In the early 2000s when Ghana's insurance sub-sector was still at the discovery stage, a few companies competed for less than one percent of the country's population who bought insurance products for themselves and their properties. As a result, competition in the sector was mild as the few life and non-life companies jostled for customers in an emerging industry that looked set to blossom in the next decade or so. About fifteen years down the line, however, the situation has changed, almost 360 degrees, for both the good and the bad reasons. Although the number of the insured public has barely expanded - rising from a little over one percent to three percent - the number of insurance companies has almost quadrupled; rising from less than 15 to some 42 companies in 2015.
Currently, the industry is dominated by the non-life business, which constituted 48.8 percent of the total gross written premium in 2013. The life insurance business followed with a share of 43.6 percent, with personal accident and health insurance accounting for a little over seven percent of the market share. The strong growth in the number of companies was informed by the expansion in the sector, which was vividly captured in a 2014 study published in July that year. According to the report, the country's insurance industry is one of the fastest-growing insurance industries in Africa, in terms of gross written premium.
A 2014 study on the industry showed that it grew at a compound annual growth rate (CAGR) of 30.4 percent between 2009 and 2013 as compared to other African countries, such as Chad with 2.3 percent, Cote d'Ivoire with 3.9 percent, Cameroon with 9.4 percent and Uganda with 18.8 percent.
In a recent interview, Madam Genevieve A. Tachie, the Regional Finance Officer of one of the players, ACTIVA International Insurance - the leading insurance company for multinational companies in Ghana, observed that Ghana’s insurance market was more developed than its peers in the sub-region.
Unlike Liberia and Sierra Leone where years of civil wars have depressed economic growth and slowdown expansion in the insurance business, Madam Tachie said Ghana’s insurance industry has witnessed peaceful transition, which has translated into the string growth it continues to enjoy on annual basis.
Her comments mirrored the findings of the study, which showed that in terms of gross written premium, Ghana's insurance sector grew at a CAGR of 30.4 percent in 2013. This growth was supported by growth in the life and non-life insurance segments, with the former posting a CAGR of 37.1 percent and the latter having registered a CAGR of 27.7 percent, according to the study, which gave a sneak peep into the prospects of the sector.
The striking growth in the insurance sector, although welcoming news for businesses and the economy in general, has created opportunities and challenges for the insured public, the players in the sector and the industry regulator - the National Insurance Commission. Due to the increasing competition in the sector, the market shares of many companies have massive declines in recent times, forcing them to resort to unhealthy practices in their struggle for survival.
One of those unhealthy practices is premium undercutting, which continues to top the list of challenges stifling the growth of Ghana's the country's insurance sector. From life to non-life through to reinsurance premium undercutting, otherwise called underpricing, continues to deny well-meaning companies of quality premium charges. This has translated into a slowdown in growth in the companies and the sector in particular.
The situation has promoted calls among players for the industry regulator to institute stringent measures to address it, something the commission said would be tackled in its new set of regulations due to be introduced soon.
Another challenge facing the sector is the foreign exchange instability. Ghana's currency, the cedi, continues to face seasonal pressures due to shortfalls in foreign exchange, mostly arising from declining commodity prices and depletion of the national reserves. Although the situation inures to the advantage of the exporting companies, it eats into the earnings of local operators with international operations.
For instance, ACTIVA International Insurance, which grew at 22 percent in 2014 observed that its fortunes would have been better off if the currency had not shed about 20 percent of its value to the USD.
"If your company is owned by a foreign interest, they, of course, expect returns denominated in foreign currency. You could be doing very well in local currency, but when they evaluate in foreign currency, you might not be doing that well. So, we think that's a point of concern. Last year, we grew by 22 percent bit obviously, in foreign currency, the effect would not be the same," the managing director of the company, Mr. Steve Kyerematen, said.
Going forward, Mr. Kyeremanten expects the government to work to improve the macroeconomic fundamentals, which has fed into the shabby performance of the currency.
Beyond the few challenges, the insurance industry holds bright prospects for investments.
With oil and gas production taking shape, the sector is expected to grow at a CAGR of 23 percent in 2018. That could provide some handsome profits for investors who would invest their money in it.
Also, the motor insurance business in the country is growing at appreciable levels and insurers that can position themselves well in the sector could be smiling at the end of the day. Another area to look at in the sector is the marine business. With the shipping and logistics business booming at the moment, marine insurance can be expected to witness a boom in the short term and that could serve as a good bait for investors.
The prospects in these sectors should complement Ghana's generally friendly investment climate, which results in its foreign direct investments always being on the rise. In the insurance industry for instance, the law allows for 100 percent repatriation of profits by foreign interest, something that is not allowed in most neighboring countries. It is, however, worthy to note that technical expertise, liquidity and qualified human capital are of paramount importance for investors look into this sector.
Any investor that makes an entry must be ready to distinguish itself through quality service excellent customer relations and liquid assets to be able to withstand the pressure and make an impact.