Controller’s new system: The good, the costs, the uncertainty

‘The cure for a particular ailment should not lead to the emergence of another’.

The Controller and Accountant – General’s Department (CAGD) is arguably the single largest premium deduction source for most life insurance companies.

The reason is not far-fetched from the fact that the government is the largest employer in the country. This, however, does not include some state and quasi-state institutions such as the Ghana Civil Aviation Authority (GCAA), Ghana Ports and Harbours Authority (GPHA), the Ministry of Defence (MOD) among several others. (I stand to be corrected though).

Weakening support for insurance companies 

Lately, the unfortunate trend is that the CAGD is no longer really giving priority to life insurance companies’ deductions, as statutory deductions, hire purchase and personal loan deductions have taken precedence over insurance. The rippling effect is that by the time it gets to the turn of insurance deductions, the minimum threshold of 40 per cent might have been met or probably exceeded leading to the policy lapsing after a few months. In many cases, especially for new applicants, the premium deductions never get effected.

The Migration of Some State Institutions to the CAGD Payroll

Some state institutions such as the National Commission for Civic Education (NCCE), the Electoral Commission (EC), the Ghana News Agency (GNA) among others have for some time now, been migrated to the CAGD payroll and they have been unfortunately ‘infected’ with the challenges inherent with the CAGD’s operations. Hitherto, premiums from these institutions were often received with a VERY high level of promptness.

The Introduction of the CAGD’s New System

It is good news to learn that the CAGD is in the process of introducing an electronic system for third party deductions on the Government of Ghana (GOG) payroll.

The system is expected to eliminate fraud, reduce the delay in processing inputs and also address the affordability issues (i.e. the Debt Service Ratio threshold of 40 per cent) which negatively affect the operation of third party agencies including insurance companies and welfare associations.

The system, we were told, is expected to replace the current manual processing of inputs. Consequently, training programmes have been outlined to equip stakeholders for it to kick-start in January 2015.

Who the users are 

According to the communiqué from the CAGD, the users of the Third Party Reference System (TPRS) would include financial institutions, non-financial institutions, hire purchase institutions, insurance companies, provident fund managers, departmental deductions, Government of Ghana as well as Trade and Credit unions. 

Users can get access to payroll database for verification and third party issues would be resolved.

The system also would resolve issues like: 

1. Impersonation and pay slip fraud - The individual would have to generate a mandate that comes with unique IDs that would enable the deduction agencies continue transactions.

2. Credit Worthiness and Affordability - These would enable the third party agent to conduct affordability test. (In the case of insurance, to be sure the minimum Debt Service Ratio (DSR) of 40 per cent is not exceeded).

3. To Avoid issues of under deductions or over deductions and wrongful deductions.

4. Protection against unscrupulous Third Party Agencies (TPA).  

5. Avoid  delays in processing.

6. Solve queuing on payroll. 

7. Provide TPA with a cost effective deduction. 

8. Better customer service

9. Equal treatment of TPA

10. Better data management or achieving of historical data.

If this new system is anything to go by, I am more than convinced that it would do insurance companies a lot of good. But then, what still remains unclear is whether insurance companies are going to be given priority, as an insurance premium delayed for one month as a result of inability to meet the minimum Debt Service Ratio of 40 per cent would have significant implications on the policyholder with regard to policy lapses. From the communiqué issued recently to sensitise stakeholders, there seems to be some level of discomfort among practitioners as to what amount of premium and priority would be placed on insurance premiums. By so doing, the management of lapses becomes essential to provide adequate cover and to maintain policyholder satisfaction by applying the bridging facility.

Policyholders’ expectations

In the words of Mr C.C. Bruce, the Executive Director of Enterprise Life Assurance Company and the immediate past Chairman of the Life Council of the Ghana Insurers Association, at a recent stakeholders seminar, “Policyholders are always talking to us and we have to listen or perish”. The responses from life insurance companies are the development of innovative products, investing more in technology while building on capacity and knowledge base, long term policy retention strategies and simplifying processes. 

This cannot possibly be achieved if insurance companies are experiencing challenges with pay sources and the end result is that which may appear as though insurers are deliberately frustrating their policyholders.

Acquisition and Use of Devices 

With the new system, a supposed first class data processor would be integrated into the E-pay slip system where companies would be expected to set up on the system with all their branches and all AGENTS as well.

- Mandate forms must be generated by the client and can also be signed on the screen.

- After the mandate, the third party agency would be able to continue with the verification process and check affordability before any transaction is effected.

Unofficial information suggests that all agents (including those in the very remote areas – emphasis mine) must have the TPRS device acquired for them at a yet-to-confirm amount of not less than GHC800 per agent.

The real challenges

Inasmuch as this is going to help improve our transactions with clients, the following are a few of the challenges that life insurance companies in particular could encounter: 

i. High Attrition Rate of insurance agents

One of the main challenges facing life insurance companies is the high turnover rate of sales agents which the industry had to grapple with over the years, and acquiring TPRS devices at not less than GHC800 per head would only add up to the high cost of running the business of life insurance. I wonder whether the actuaries and insurance practitioners have been consulted as regards setting premiums based on sound actuarial calculations and also factoring in additional costs such as this one, thus creating problems of sustainability for the insurance industry.

ii. Telecommunication Support

To the best of my knowledge, these would be mobile devices with android support features. I wish to ask how many new and fairly new insurance agents can afford unless of course the CAGD wants the insurance companies to bear the cost of acquiring such devices for these agents. There is also no guarantee that these agents would remain with the companies for the rest of their working lives. Aside this challenge, our telecommunication networks may not be reliable in certain remote areas, thus rendering the entire system not user-friendly. We would have gone forward one step, and backward ten steps. 

iii. Cost to Insurance Companies 

Assuming an insurance company has a total of 500 active and reliable agents, then we are talking about a whooping GHC400,000 to acquire these devices in addition to an unconfirmed amount of GHC10,000 per TPA for the acquisition of the software. That is not to talk of the cost the company has to bear in organising training programmes for these agents on how to use the devices. How IT-savvy are most of these sales agents to effectively use the devices in the first place?

iv. Reluctance of applicants to disclose PIN

I am not too sure if the CAGD had considered the possibility of insurance prospects / applicants not giving out their Personal Identification Numbers (PIN) to sales agents for their ‘personal security reasons’. I reckon from experience that some may even give out wrong PINs or inadvertently do so. What would we have achieved then, if I may ask? 

The way forward

All the reasons given by the CAGD sound very valid but in ‘bettering’ the system, some of the challenges of life insurance companies, as outlined above, must be taken into consideration. The CAGD, I admit, had been supportive but recent ‘supports’ by way of ‘making life easier for everybody’ through the use of modern technology would end up creating more challenges for the insurance industry than expected. I am not too sure if adequate consultation(s) had been done prior to the proposed new system.

The efforts of the CAGD to make life easier for all stakeholders are very much appreciated. However, its officials should take into consideration the fact that ‘there are specific medications for specific ailments’ and that some medications may be good for pregnant hypertensive women but not hypertensive men. In other words, this new system may work effectively for some other sectors outlined above but certainly create more problems for life insurance companies.

Until next week, this is “Insurance from the eyes of my mind”. GB