Insurance business is one of the developed businesses in Ghana. Even though the penetration is low, the industry continues to generate significant profit year after year. The sector plays a very important role in the economy, allowing individuals and firms to transfer risk for a premium.
A healthy and well-developed insurance industry will improve the stability of financial markets. In addition, the insurance sector protects individuals and corporations from losses arising from natural disasters.
Traditional risk factors such as leverage, profitability, firm’s growth rate, firm size, claim payment and liquidity are important factors to assess the solvency or financial strength of insurance companies. The underwriting profitability indicates the ability of insurance companies to generate a surplus to develop their current business and generate new businesses. A higher profitability ratio means that an insurance firm can manage expenses effectively and set competitive premium rates. For insurance firms, a high liquidity ratio indicates good claim-paying ability.
The Insurance Act, 2006, Act 724 section 80 and 81 mandates insurance companies to prepare and lodge their accounts and financial statement with the National Insurance Commission every quarter and every financial year.
Enterprise Insurance Co. Ltd emerged as the new market leader in the first half of 2018 in Ghana’s insurance industry. The unaudited data submitted to the National Insurance Commission (NIC) by the twenty-nine insurance companies show that the first half of 2018 was a better period for Enterprise Insurance Company limited. The company was able to overtake SIC insurance Co. Ltd.
Results from the first half of the insurance data indicate that the company had a market share of 15% in the general insurance industry, overtaking SIC insurance that had a market share of 11%. By the end of 2017, SIC Insurance was leading the market by 13.8%, followed by Enterprise Insurance with 13.56%, Star Assurance – 10.9%, Vanguard -8.36%, Hollard Insurance– 7.53%, and the other insurers follow.
The market share ladder for the first half of 2018 is followed by Star Assurance Co Ltd – 9.65%, Vanguard Assurance Company Limited – 9.17%, Hollard Insurance Ghana Limited – 8.93%, Glico General Insurance Company Limited – 6.93%, Activa International Insurance Company Limited – 5.63%, Phoenix Insurance Company Limited – 3.90%, Ghana Union Assurance Company Limited – 2.96%, Equity Assurance Company Limited – 2.93%. The remaining 19 general insurance companies account for 23.90% of the industry market share. The insurers with the least share are GN insurance and Serene insurance.
The growth in the gross premium written reflects how well an insurance firm is running its core business. A rapidly growing gross premium written may indicate potential huge losses (claims) in the future. Generally speaking, an increase in gross premium written indicates that the insurance firm is in a good financial condition.
The total gross premium generated by the first half of 2017 was Ghc656,380,119. With this amount, Enterprise insurance generated gross premium of Ghc95,890,620, followed by SIC insurance (Ghc90,624,721), Star Assurance (Ghc70,597.238), Vanguard Assurance (61,535,405) and Hollard insurance (Ghc60,010,559). The remaining 22 insurers generated Ghc277,721,576.
However, within the same period in 2018, the total gross premium generated by all the general insurance companies was Ghc705,626,889. Enterprise Insurance showed the largest increase in the gross premium generation of Ghc103,144,381, followed by SIC Insurance (Ghc80,291,393), Star Assurance (Ghc68,083,336), Vanguard Assurance (Ghc64,728,037), Hollard Insurance (Ghc62,994,940), Glico General Insurance Limited (Ghc48,870,897), Activa International Insurance (Ghc39,740,617), Phoenix Insurance (Ghc27,502,707), Ghana Union Assurance (Ghc20,856,756), and Equity Assurance (Ghc20,671,792). The remaining 19 general insurance companies generated a total gross premium of Ghc168,742,033 with Multi insurance having the lowest gross premium generation of Ghc994,114.
This indicates that the gross premium within the same period was increased by Ghc49,246,770 representing 13.32%. Looking at the first five insurers, Enterprise insurance increased its gross premium generation by Ghc7,253,761. The gross premium for SIC insurance was reduced by Ghc10,333,328. That of Star Assurance was reduced by Ghc2,513,902. Vanguard Assurance increased its gross premium by Ghc3,192,632, and that of Hollard insurance was also increased by Ghc2,984,381. So there have been significant increase in the total gross premium generation by all the insurance companies combined in Ghana.
The most sensitive area in insurance where Ghanaians have bad perception about the industry is claims. Growth in premium generation will make insurance companies have enough liquidity to pay claims as quickly as possible. The total claim amount paid by all the insurers as at the first half of 2017 was Ghc149,318,494. Within the same period in 2018, the expenses for claim settlement was totaled Ghc150,478,031. This means that the expenses to settle claims by insurers in Ghana have also increased by Ghc1,159,537.
Considering claim expenditure for the first five insurers in Ghana, Enterprise Insurance is the one who took the lead in claim expenses. By the first half of 2017, an amount of Ghc28,356,482 was used to pay claims. In 2018, within the same period, Enterprise insurance has spent Ghc31,397,581.00. SIC Insurance spent Ghc17,077,067 to settle claims in the first half of 2018. Within the same period in 2017, the company spent Ghc15,941,200 on claims. Star Assurance in the first half of 2017 spent Ghc14,323,822 on claims, and in the same period in 2018, the insurer has spent Ghc16,958,387.
Vanguard Assurance paid Ghc13,753,205 to settle claims in the first half of 2017. In 2018, within the same period, they managed to reduce their claim expenses by Ghc571,324. The claim expenditure for Hollard Insurance was also reduced from Ghc13,285,777 in 2017 to Ghc10,888,930 in 2018, within the period. The remaining 24 general insurers spent GHc60,974,185 in 2018, compared to Ghc63,658,008 in 2017 within the same period. Provident Insurance has the least amount of claim payment, Ghc72,942.00 in the period under review.
The assessment of the insurance sector reveals the structure of competition within the insurer’s operating environment and competitive position in the industry. There is a direct relationship in premium generation, claim payments and market share. Looking at the performance of the insurance companies, especially the top five with the three indicators, namely premium generation, claim payments and market share, it suggests that the more an insurance company is willing to pay claims, the more customers have confidence to do business with them, and the more that insurer increases its market share in the industry. It also indicates that so far as an insurer has a lot of customers in their pool, they will end up spending more on claim settlement.
The writer works with Tri-Star Insurance Services Gh. Ltd, a Ghanaian Insurance Brokerage Firm