Re: Insurance companies angry over government directive

The contribution of the insurance industry to the economy cannot be overemphasised. However, we find it unfortunate the reaction of a section of the insurance industry to the government’s directive to ministries, departments and agencies (MDAs).

The submission by the GIA, which is supposed to be the mouthpiece of the industry, ostensibly treated some of its members as though they are alien to the association.

Evidently, there is a deliberate bias by the GIA against some of its own members. It is also strange the deliberate attempt to rope in brokers and agents who are not affected in any way by the directive.

Secondly, the directive gives an option to MDAs wishing to insure elsewhere to advance reasons and be responsible for their actions now and in the future. This is typical in any business environment.

The GIA should not be seen to be shielding MDAs from taking responsibility for their actions. I believe the insurance companies hold their employees accountable for their actions. The government, as an employer, is not different from any other employer who wants results and value for money.

The above notwithstanding, it is only proper to analyse the content of the GIA letter in respect of the following sub-headings. This is by no means exhaustive, though sufficient to provoke intelligent debate. 

Insurance penetration

According to the 2011 Annual Report of the National Insurance Commission (NIC), insurance penetration in the country is still very low.

The finscope survey, which was commissioned by the Government of Ghana on the financial sector, concluded that excluding those with the national health insurance, only five per cent of the population has an insurance product. Insurance penetration, which is defined as the contribution of total insurance premiums to GDP, is still one per cent.

This can be compared to South Africa’s 14.8 per cent, Namibia’s 7.3 per cent, Kenya’s 2.8 per cent and Malaysia’s 4.8 per cent. 

The industry was given further impetus by the introduction of the compulsory insurance for commercial buildings. How have the players utilised that opportunity? What is the impact of the repeal of PNDCL 227, PNDCL 79 and PNDCL 169 on insurance penetration? Obviously, the impact is insignificant from the facts above.

The NIC approves the premium rates for the industry, which implies that the ability of insurance companies to compete on price is limited.  Insurers can only compete on service and innovative products to the market.  

It is not the insurances of MDAs that will grow or collapse any insurer but the ability to innovate products and offer outstanding service delivery to the insuring public.

Even more paradoxical is the allusion that about 9,000 employees and agents will lose their jobs by the directive.

How much insurance do the MDAs have to be serviced by such a large number? It is difficult to believe that the insurance industry is that inefficient with current technology.

Moreover if any insurer may collapse as being implied because they do not write government business it means their business model is not sustainable and, therefore, a charade.  

It will then be logical to conclude that such insurers require immediate regulatory attention.  GIA will do the industry a lot of good by pointing such insurers to the regulator instead of being their mouthpiece.  

Some players in the industry with origins from other countries are here doing brisk business. I doubt if MDAs are their main focus for growth.

Certainly, it is the low penetration, potential for growth and inadequate innovative products as pertains in more advanced markets. Similarly, there are some players of Ghanaian origin who have gone into other countries and are doing brisk business without recourse to government business in those countries. 

Government as insured

The insurance industry can be broadly categorised into three players, namely, insureds, intermediaries and insurers. The insured comprise individuals, organisations and institutions.

The Insurance Act 2006 does not restrict or any ways prescribe to insureds as to the choice of insurers for any reason. Government in the capacity of MDAs has the same right as every other insured to choose any licensed insurer in Ghana for whatever reason. It is illegal, therefore, for GIA to try to bully government in the name of private sector growth.  

Government as entrepreneur/businessman

State enterprises are known to fold up because of poor business skills of government.  It is imperative to look at the directive in the light of what any reasonable businessman or woman would do to keep in business. The directive is in many ways similar to the captive decisions that the private insurers are making in their board rooms to stay profitable. 

Captive insurance

Captive insurance companies are established with the specific objective of insuring risks emanating from their parent group, but they sometime also insure risks of the group’s customers.

This is an alternative form of risk management that is becoming more practical and popular means through which companies can protect themselves financially while having more control over how they are insured.

There are different types of captives. Government by virtue of ownership of insurance businesses has the legitimate right to pursue this model if it gives value for money.

For the records, 90 per cent of Fortune 1000 companies and many successful middle market businesses have captives. Not far from home, right here in our country almost all the insurance companies are operating this model, albeit indirectly. Their sister companies, subsidiaries and companies in which they have reasonable interest are insured with them. I challenge them to prove otherwise. 

Beneficiaries of the directive

The ultimate beneficiary of the directive is the larger Ghanaian populace. SIC Insurance Company has over 48,000 shareholders through the Ghana Stock Exchange.

Majority of them are Ghanaians of all walks of life. Besides Enterprise Insurance Company which is listed on the stock exchange, which other insurer is listed or has immediate plans to do so? The shareholding of majority of these insurance companies is rather limited to a few individuals of familial ties or otherwise.    

It is, therefore, the status quo that will benefit a few individuals not the directive. It is also important to note how many of the hard working employees of these companies own shares. So GIA cannot be said to be doing the bidding for their employees in this light. They should walk the talk, if they really want to be the private sector that is the engine of growth.

Co-Insurance and Reinsurance

The position of the GIA has also chosen to ignore the accepted practices of co-insurance and reinsurance by which risk is redistributed among several insurers/reinsurers. The association should rather encourage these mechanisms as means of sharing in any risks available in the market among themselves including government businesses.

This will promote the growth of the industry. It is common knowledge most insurers retain very small portions of their risk and reinsure the rest outside the country without exhausting local capacity which promotes capital flight. This behaviour defeats the objective of section 39 of the Insurance Act 2006. 

Conclusion

The directive is by no means law but an opportunity for government to hold its employees accountable for their decisions just as any employer/businessman will do. Until government has no business interest, it will have to critically balance the responsibilities of governance and entrepreneurship.

To be the engine of growth that we all so desire the GIA to be, it is essential for the association to encourage innovation and increase penetration. There is a lot of room for growth regardless of MDAs.

The government acknowledges and appreciates the immense contribution of the industry to the development of our country.  We believe this directive cannot affect any well-crafted insurance company in this country unless the GIA wants government and the insuring public to think otherwise. 

The government is very much aware that the insurance industry thrives on trust because they are in the business of selling promises hence their cardinal principle being “Uberima Fidae”, to wit, Utmost Good Faith. It is, therefore, not the intention of government to rush to the press with issues concerning this industry and will urge the GIA to do same in the interest of the industry.

It is also important for the industry to promote dynamic corporate governance structures that will be beneficial to their hard working employees, industry growth and the nation as a whole.

This rejoinder is from management of the SIC Group and Ghana-Re, Accra