It is important to state that in developing countries like Luxembourg, with a GDP of more than US$70billion, insurance penetration as at 2017 was 38.8 percent. This is followed by countries like Hong Kong/China and Ireland with an insurance penetration rate of 17.9 percent and 13.6 percent respectively. In Africa, South Africa has the highest level of insurance penetration (16.99 percent) followed by Namibia (6.69 percent) and Lesotho (4.76 percent) with Ghana hovering around 1 percent as at 2018 (NIC, 2019).
Households and small businesses in the informal sector are particularly vulnerable to various kinds of livelihood risks. The financial consequences of natural disasters, illness or death of a family member often cannot be fully covered by savings or informal risk-sharing arrangements. Microinsurance can be a way to manage the risk of such unforeseen events. It is based on the premise that low-income customers need access to insurance products tailored to their needs (NIC, 2018).
The Ghanaian insurance industry has seen the need to develop insurance for the informal sector. It is also believed that this sector can help elevate the penetration rate hovering below 2 percent. There has been a lot of awareness creation and adoption of micro-insurance products.
There have been a lot of improvements in micro insurance, especially with the involvement of telecommunications and the introduction of educational and sensitisation programmes.
From the ‘Landscape of Microinsurance in Ghana 2015’, published by the National Insurance Commission (NIC) and GIZ, micro-insurance gross written premiums grew 185 percent between 2012 and 2014 to GH¢13.3m (US$3.4m). The study found that as of 2014, around 7.5 million lives or properties were already covered by some sort of micro-insurance, up from 1.8 million in 2012.
The focus on the informal sector with micro-insurance has been limited to a radius of 9 miles from major commercial towns and cities across the country. Beyond 9 miles from the regional and district capitals are other informal sectors that may not be cash-laden, but are asset laden. The farmer is one such professional. Do you know that the cocoa sector of Ghana provides income to more than 800,000 farming families (Asamoah & Owusu-Ansah, 2017)?
In an attempt to increase insurance penetration, there is the need for conscious efforts to send insurance to the last mile, beyond the 18th mile from the commercial towns, district capitals, and regional capitals. Most of these locations have been tagged by traditional insurers as not economically viable on these counts below and others:
- Their distance makes operation costs high and
- Lack of affordability because most are peasant farmers who are not cash-laden.
Arguably, traditional insurers may be right on this. There are myriad farmer-based organisations such as the Peasant Farmers Association, Farmsure Alliance lbg., Ghana Agricultural Chamber of Commerce, etc. that are looking for opportunities to insure their members for them to have financial security and protection. These organisations could bring together farmers with homogeneous risks which can be insured. They can also help remove the distance and affordability bottlenecks. The insurance industry could succeed and build a stronger partnership with these farmer-based organisations.
Driving micro-insurance through farmers will require actors in the insurance sector to have separate policies and guidelines. Below are some of the needs and risk areas an insurance policy could be designed to give farmers protection.
- Farm produce or livestock where we can talk about index insurance. The Agricultural Insurance pool is in place but how are their services helping the ordinary farmers.
- Farmer Health insurance Policies – this could be designed to cover sickness, diseases, and other health-related issues from farming activities.
- Farm Motor and Plant Pool Policies – Farmers own motor trucks, tractors, combine harvesters, and processors. These assets are largely uninsured not because farmers can’t afford insurance but because farmers are unaware of motor insurance and asset all-risk policies that can cover their assets. Policies could also be designed specifically for these risks area.
- Whole Life insurance for farmers – this is very important as government is even thinking of pensions for farmers. The farmer-based organisations will buy the farm produce at discounted prices from farmers. The difference then gets to be remitted (or paid upfront) to an insurance company or pension house as a premium or investment.
To drive insurance penetration further up, micro-insurance is one of the ways to go but the scope of micro-insurance should be widened to include all other small and medium enterprises. This is where innovation and technology will be instrumental.
Micro-insurance is not a stand-alone product to protect the excluded population. It is a means for providing financial access to low-income households and micro and small businesses, thus, protecting livelihoods. At the policy level, therefore, micro-insurance is an integral part of a wider financial inclusion policy framework linked to savings, credit, and transactions (NIC, 2018).
After asking farmers whether they are generally interested in index insurance, we asked open questions to let them explain their views. Those who were interested stated that they expected benefits in terms of protection, support, and livelihood security. About two-thirds of the respondents who were not interested explained that they have tenure issues, and about one-third responded either that they don’t think insurance will work in Ghana or expressed a general distrust toward insurers (Lydia Afriyie-Kraft et. al., 2020). This indicates that there is hope. A little change could improve our situation.
Akotey, O.J., Osei, K.A. and Gemegah, A. (2011), “The demand for micro insurance in Ghana”, Journal of Risk Finance, Vol. 12 No. 3, pp. 182-194. https://doi.org/10.1108/15265941111136932
Bert Opdebeeck: How to thrive in Microinsurance
MicroNsure Blog: Need for specific government policies for the development of the Microinsurance Industry in India.
NIC 2018 https://nicgh.org/wp-content/uploads/2019/11/Insurance-Penetration-strategies-112019.pdf
NIC 2018 https://nicgh.org/wp-content/uploads/2018/04/2012Promoting-Microinsurance-in-Ghana_Full-Book.pdf
Lydia Afriyie-Kraft, Astrid Zabel, Lawrence Damnyag,
Index-based weather insurance for perennial crops: A case study on insurance supply and demand for cocoa farmers in Ghana, World Development Perspectives,
Volume 20,2020,100237,ISSN 2452-2929,https://doi.org/10.1016/j.wdp.2020.100237.
The writer is a Chartered Property Casualty Underwriter, (CPCU – USA), an Associate of the Chartered Insurance Institute of the United Kingdom, and also Ghana (ACII-UK, ACIIG), and holds MPhil in Enterprise Risk Management and Business Consulting from Kwame Nkrumah University of Science and Technology. Attained Bachelor’s degree from University of Ghana, Legon and have Applied Insurance studies, Diploma and Advanced Diploma (AAIS & AIS) from Ghana Insurance College / Malta Insurance Training Institute, and have almost fifteen (15) years industry experience.
Justice Peprah Agyei, CPCU, ACII, ACIIG, MPhil, BA (0208498571)
Chief Executive Officer of FARMSURE ALLIANCE LBG, a farmer services social impact company on a mission to use technology and farm produce to facilitate the financial security of the farmer and ultimately guarantee the food security of the nation.
Godwin Atulley-Kandi Abotisum ACII, ACIIG