Local insurers risk losing big-ticket transactions under AfCFTA

With indigenous businesses having an opportunity under the Africa Continental Free Trade Area (AfCFTA) to consider insurance prices and offers from other markets on the continent, the local industry risks losing big ticket transactions to other markets and subsequently being wiped-out, Head of Corporate Affairs-SIC Insurance PLC, Nana Yaw Mantey, has said.

Equally, operationalisation 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 stiff competition with continental giants.

But Mr. Mantey said recapitalisation, consolidation of most fragmented insurance entities, digital revolution and addressing the penetration agenda of insurance in Ghana are key components which must be urgently addressed for opportunities under AfCFTA, adding: “Without these, local and multinational businesses operating in the country will begin to search for reasonable offers, prices and low-risk offers in other markets as permitted under the treaty.”

Insurance penetration in key AfCFTA markets

Local insurance penetration still wobbles below two percent, with the penetration rate in South Africa currently at 16.5 percent.

The 50 biggest insurance companies on the continent operate in South Africa, Egypt, Algeria, Morocco, Kenya, Angola and Botswana, with almost 30 of these companies headquartered in South Africa.

The assets and value of the insurance industry in South Africa before outbreak of COVID-19 amounted to US$240.6billion, according to statista; with the value of the industry in Ghana reaching US$1.1 billion during the same period. Questions have been raised by experts on the Ghanaian insurance industry’s capability and size to fund big-ticket transactions that will come from prospects under AfCFTA.

Challenge of big-ticket guarantees

Indeed, any of the five biggest insurance companies in Ghana could struggle to underwrite a US$3million deal a year – in terms of premium – without offloading close to 95 percent of the deal to a reinsurer, as most local insurers are not in a position to pay claims should there be any unfortunate happening with regard to tickets of such magnitude.

With a continental trade area such as AfCFTA, the quantum of demand for insurance will likely be so much in the coming years; to the extent that no single local insurer can underwrite or finance such deals as they come.

Currently, Enterprise, GLICO, Hollard and SIC – which are all in the top-five – might find a reinsurer for such tickets. But the major worry is that 70 percent of the market is controlled by these five, with the rest of the around-24 companies only comprising 30 percent of the market and most often able to raise only half-a-million cedis annually in terms of premium.

A South African company that wants to invest in Ghana may not consider such small insurers in terms of liquidity, Mr. Mantey said – indicating, “This is the right opportunity for consolidation of the many fragmented insurance companies; not necessarily by acquisitions, but mergers – to create a formidable industry as was done in the banking sector”.

Conundrum of ‘uncompetitive’ recapitalisation amount 

The Insurance regulator, National Insurance Commission (NIC), has since 2019 stated a new capital requirement of GH¢50million (US$8.1million) for life and non-life insurers; with that of reinsurance companies moving from GH¢40million (US$ 6.4million) to GH¢125million (US$20.2million).

But this, stakeholders have said, will require a step-up – as these recapitalisation amounts, when dangled before most big companies in South Africa, Nigeria and Egypt will be considered paltry, especially with the AfCFTA’s advent.

“A lot will have to be done by the regulator to make the industry more liquid and customer-friendly. With regard to utilising digitisation, we will go nowhere if it is business as usual, pasting stickers on cars to show that we have insurance. That time is long gone,” Mr. Mantey indicated.

Steps by the NIC

The Commissioner of Insurance, Dr. Justice Ofori, however told the B&FT that the NIC is cognisant of AfCFTA’s operationalisation and is taking steps to deepen efforts in making local insurers become competitive on the continental market.

Directive for defaulting insurers to cease operations

It however remains clear that the regulator will not increase its newly stated recapitalisation directive, as the NIC is on the verge of withdrawing the licences of those insurance companies after they were unable to recapitalise to the GH¢50million.

The NIC, in a letter to insurance companies on January 6, 2022, warned all defaulting insurers who could not recapitalise to cease operations by February 1, 2022. The original directive to recapitalise in 2019 elapsed in June 2021. It was however shifted to the end of January 2022 due to the impact of COVID-19 on businesses.