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24.06.2004 General News

Review solvency margin - Pianim

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Accra, June 24, GNA - Mr Kwame Pianim, an economist, has called for the review of the solvency margins imposed on insurance companies to enable the industry to play its role as a major source of domestic funding.

He said this would help reduce the dependence of the national economy on external sources.

Delivering a lecture on the "Role of Insurance in the socio-economic development of Ghana," Mr Pianim said although the margins were prudential requirements to ensure that insurance companies were able to meet customers' claims, they tended to be biased against investment in long-term projects.

Solvency requirements allow insurance companies to keep 100 per cent of their Life and Non Life Premium income in liquid assets and fixed deposits, while assets in land and buildings are allowed only five per cent of the value.

Mr Pianim said these restrictions needed to be removed to unleash the potential of the insurance industry to contribute to national development.

"These margins obviously severely limit the ability of the insurance industry to fund productive investment for national growth. We need to be more creative and innovative in ensuring the financial viability of the industry while unleashing their tremendous potential," he said.

Gross Premium Income in nominal value increased from 129 billion cedis in 1998 to 465 billion cedis in 2002.

However, Mr Pianim said, these limited premium incomes had not been used as a potential source for leveraging the funding of long-term productive investments but were instead tied up in government securities for the finance of unproductive public sector expenditures. Section 26 of PNDCL 227 demands that 50 per cent of Life fund premium incomes is invested in Government securities alongside 25 per cent of Non-Life Premiums.

Mr Pianim called for the liberalisation of the investment premium so that the bulk of the funds are invested in longer-term productive instruments while maintaining the financial soundness of the companies. He called on the industry to be creative and innovative in engineering products to attract the public's interest in Life and Health areas and to increase gross premium incomes.

"You must first cooperate to develop and build the market and then compete to gain market shares. You need to be aggressive and become competent communicators so that the message of the need for insurance and its critical role for national development can be delivered throughout the nation," he said.

Mr Albert Gemegah, Lecturer at the School of Administration, University of Ghana, Legon, said insurance companies needed to create public awareness not only through advertising their products but also to provide education on the importance of insurance to dispel people's mistrust about the industry.

To be able to do this effectively, he called for a core of skilled manpower and continuous training to enhance professionalism as well investment in technology and procedures to improve on operational performance.