The regulator wants to open the floodgate to micro insurance services

With the service sector overtaking agriculture as the highest contributor to Ghana’s gross domestic product (GDP), following the rebasing of the country’s national accounts in November 2010 by the Ghana Statistical Service, the insurance regulator, National Insurance Commission (NIC), believes it is time firms in the industry started catering to the growing number of small and medium scale businesses especially in the agricultural space.


The business of insurance in Ghana is dominated by motor insurance as firms in the industry seem to be disinterested in expanding their portfolio. Insurers have benefited from the rise in the population of vehicles in the country and have been able to reach healthy premium revenue targets.

However, the over-concentration on vehicular insurance is about to change. The NIC is in the process of reviewing the Insurance Act of 2006, to improve the business environment and also to give a strong legal backing to insurers who want to provide coverage to microbusinesses especially those in agriculture.

Although the agriculture sector has lost its position as the biggest contributor to GDP, it still offers more jobs than any other sector. Therefore, the new push for it to receive insurance coverage options can further boost food output.

The NIC believes micro-insurance holds the key to the future growth of the insurance industry having proven in some African countries to be one of the best models for insurance penetration in developing markets. Through micro-insurance, insurers in South Africa, Namibia, Kenya and Uganda have succeeded in extending their services to small-scale businesses in commerce as well as in agriculture. But, at the heart of the micro-insurance policy being put together by the NIC in Ghana, is the creation of a viable crop insurance scheme to cover farmers
against crop failure and financial losses caused by extreme weather conditions.
Speaking at the Silver Jubilee Anniversary of Star Assurance Company in Accra in November last year, the Deputy Commissioner of Insurance, Simon Nerro Kodjo Davor said, “Now we will give priority to licensing insurance companies with specialisation in micro-insurance and agriculture insurance.” The Managing Director of Africa Reinsurance Corporation, Bakary Kamara, encouraged insurers in Ghana to cash in on the grey market using micro-insurance.

The general consensus is that if insurers in Ghana stepped out of their ‘comfort zone’ and dared to cover risks associated with doing business in non-traditional sectors, it could mark the beginning of massive insurance penetration in the country. It is estimated that about 5.5% of the annual production of principal food crops such as maize, cassava and yam are lost each year due to a combination of climatic, biological and natural disaster. Kamara believes the premium income produced by micro-insurance in Africa two years ago was US$257 million. This figure represents a mere 1% of the target market of a billion people.

“Micro-insurance can make a material impact to African economies. With an income of US$257 million in 2008, it has a potential income of US$25 billion. Governments, NGOs, donors and regulated insurers must come together and leverage on their strengths not only to make an inroad but also to make profitable returns in the micro-insurance market,” he said.

The Deputy Minister of Finance, Seth Tekper, acknowledged the move by the insurance regulator to get micro-insurance in the country’s mainstream insurance business as a brilliant way to deal with the problem of economic loss associated with poor climate and soil conditions that has been impossible for African farmers to avoid and was worsening with climate change. “A lot has been said about micro-insurance but as of now there is no product aimed at the micro-sector of the economy, which plays a major role in our development.  Insurance penetration rates are very low and this can be boosted by raising capital and creating innovative products and services,” said Mr. Tekper.

According to the NIC, Ghana’s current insurance penetration rate is estimated at 1.5% of a population of about 24 million. In Africa, outside of South Africa, only seven countries have insurance penetration of above 2%.

There are 40 insurance companies and 40 insurance brokerage firms in Ghana, the majority of which operate with a capital base of under US$500,000. With Ghana’s oil economy taking off following the discovery of crude oil in commercial quantities in 2007, the NIC has raised the minimum capital requirement of insurance companies in Ghana to US$1 million.

The regulator has also directed that companies in the industry deposit 10% of the new minimum capital amount in an escrow account in addition to raising the US$1 million which must be deposited with the Bank of Ghana.
The idea, according to the NIC, is to make sure that companies in the industry are financially sound and strong enough to absorb external shocks.

Additionally, this initiative would make it easier for banks to expand credit to the agriculture sector, in particular, and the informal sector in general. Over the years, the low volume of credit to the agriculture sector has been attributed to the perceived risks linked to the sector’s over-dependence on rain for crop production and improper use of fertiliser, a situation which has led banks to charge high interest rates on loans and advances to the agriculture sector.

As micro-insurance receives attention from insurers and farmers, agriculture entrepreneurs could concentrate on increasing production to feed the nation and even export, while the commercial banks could safely expand
credit to farmers knowing that the micro-insurance system will allow all stakeholders to be compensated for low crop yield or losses brought about by poor weather conditions.