An Overview Of The Insurance Industry In Ghana

Potential for Growth in Ghana's Insurance Market

Question:

Write about insurance industry in GANA or other country and use all of the material elements.

The word insurance means safeguard against financial loss. An industry which provides insurance is known as insurance industry. The insurance market of Ghana has a potential growth for the life and non life market. The insurance industry is the fastest growing industry in Ghana. It is not easy to run an insurance industry it requires proper planning. An industry acquires resource and hires people by directing, decision making, controlling, and planning. The Ghana insurance industry has the capability and the proper market to grow. The Ghana insurer association has been formed with the vision that they will focus on the insurance industry growth and also they will make the insurance industry rise economically. The insurance industry of Ghana followed the rules of the national insurance commission (NIC). The manager plays an important role in industry. The managerial accounting is a proper step for that. With the help of managerial accounting it provide decision making and planning information, it also assist manager in directing activities, to motivate employees in accomplishing the goals and assess the organization competitive position. The balance scorecard approach is also used which include the four goals i.e. financial perspective, customer perspective, operations perspective and innovation perspective. For starting the industry of insurance a line position and staff position is needed. It is also required to raise capital for this a treasurer is required. A treasurer is required to supervise relationship with financial institution, work with the investors, investment managing and establishment of policies that are related to credit. The internal auditor is required for evaluating the procedures of accounting, records and reports related to controller, as well as treasurer area of responsibility (Adams, 2012). The beginning of the year saw the national insurance commission increases its efforts by raising the insurer minimum capital requirements from GHS5m to GHS15m. in addition to this the capital adequacy ratio increased from 130 percent to 140% in the mid 2016. With the help of capital the industry will operate with some level of efficiency, get the right software, and employ the right people, so that can do the right job. More than 50 companies are working in the insurance industry of Ghana they are divided into life, non-life and three reinsurers.

The national insurance commission was established by the insurance act, 2006. The objective of national insurance commission is to enable proper strategy, handling and controlling the insurance industry. The national insurance commission also take care of insurance industry and the policyholders.(Feldman,2006)The national insurance commission takes care of the insurance industry in the Ghanaian market whether they are financial sound and thus the policyholders are confident to invest in the insurance. To fulfill the objective the NIC has also taken number of steps for sustaining the human resource base, to enable the insurance company to be financially strong and taking care that the insurance industry following the rules enacted by the government. The NIC also take care of the policyholders i.e. whether the policyholder’s purpose of taking the policy is fulfilled.  Now the national insurance commission is under the supervision of 26 non-life insurance companies, 19 life insurance companies, 2 reinsurance companies, 1 reinsurance broker, 63 insurance broking companies, 1 loss adjuster and  4500 insurance agents. There is one way to be crystal clear in this form of market is to enhance the awareness of the public. The primary important in insurance or any industry is the customer service. Insurers should take steps and identify the areas which are more vulnerable (Adams, 2012). The insurers analyze the reasons for underperformance and take steps so that insufficient service delivery is arrested.

Key Players in the Ghana Insurance Industry

The Ghana insurance industry comprises of 18 lives and 23 non life insurance companies. The industry is controlled by the non life segments that lead to 48.8 % of the total gross written premium. Ghana allows 60 percent foreign direct investment in the insurance industry. The insurance industry of Ghana adhere with the laws, regulations, applicable standards and present a clean and clear report so that a competitive environment is seen in this industry. Whatever steps they take for the industry are kept confidential such as they don’t disclose the confidential information unless they are obliged to do so (Stark et. al, 2010).

The cost management system should also play an important part in insurance industry. It identifies and eliminates non value added cost. It also identifies new activities that can improve performance. It does the whole process starting with acquiring the raw material, research and development, product design, production, marketing decision, distribution and customer service. The insurance industry believes in competence, confidentiality, integrity, objectivity and resolution of ethical conflict (Adams, 2012). In Ghana the enforcement step include new capital requirement, compulsory products, including coverage for commercial properties against fire, flooding and earthquake. In Ghana the national insurance industry enacted no premium and therefore no coverage rules which strengthen the capital base. Even some companies offer the coverage on credit basis also.

