Insurance Companies Go Berserk After Banking Reforms

The most wound stinky area in the financial sector is insurance. While this may have triggered a very bastion dislike for the sector, many Ghanaians obstinately maintain an attitude that requires a rethinking. In spite of its numerous benefits, the insurance sector is egregious with disputes. While the skeptic observers may find reasons to loop-off, the hopefuls believe the sector will be better off with the strong touch of a ‘surgical spirit’ to help flash out those causing the mess in the insurance corridor.

While it’s still clear some have not recovered from the banking shocks, many Ghanaians are enthused with the recapitalization drive by the regulator. This successfully developed the sharp teeth for Dr. Ernest Addison’s Bank of Ghana (BoG) to chop-off the ailing banks from the system irrespective of whose ox is gored─ so that sanity can prevail.

New Minimum Capital Requirement in the offing

People familiar with the matter have hinted this reporter that the days of reckoning is near for the insurance companies with the regulator, the National Insurance Commission (NIC) gnashing same.

Following the BoG’s decision last year to increase banks’ minimum capital requirement from GH¢120million to GH¢400million – which banks were supposed to meet by December 31 last year, debates about the NIC also increasing same for the insurance companies have become very topical in recent times.

Sources say, while this may be a good opportunity for the giant ‘whales’ to swallow the tiny ‘fishes’ in the sector, some are running helter skelter looking for a ‘live jacket’ in order to remain in business.

In December 2015, the Insurance Act 2006 (Act 724) required all insurance companies to have a minimum capital of GH₵15million, but some companies even now, are still struggling to meet that requirement, yet, are still operating in the market. Now, the NIC is under pressure to increase the current GH₵15million minimum stated capital for insurance companies.

Although yet to be made public, the increase is expected to trigger mergers and acquisitions, or the possible fold-up of many among the 53 registered life and non-life insurance firms in the country, according to industry clairvoyants.

The NIC which was supposed to announce the minimum recapitalization requirement by end of December last year were compelled by the reforms in the banking sector to put the matter in the cooler.

Seth Eshun, Head of Supervision at the NIC, in an interview granted by a sister media house, said the NIC did not want a situation where insurers would have to compete with banks for funds on the capital market to recapitalise.

According to Mr Eshun, they were waiting on the banks to finish; and before the end of 2018 before they will come out with what the minimum capital requirement is and possibly allow them few years to recapitalise.

But those familiar with the matter say that there is some likelihood that NIC will before or after the second quarter of this year will let Ghanaians know the fate of some insurance companies. Even though some companies are on the manhunt for cash, sources predict that about 50 per cent of the 53 insurance firms will not see daylight. The sources guaranteed that, only the top three life and non-life insurance companies can easily meet any recapitalization requirement without a pinch of salt, if announced today.

Traditional risk factors such as leverage, profitability, firm’s growth rate, firm size, claim payment and liquidity are important factors to assess the solvency or financial strength of insurance companies. The underwriting profitability indicates the ability of insurance companies to generate a surplus to develop their current business and generate new businesses. A higher profitability ratio means that an insurance firm can manage expenses effectively and set competitive premium rates. For insurance firms, a high liquidity ratio indicates good claim-paying ability but its crystal clear a lot of firms are still lagging behind this role.

This, therefore, questions NIC quest to achieve its 2020 target of increasing the current insurance penetration from 2 per cent to 6 per cent. But there is a general perception that a cleaned few is better than the sick majority.

The Challenge

What is attributed as the major trigger for the regulator’s whip is largely the inability of some insurance companies to pay claims (either death or maturity). This has badly created a serious mess and disaster in the insurance corridor. It has undoubtedly caused a credibility crisis for the insurance companies who are now battling with trust issues─ a situation that has stagnated the sector at 2percent for the past decades despite efforts by the NIC to shore up the sinking image of some non-performing companies.

The fewer the merrier but reports show that some insurance companies in Ghana are testing the waters with people’s lives and arguably breaking people’s hearts and reducing the already ‘lean’ confidence by the usual day-to-day tug of war with some insurance companies for non- settlement of claims that are meant to cushion the very lives they insured.

An unaudited data submitted to the National Insurance Commission (NIC) in 2018 by 29 insurance companies show that the total gross premium generated by the first half of 2017 was Ghc656,380,119. However, within the same period in 2018, the total gross premium generated by all the general insurance companies was Ghc705,626,889. This indicates that the gross premium within the same period was increased by Ghc49,246,770 representing 13.32%.

Growth in premium generation will make insurance companies have enough liquidity to pay claims as quickly as possible. The total claim amount paid by all the insurers as at the first half of 2017 was Ghc149,318,494. Within the same period in 2018, the expenses for claim settlement was totaled Ghc150,478,031. This means that the expenses to settle claims by insurers in Ghana have also increased by Ghc1,159,537.

What the law says

Even though the general outlook appears positive in the sector, the age old problem of prompt payment of claims still linger around like Korean goblins. The NIC’s guidelines on claims management for life and non-life insurance clearly spells out the timeframe for claims notification, investigations, settlement and payment as well as penalties/interest payment on delayed claims payment.

The document establishes that for life insurance, the insurers shall inform policyholders about their procedures, formalities and common time frames for claims settlement. In the case of a maturity claim, the life insurer shall inform the policyholder/life assured or assignee/nominee or beneficiary and issue a Discharge Form atleast two months before the maturity date, giving details about the claim, including the maturity date, amount payable and requirement for payment. When policyholders and insurers get to this point, they become enemies.

The challenge however, is enormous and the reason for this hullabaloo can be pinpointed on the pigheaded nature of some insurance companies that have defied the directives of the NIC claims payment guidelines. This is not a good situation to observe as public sentiments present a blurred future for insurance companies─ with many shifting attention towards investment opportunities that have also given sway to Ponzi schemes than an insured future that cannot be sure for fear of conflict of claim.

Even though the sector plays a very vital role in the nation’s financial sector growth- allowing individuals and firms transfer risk for a premium. Experts say a healthy and well-developed insurance industry will improve the stability of financial markets. But what be told of a sector’s whose effort is undermined by the accumulating issues of claims settlement with some dragged to court by ‘no nonsense’ policyholders for several fractions.