Ghana’s micro-insurance offering benefits from collaborative efforts

The rollout of new micro-insurance products in partnership with mobile operators is allowing Ghana to deepen penetration rates, something that has historically proven tricky due to its large informal sector and a lack of consumer awareness.

Wider offerings

In mid-May telecoms firm MTN Ghana announced it had teamed up with insurance provider aYo – part of US-based Metropolitan Life Insurance – to introduce a micro-insurance service for mobile money transfers.

The service charges users 5% on every transaction and in turn grants them life insurance for 120 days. Potential claims payouts are calculated by tripling the sum of all transactions over the previous four months.
The new product aims to simplify insurance coverage and facilitate faster processing by offering the ability to manage claims directly from a mobile phone.

The product follows on the footsteps of another micro-insurance product – this one focused on income protection insurance – launched in November by local mobile network operator Tigo.

Created in partnership with insurers BIMA Ghana and US-based Prudential Life, the product allows customers to insure themselves from their phones by paying GHS0.30 ($0.07) per day for 24 days. In the event of an accident or illness that prevents the insured party from working, claimants receive a lump sum of up to GHS4000 ($907), and they can receive up to GHS1800 ($408) per year for hospitalisation.

Room for future growth

Such forays suggest there is scope for similar offerings in the future, given the country’s low insurance penetration and high prevalence of mobile phones.

“Currently, the micro-insurance penetration in Ghana stands at about 28%, and we believe that with the SIM penetration in Ghana well over 100%, there is room for micro-insurance to grow,” Tara Squire, mobile director at Tigo, told local press at the firm’s November product launch.

Ghana’s high mobile phone penetration rate stood at 139% as of February, up nine percentage points on a year earlier, according to the National Communication Authority. Mobile data subscriptions have also helped pave the way for micro-insurance uptake, rising from 39.5% in December 2013 to 69.9% in February.

With its customer base expanding, the segment looks set to continue on a strong growth trajectory: a recent study by the National Insurance Commission showed the number of people and properties covered by micro-insurance schemes had risen from 1.8m in 2012 to 7.5m in 2014.

The grey economy

Ghana’s overall insurance penetration rate – at below 2% of GDP, compared to above 3% in peers such as Kenya or Nigeria, according to the African Insurance Organisation – is likely to rise as the government pushes to reduce informality in the economy. According to the Ghana Statistical Service, some 62% of businesses in the country are not registered.

Mobile initiatives, by making it easier to reach out to the informal sector, should spur individuals and businesses to buy insurance, according to Solomon Lartey, CEO of Ghana-based Activa International Insurance.

“The way forward for the insurance sector in Ghana is via micro-insurance, because most of the population works in the informal sector,” he told OBG. “We want to see more formality in the sector.”

Another potential catalyst is new legislation updating the regulatory framework, which, if passed, should bring new clarity to the sector.

A draft insurance bill currently being reviewed by industry stakeholders is intended to strengthen the sector by tightening regulations and improving enforcement, thereby boosting stability and consumer confidence.

One of its key elements will be to further codify the micro-insurance segment, by supporting product development for critical sectors and prioritising licensing for specialised insurers.

The law builds on an initial framework for micro-insurance released in 2013, in which the National Insurance Commission authorised the sale of such products, but did not include the segment in its regulations for the broader insurance industry. The new draft will address this by laying out best practices for operations in the segment.

One continued drawback, however, is a limited awareness about the value of insurance coverage, which constrains insurance expansion among lower-income brackets and rural Ghanaians, according to Joseph Kusi-Tieku, CEO of local firm GN Reinsurance.

“A lack of knowledge about insurance products among the population is what is hampering growth,” he told OBG. “Education is key to insurance development and penetration growth.”

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