The insurance sector is expected to benefit immensely from the new lines of compulsory insurance guidelines from the practice’s regulator which seek to, among others, sustain a key financial sub-sector, a report by the Oxford Business Group (OBG) has observed .
The report read, “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” it added.
It further indicated that, 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.
A key hurdle to insurers on the market from the host of guidelines to come from the NIC, 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 GH¢15million to GH¢50million; that of reinsurance companies will go up from GH¢40million to GH¢125million (212% increase); while that of insurance brokers will move to GH¢500,000, presenting a 66.7 percent increase from the present GH¢300,000.
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.
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.
Endorsing that opinion is Victor Obeng-Adiyiah, managing director of Unique Insurance Company, who believes that “consolidation will ultimately be beneficial for the market”.
He however urged the regulator to be cautious in its approach: “The NIC must be cautious in how to achieve this: using recapitalisation rates as the only tool may leave us with a severely stunted home-grown market, with only those with access to foreign capital injections benefitting”.
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.