requirement. There are certain types of insurances that should be made compulsory, and this one can also increase penetration. And the fourth thing is that players must introduce innovative products onto the market. If different products that are not available are introduced onto the market, people will sign on them and this will also increase penetration,” he said.

According to the report, the 2019 growth can be attributed to improvements in the insurance sector’s operational environment and policy reforms, as the National Insurance Commission.

(NIC) continued to work closely with industry players to address issues on underpricing, underwriting capacity, enforcement of compulsory insurance, market conduct practices and claims management.

Growth is further expected to increase, as the report adds that risks associated with premium income growth are expected to remain subdued – given favourable economic prospects, the broad-based introduction of innovative insurance products (micro-insurance etc.), the recapitalisation exercise, implementation of the Motor Insurance Database (MID), and expected passage of the draft insurance bill, among others.

Again, the retention ratio continues to remain high in the industry. On average, about 79 percent of the premium received by insurers was retained in 2019. Non-life insurers retained 68 percent of their premium, while life insurers retained 98 percent. The low retention ratio of premium by non-life insurers, the report says, is partly due to the nature of risks underwritten and high gross premium to capital ratio.

The high retention ratio among life insurers, on the other hand, is mainly due to the increased purchasing of savings-linked insurance products and the long-term nature of their actuarial liabilities.

The industry is confident that the NIC implementing the recapitalisation exercise will drive risk retention in the non-life insurance segments, and also drive the underwriting of pure risk insurance products for Life insurers.