Stakeholders canvass strong capital base for WAICA

STAKEHOLDERS in the West African Insurance Companies Association (WAICA) have advocated strong capital base for insurance companies to fast-track the expansion of the West African insurance market.

Besides, it calls for the harmonization of regulatory regimes in the WAICA region.

Addressing delegates at the 2015 yearly general meeting and educational conference of WAICA in Accra, Ghana, the Ghanian Commissioner of Insurance, Miss Lydia Lariba Bawa, said “Our insurance companies need to be adequately capitalized to build the needed financial and technical capacity. A 2012 World Bank report titled De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services”, said insurance companies in the West African Monetary Zone (WAMZ) are too small and need to recapitalize to underwrite major transactions.

According to her, capital inadequacy in the West African insurance industry results in low premium retention and high demand for overseas reinsurances leading to excessive premium flights running into millions of dollars every year.

She said “Taking the West African insurance industry to the next level of our development also requires that insurance companies implement sound corporate governance and risk management systems in line with international best practice to deal with the cultural and behavioral challenges that inhibit the growth of the sector.

“A more important prerequisite is perhaps the harmonization of the regulatory regimes in the WAICA region as pertains in the Eastern and Southern regions of the continent where we have the EAISA and CISNA respectively, as well as the CIMA which oversees the Francophone insurance market in West and Central Africa. This will help building capacity, reduce the room for regulatory arbitrage for the companies operating across the region and enable the relatively stronger regimes to support the weak ones in the effort to build a sustainable and efficient regulatory system in the sub-region.”

According to her, the insurance industries in all the WAICA countries, and indeed in most sub-Saharan African countries tend to have some common characteristics which are worth noting. First, is the very low insurance penetration. Even though the five WAICA countries have different levels of penetration, none of them has a penetration rate of more than two per cent.

Besides, she said, the predomination of motor over all the other classes of insurance. In Ghana, for instance, until recently motor used to contribute more than half of total insurance gross premiums. This is mainly because motor insurance is compulsory. The point here is that most people around this part of the world insure just to comply with the law and not because they want to create wealth or manage their social and economic risks.

Also, insurance products and services in the WAICA region tend to predominately focus on the formal sector businesses and white collar workers who usually earn regular incomes and operate bank accounts. The irony, however, is that the majority of the population in the West Africa sub-region operate in the informal sector. They usually do not earn regular incomes nor operate bank accounts. This is where the relevance of the sub-theme of the conference “The role of micro-insurance, post Ebola” becomes more prominent.

According to her, until we find suitable and innovative ways of reaching out to the informal sector, it will be extremely difficult for us to take insurance to the next level of our development.

She said “In Ghana, we have responded to this need by designing and implementing a micro-insurance regime in collaboration with the German International Cooperation (GIZ).

Even though it is early days yet, our 2014 micro-insurance landscape survey indicated that we have 13 insurance companies selling 29 micro-insurance products which currently cover about 7.5 million lives and properties. This can be compared to the situation in 2011 (before the implementation of our micro-insurance regime) where we had 11 companies offering 16 products which covered just about 1.7 million lives and properties.”

According to her, I would like to take this opportunity to commend the German Development Cooperation (GIZ) for its immeasurable support to the NIC and for that matter, the Ghana insurance industry in developing and promoting micro-insurance in Ghana.

“There is a great potential for the development of insurance in the West African sub-region. The development of suitable products and delivery channels, will extend access to insurance, and is likely to enable the relatively small insurance market in West Africa expand over the next few years. Improving the legal and regulatory frameworks, deepening customer education, and the promotion of the image of the insurance industry, improving the capacity and operational efficiency of insurers, and the use of appropriate technology to reach the untapped lower end of the markets are going to be some of the major driving forces for the growth agenda.”