With local businesses given the opportunity under the African Continental Free Trade Area (AfCFTA) to take into account insurance prices and offers from other markets on the continent, local industry stands to lose deals. to other markets and then be wiped out, Business-SIC Insurance PLC, Nana Yaw Mantey, said.
Likewise, the operationalization of the continental agreement gives impetus to insurance companies on the continent to venture into the Ghanaian market and do business, a situation that could put local insurers in fierce competition with the continental giants.
But Mr. Mantey said recapitalization, consolidation of the most fragmented insurance entities, digital revolution and resolving Ghana’s insurance penetration agenda are key elements that need to be addressed urgently to capture opportunities under the AfCFTA, adding: “Without this, local and multinational companies operating in the country will start seeking reasonable offers, prices and low-risk offers in other markets, as permitted by the treaty.
Insurance penetration in key AfCFTA markets
Local insurance penetration still hovers below 2%, with penetration in South Africa currently standing at 16.5%.
The continent’s 50 largest insurance companies operate in South Africa, Egypt, Algeria, Morocco, Kenya, Angola and Botswana, and nearly 30 of these companies are headquartered in South Africa.
The assets and value of the insurance sector in South Africa before the COVID-19 outbreak stood at $240.6 billion, according to Statista, with the value of the sector in Ghana reaching $1.1 billion during the same period. Questions have been raised by experts about the ability and size of the Ghanaian insurance industry to fund large deals that will come from prospects under the AfCFTA.
The Challenge of Expensive Warranties
Indeed, any of the five largest insurance companies in Ghana could find it difficult to write a US$3 million a year contract in terms of premiums without offloading almost 95% of the contract to a reinsurer, because most local insurers are unable to do this. pay claims in the event of misfortune on tickets of such magnitude.
With a continental trading area like the AfCFTA, the volume of insurance demand is likely to be so great in the years to come that no local insurer will be able to underwrite or finance such transactions as they arise.
Enterprise, GLICO, Hollard and SIC, all in the top five, could find a reinsurer for those tickets. But the main concern is that 70% of the market is controlled by these five companies, with the rest of the roughly 24 companies accounting for only 30% of the market and most often able to raise only half a million cedis a year in terms premium.
A South African company wishing to invest in Ghana may not consider these small insurers in terms of liquidity, Mr. Mantey said, indicating, “This is the right opportunity for the consolidation of the many fragmented insurance companies; not necessarily through acquisitions, but mergers to create a tremendous industry as has been done in banking”.
The conundrum of the “non-competitive” recapitalization amount>
The insurance regulator, the National Insurance Commission (NIC), has since 2019 declared a new capital requirement of GH¢50 million (US$8.1 million) for life and non-life insurers; that of reinsurance companies increased from 40 million GH¢ (6.4 million US dollars) to 125 million GH¢ (20.2 million US dollars).
But this, stakeholders said, will require scaling up because these recapitalization amounts, when suspended in front of most major corporations in South Africa, Nigeria and Egypt, will be seen as paltry, especially with the advent of the AfCFTA.
“A lot will have to be done by the regulator to make the industry more liquid and user-friendly. When it comes to the use of digitization, we’re not going anywhere if it’s business as usual, sticking stickers on cars to show that we have insurance. Those days are long gone,” Mantey said.
Steps by NIC
However, Insurance Commissioner Dr. Justice Ofori told the B&FT that the NIC is aware of the operationalization of the AfCFTA and is taking steps to intensify efforts to make local insurers competitive in the continental market.
Directive encouraging defaulting insurers to cease their activities
It remains clear, however, that the regulator will not increase its new directive on recapitalization, as the NIC is set to revoke the licenses of these insurance companies after they were unable to recapitalize until at 50 million GH¢.
The NIC, in a letter to insurance companies dated January 6, 2022, warned all defaulting insurers who could not recapitalize to cease operations by February 1, 2022. The initial recapitalization directive in 2019 expired in June 2021. However, it has been postponed. end of January 2022 due to the impact of COVID-19 on businesses.