The latest Oxford Business Group (OBG) report has tipped the insurance sector to greatly benefit from new lines of compulsory insurance guidelines from the practice’s regulator which seek to, among others, sustain a key financial sub-sector.
Though some of these measures – especially the new capital requirement – may prove a tough call for players, they will eventually benefit the industry according to the report.
“Ghana’s insurers are likely to face a challenging regulatory hurdle in the short-term, but one which promises to shore-up the industry.
“Increasing the industry’s capital base is crucial to its long-term development, by allowing insurance companies to accommodate large-scale, industrial projects,” the report said of the sector.
A key hurdle to insurers on the market from the host of guidelines to come from the National Insurance Commission, is the potential rise in minimum capital requirement.
The NIC intends to raise the stated capital of life and non-life insurers from the present GHc15million to GH¢50million; that of reinsurance companies will go up from GH¢40million to GHc125million (212% increase); while that of insurance brokers will move to GHc500,000, presenting a 66.7 percent increase from the present GHc300,000.
The National Insurance Commission, which regulates insurance practice in the country, is bent on increasing the capital base of the sector in its bid to ensure that domestic players are more stable and capable of promoting broader economic growth.
To the NIC, ramping up the industry’s capital base will be crucial to its long-term development.
However, Goldstreet Business has learnt that the NIC is considering the proposal from the Ghana Actuaries Society that rather than implement an across the board new, increased minimum capital level for primary insurers, a risk-based system of determining the minimum capital for each insurer – based on their peculiar, respective risk profiles as contained in each one’s underwritten policy portfolios be deployed. While no firm decision has yet been taken this means the widely announced new minimum of GHc50 million is not yet a done deal. (see Friday’s edition of Goldstreet Business for details).
The OBG report also predicts the proposed change to minimum capital requirement will raise the possibility of a new era for mergers and acquisitions in the insurance arena.
This, it said, should be a welcome development to those who believe that Ghana’s insurance industry is fragmented and contains too many low-capacity insurers.
The OBG report has also projected that ongoing economic expansion activities in the country will strongly position the local insurance sector for sustained growth.
“The market is expanding considerably—the middle-class is growing and awareness of products, especially life insurance, is increasing.
“To best understand insurance penetration rates in Ghana, one needs to look at both the population’s ability to spend and their awareness of the real benefits,” said the Chief Executive Officer of Edward Mensah, Woods and Associates, James Wood, as quoted in the report.