The level of profit is defined according to the return of assets of insurance industry in Ghana. It is rightly said that higher the returns of industry return of assets the better will be insurance industry profitability. The insurance firm return on assets will yield maximum return from assets i.e. 30.70 percent. The people may think once when they invest in insurance. They take a financial decision for a while to invest in other than insurance industry (Miescher, 2005). Even the management accountants consider the notion off opportunity cost for the purpose of decision making. In an insurance industry there is various type of cost such as direct and indirect cost. Leverage has been defined as the total debts divided by total assets. This is one of the determinants variables of profitability of insurance industry of Ghana. The leverage ranges from 4.37 percent to 97.64 percent. But some of the insurance industry can run a debt of 40.84 percent of the total assets. It indicates that insurance industry are lowly geared or leveraged and this help in attracting more clients in Ghana and thus it will make high profit level.

In the insurance industry of Ghana there are lot of competition and risk. It appears that the people are not patronizing insurance in Africa due to various reasons. People are relax to go without insurance because when they see the kind of stress people go through before claiming their claims , it does not encourage them to take insurance policy. There should be proper education on insurance which should be taken into consideration. The government of Ghana must broaden the laws on insurance by adding more too motor insurance. The insurance company has put a great effort in the aspect of security to development of the Ghanaians economy. Most of the Ghanaians are still relax to take insurance because there are lots of benefits in it. The difficulty nature of insurance industry towards the payment of claims makes it unattractive for third party insurers to undertake insurance policy. If there is an increase in fraud in an insurance industry then the whole money of the policyholders will be driven away from the industry. (Falola & Salm, 2002).

Role of the National Insurance Commission

There are various bancassurance offerings which are in the rise in the Ghana insurance industry. A growing number of insurers and banks have joined forces to offer policies through banking windows; more than 20 banks have already been granted licenses to offer bancassurance products.

For an accurate allocation if insurance cost activity based costing is the best approach. The activity based costing is used by service companies like insurance companies also. Though this activity based costing was used by manufacturing companies previously but now it is used by both of the companies. The main purpose of using this approach here is to give accurate and reliable information regarding cost which will be helpful for decision making and it is also helpful for a cost reduction and improving profit valuation. Activity based costing provide an exact information and also analyze the area where the chances of profitability are more. (Peter, 2007). The insurance industries managers focus on the insurance contracts and bring a change on the investment of resources in which there is zero return so that profitability increases in this type of industry.  Management of insurance industry tries to enhance the profitability in two aspect by stressing on insurance contracts and by modifying the activities that are non-value added. For application of activity based costing in an industry three main factors to keep in mind are the company’s activities, cost drivers for individual activity and objects of cost. The potential drivers for activities in insurance industry are for activity related to market research, production creation, policy making activity, claim estimation and inspection, legal action cost drivers labor hours is used, for activity related to market printing number of printings is the cost drivers etc.

Though there is lot of disadvantage in activity based costing that is it is hard to collect the data for activity based costing, failure to identify excess capacity. Even accurate figure cannot be identified with the help of activity based costing. The costing that is based on time can identify an accurate figure as contrast to activity based costing. The costing that is based on time help to identify the labor hours and working time accurately. In the insurance industry activity based costing can provide management with information regarding costs of activities, products, services, customers, distribution channels etc. (Hennock, 2007). Cost drivers that are applied  in the case of activity based costing system are mostly working time or as per claims or applications. The insurance contract or policies, customers and sales channels are the cost object in insurance industries.

