…They control more than 2/3rd of premium income
Insurance brokers are not fully appreciated by the insuring public despite the value they offer at no cost to the client. However, insurance underwriters find them valuable and this is reflected in their financial fortunes.
The insurance broking industry is one of the most important sub-sectors in Ghana’s insurance landscape. Unfortunately, however, it is also the most misunderstood by the county’s insuring public, which works against its fortunes by limiting them to below their potential in the financial sector.
To be sure, insurance brokers provide more than two thirds of the total premium income received by the country’s primary insurance policy underwriters, particularly those engaged in general (non-life) insurance as defined by law. However, while the primary underwriters benefit hugely from the services of the brokers, their relationship is often rocky and not without problems. This is because it is the underwriters who receive the premiums and pay for the brokers’ services in the form of commissions rather than the clients paying the broker themselves. Therefore, the underwriters would ideally prefer to cut the brokers out of the value chain and deal directly with the client insured, thus saving themselves the commissions they would have to pay to the brokers. Indeed, many underwriters actively try to inconvenience the process and encourage the client to deal with them directly by trying to convince them that using a broker is unnecessary and simply adds to their costs, an assertion which is completely false.
The importance of broking companies
The truth is that not only does the use of a broker not add to the clients’ costs in any way, but using a broker has major advantages for the client. The broker uses his industry knowledge to get the best terms of the policy possible for the client with regards to both pricing and scope of coverage, and ensures that if a genuine claim arises, the underwriter cannot wriggle out of paying it using technicalities which the client normally does not understand. Indeed, this is another reason why underwriters prefer keeping brokers out of the loop, aside from the commissions they have to pay to the broker.
Underwriters, however, have to go about such efforts with extreme caution because if the broker gets to find out what the underwriter is up to and the client trusts the broker, the broker can all too easily move the clients business to another underwriter instead.
The facts and figures
Brokers have to work hard to justify their use by clients because of the sheer fragmentation of the broking sector, which makes it fiercely competitive. Indeed, the brokerage sector is the fastest growing aspect of Ghana’s insurance industry as measured by the number of new entrants. Over the past two and a half decades the number of brokerages have more than doubled from 50 as at the end of 1997 to 106 currently. Of these, 101 are primary insurance brokers while the other five are reinsurance brokers. Four companies are involved in both primary broking and reinsurance broking as they have the same owners.
The intense fragmentation in the brokerage sector means that only 21 of the 106 brokers have market shares of 1 percent or more although these statistics – like all the other data in this report – are not exactly accurate since only 75 of the 106 had provided the National Insurance Commission with their unaudited management accounts for the full year 2022 as at the time this report was prepared. However, all the major brokers had submitted their unaudited financials by that time so the error margin is insignificant for all practical analyses.
More importantly, though, the overall fragmentation is actually less than the overall data suggests, as the top 10 companies would mean the first 15 and 20 companies, adding another percentage.
These are: KEK Insurance Brokers – 15.4 percent; Willis Towers Watson – 9.1 percent; Edward Mensah Wood – 8 percent; I Risk Management – 4.6 percent; Safety Insurance – 4.3 percent; Olea M&G – 3.7 percent; Ascoma Ghana Management – 3.3 percent; Horizon – 3.15 percent; Insurance Solutions – 2.3 percent; and Visal Insurance Brokers – 2.2 percent.
Collectively, the five reinsurance brokers account for 8 percent of the cumulative brokerage industry commissions for 2022, as follows: KEK Reinsurance – 5.4 percent; Afro-Asian Reinsurance – 1.4 percent; Visal Reinsurance – 0.82 percent; I Risk Reinsurance – 0.3 percent; and Global Reinsurance – 0.1 percent.
Total market income
Altogether Ghana’s insurance and reinsurance brokers generated GH¢242.103million in commission income during 2022, according to the unaudited management accounts of the 75 companies that had made their accounts available as at the time of this survey. The biggest commission earners were KEK Insurance Brokers, with GH¢37.355million; Willis Towers Watson with GH¢22.142million; Edward Mensah Wood Associates with GH¢19.314million; KEK Reinsurance Brokers with GH¢13.129million; I Risk Management with GH¢11.130million; and Safety Insurance Brokers with GH¢10.511million. Half of the 75 companies whose results are covered in this survey generated commission income of over GH¢1million.
However, more than two thirds of this goes into meeting their general and administrative expenses which took up GH¢175.106million last year.
This left them with operational profits of GH¢66.997million for 2022. But this does not tell the entire story. Just like with the primary insurance underwriting counterparts, several brokers make operational losses, similar to primary insurers underwriting losses. Indeed, 28 of the 75 assessed made operational losses in 2022, the largest being the GH¢5.064million incurred by Ascoma Ghana Management. However, the only other broker that made an operational loss of more than GH¢1million was Rellius Insurance Brokers, which incurred a GH¢1.039million.
Conversely, the biggest operational profits were made by Willis Towers Watson with GH¢14.864million, I Risk Management with GH¢11.130million, KEK Insurance Brokers with GH¢7.989million, Edward Mensah Wood & Associates with GH¢7.177million and KEK Reinsurance Brokers with GH¢6.231million.
As with primary underwriters, however, investment income enabled 60 brokers to deliver after tax profits, these including 13 of those who had made operational losses but whose investment income surpassed those losses. Three brokers made profit after tax exceeding GH¢10million; these being: Willis Tower Watson with GH¢19.092million; I Risk Management with GH¢11.130million; and KEK Insurance Brokers with GH¢11.127million. However, Edward Mensah Wood & Associates was not far behind with GH¢9.987million.
This means indigenous brokers are doing better in comparative terms than their primary underwriting counterparts. Although Willis Tower Watson is foreign-owned, the companies competing with it for top spot are indigenous firms.
Because brokerage firms do not underwrite risks themselves, their requisite minimum capital is small; what regulators look for is technical capacity and skill rather than capital. This creates huge opportunities for indigenous insurance practitioners and the Ghanaian investors ready to back them. Indeed, many of them are at least partly owned by former underwriting company chieftains who also lead their respective management and technical teams. The experience they bring to bear in their activities, coupled with their extensive technical skills, has made them extremely useful for the insuring public astute enough to use them.
Even though underwriters may resent the commissions they may have to cough up in order to acquire their clients, as well as their ability to ensure that those clients get the best deal possible from the underwriters, those underwriters prudently have to court them and play by the book when dealing with their clients. Ultimately all of this is good for the insurance industry.
On his part, the President of the Chattered Insurance Institute of Ghana (CIIG) – the mother body of all insurance professionals – and CEO of African Sureties and Insurance Advisory Company (ASIAC), said the fact that Ghana is becoming a broker-led market is a good thing.
He said apart from the immerse value broker firms bring to policy holders – such as best coverage, fit for purpose policies, good price, market research and product development as well as claims management – the Insurance Brokers Association of Ghana (IBAG) is one of the most organised groupings in the Ghanaian insurance industry.
Mr. Lartey said his outfit, the CIIG with IBAG, will partner broker-relevant education and improve upon standards through self-regulations to ensure that insuring public gets the very best from insurance and the services of the broker.
Mr. Lartey said most of the broking firms and their staff are members of the CIIG, which guarantees higher standards for the practice of insurance in Ghana.
