Insurance Penetration Remain Low Despite Increase in Premiums

The premium income received by the insurance sector increased from 18 percent in December 2018 to 22 percent in December 2019.

This represents an increase of 4 percent in premium income.

Despite the increase, insurance penetration remained relatively stable at about 1 percent.

This was captured in the Financial Stability Review Report released on September 30, 2020, by the Bank of Ghana.

The report indicated that the growth in premium income in the insurance sector was as a result of the implementation of policy reforms and an improvement in the operational environment.

“On the back of policy reforms, and an improved operational environment, premiums increased by 22 percent at end-December 2019, as compared to 18 percent at end-December 2018”.

The report also added that “the performance of the insurance sector broadly improved in 2019 compared to 2018, with the outlook for premium growth in the near to medium term remaining positive. In addition, solvency risk within the insurance industry has remained broadly contained. In the medium term, the outlook remains positive on the back of an enhanced [risk-based] solvency regime, broad-based introduction of innovative insurance products, and new minimum capital requirements”.

The report further asserted that even though premium incomes increased this was not the case for insurance penetration. It said that insurance penetration hovered around 1 percent year-on-year from December 2014 to December 2019 indicating that there is more room for growth in the insurance industry.

“Despite increases in premium income, the insurance penetration remains unchanged. From December 2014 to December 2019, the insurance penetration, which is defined as premium income to GDP has remained relatively stable at about 1 percent. The low level of insurance penetration suggests that the insurance industry has significant room to grow”.

Again, the report made it clear that to improve the operational environment and policy reforms to foster growth in the insurance sector the National insurance commission (NIC) continued to work hand in hand with companies in the industry to deal with issues pertaining to under-pricing, underwriting capacity, the implementation of compulsory insurance, management of claims and market behaviour and performance.

“In the year under review, National Insurance Commission (NIC) continued to work closely with industry players to address issues on underpricing, underwriting capacity, enforcement of compulsory insurance, market conduct practices and claims management”.

 In conclusion, the report said that with a promising economic outlook, advancement in insurance products offered, and the implementation of various policy reforms in the insurance sector, it is expected that risks accompanying premium income growth in the industry will be maintained at minimal levels to enhance the performance of the sector so as to sustain its growth in 2019 into the foreseeable future.

 “Going forward, risks associated with premium income growth is expected to remain subdued given favourable economic prospects, the broad-based introduction of innovative insurance products (micro-insurance etc), the recapitalisation exercise, implementation of the Motor Insurance Database (MID), and the expected passage of the draft insurance bill, among others”.