It is expected that the total premium in Ghana insurance industry will grow by 23.9 percent compared to 16.4 percent in USD terms. The multinational insurers are increasingly taking note for growing The prudential investment partner of Ghana that is Leapfrog investments announced in 2016 that they will launch an USD350mm fund to invest in life insurance industry of Ghana in the next 3 to 5 years. Currently Leapfrog acquired a major chunk in Ghana firm UT Life Insurance Company. Ghana life insurance industry enhanced by 34 percent.  Even the insurance industry of Ghana follow just in time approach for more throughput, lower operating expenses, an enhancement in the product or quality of service, less work in process, better response time and better performance considering the due date. Insurance industry use financial modeling concept which is considered as the complex model to value assets, liabilities and capital requirement, consider different financial options and evaluate different capital and other resource allocation. In an insurance industry sunk cost make the decision makers confused (David, 2011). These are the costs which are already incurred and no current action can change it. It will remain same.

Managing Costs in the Insurance Industry

Liquidity is also an important factor in an insurance industry of Ghana. According to the statistic insurance industry current assets pay their current liabilities 0.42 times and maximum 5.11 times. But the variability of insurance industry will not be increased above 4.66 times. The dispersion of current assets to current liability is 1.57 times. Insurance industries are able to use their current asset to generate profit. Even in an insurance industry whether the particular cost and revenue are relevant for decision making depends on decision context. Manager should always focus on the cost and revenue (Alborn, 2009). The costs which remain same regardless of decision making are not relevant for decision making.

For a planned a secured future focus is in profit from insurance industry. It is an opportunity for providing individuals and groups to contribute moneys to various schemes for a better future. The market will more grow in the near future with the enactment of National pension Act, 2008 which is mandatory three tier pension scheme. The first tier national security which deal in social security, as well as national security trust benefits that are compulsory for every employee in public, as well as private sector (Alborn, 2009). The occupational pension scheme is considered as the second tier that is managed privately and it gives higher benefits, it is compulsory for all employees. The third tier is voluntary provident fund and personal pension scheme.

Conclusion

To address the challenges faced by the insurance industry of Ghana the insurance agents and marketers trained in such a way that the terms and policy should be well explained so that the client can take decision by understanding the policies in a proper manner. The Ghana insurance association has been set up with the vision and mission to provide proper information to the insurers. Even it builds reputation and excellence for insurers. The new act will help in regular inspection, licensing and appropriate sanction against defaulting companies.  Therefore, the industry an operate with ease and flexibility when the management is strong and policies have a strong base. There are certain deficiencies in the industry that have crippled the smooth functioning and it is high time for the management to consider the loopholes and deficiencies (Grant, 2008). The insurance industry also depends upon the economy as a whole. If the people have a high standard of living then the insurance industry is sure to receive a boost otherwise there will be a lacking point.

References

Adams, J 2012, The impact of changing regulation on the insurance industry, viewed 5 June 2016

Alborn, T 2009,  Regulated Lives: Life Insurance and British Society, Toronto Press

David, R 2011, IF1 – Insurance, Legal & Regulatory, Chartered Insurance Institute

Falola, T and Salm, S.J 2002, Culture and Customs of Ghana, Greenwood.

Feldman, G. D 2006, Allianz and the German Insurance Business.

Grant, R 2008, Globalizing City: The Urban and Economic Transformation of Accra, Ghana: Syracuse University Press.

Hennock, E. P 2007, The Origin of the Welfare State in England and Germany, Social Policies Compared.

Miescher, S. F 2005, Making Men in Ghana, Indiana University Press

Peter E.R 2007, Various, Ghana: An African Portrait Revisited

Squires, G.D  2003, ‘Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan Areas’,  Journal of Urban Affairs, vol. 25, no. 4,  pp. 391–410

Stark, A.; Kleer, C.G.; Martin, I; Awuah, B; Nsiah-Asare, A; Takyi, V; Braman, M; Quayson, S 2010, Cancer vol. 116, no. 21, pp.  4926–4932