Last week, Ghana Reinsurance PLC – state-owned leader of the country’s reinsurance industry – held the 14th edition of its annual Cedants’ Awards; an event that formally recognises primary insurance underwriting firms which have made the most impactful contributions to the reinsurer’s business fortunes.
This year’s edition was arguably the most important in t event’s history, as it addressed the profound changes forcing the reinsurance industry to fundamentally change the way it operates and interfaces with its underwriting clients. The event’s theme was ‘The Global Macroeconomic Situation and its Impact on the Insurance Industry’.
This is most relevant for two inter-related reasons. One is that in the wake of COVID-19 and its still lingering aftershocks, coupled with heightened geo-political tensions of both Russia-Ukraine and the Middle East, the global economy is undergoing deep challenges. The other is that reinsurance is the most globalised financial service offered in Ghana, which makes those deep challenges have huge direct impacts in the country.
These global trends and their impacts in Ghana are being further exacerbated by local trends and their impacts. For instance, while surging inflation has been a global phenomenon over the past couple of years, Ghana’s headline inflation – even though it has fallen by a third this year from its peak of over 54% at the turn of the year – remains inordinately high: distorting the asset values that require risk cover by insurers; the costs of and yields on funds used in insurers investment portfolio; and the running costs of insurance companies. Sharp cedi depreciation since late 2021 has had similarly profound effects.
While, locally, dampened business and consumer confidence has had key impacts on the insurance industry, at the global level Ghana’s economic circumstances have affected the perception of foreign commercial counterparties – even as international supply and value chains have been disrupted and are now being rebuilt using significantly changed architecture. For instance, with increased intra-African activities driven by the African Continental Free Trade Agreement and the potentially-reduced exposure to United States dollar payment obligations because of the net-off of dollar obligations between AfCFTA member-countries offered by the Pan African Payments System (PAPS)
Last week’s Ghana Re Cedants Awards event brought together some of the most authoritative, capable and consequently most influence-wielding insurers and reinsurers in the country. Importantly, they are in basic agreement as to where Ghana’s insurance industry is currently in relation to the global industry, and what the industry needs to focus on to improve that positioning.
Underpinning their views are the expanding potentials with regard to demand for insurance.
Enthuses Solomon Lartey, President-Chartered Insurance Institute Ghana: “The combination of a globalised economy, growing wealth in maturing markets and recent significant macroeconomic and geo-political events such as climate change, both the Russia-Ukraine and the Israel-Hamas conflicts, as well as a sharp number of lawyers being produced in Ghana are raising risk-awareness and an explosion of potential new customer and portfolios for both insurable and traditionally un-insurable risks. Insurance companies that can best harness technology to harness growth markets, develop new offerings and identify emerging trends and risk appetites will be better equipped to operate sustainably and competitively over the next decade”.
Innovative product design has proved itself worthy: for instance, by playing on Ghana’s cultural affinity for lavish funerals, the country’s funeral industry has developed a hug and vibrant funeral insurance class that is peculiar to Ghana.
Michael Andoh, Ghana’s acting Commissioner for Insurance, identifies potentials for two innovative genres of insurance product.
One is cybersecurity as Ghana leads Africa’s digital transformation. “Cybersecurity issues have become a daily occurrence across the globe” he asserts. “Many businesses are investing in technology for efficiency and to serve their clients. Africa’s digitalisation effort is evolving, and as a result cybersecurity has become an existential threat to the way in which e-commerce is done. Our market is hugely underserved in the area of cyber risk-management tools.”
But the National Insurance Commission sees a huge opportunity for the industry emerging from this situation. Explains Andoh: “The good news is that this presents a great opportunity for our market to design innovative and fit-for-purpose cyber-insurance products that provide protection to many institutions requiring cyber-insurance. According to an article published by The African magazine, about 90% of African businesses operate without cybersecurity protocols. This makes such businesses vulnerable to cyber threats such as hacking phishing and malware attacks.
“Reinsurers therefore need to collaborate with Cedants to provide cyber-insurance products that are comprehensive, addressing the cyber-risks of first parties (the policyholders) and not just liability coverage for third parties.”
The other area for innovative product design and delivery derives from challenges of climate change.
“Climate risks are fast changing our way of life” asserts Andoh. “The reality of extreme weather and climate risks continue to pose threats to Africa, whose contributions to global emissions are minimal yet economic and geographic factors make it the most climate vulnerable continent.” He cites the most recent example of water spillage at Akosombo Dam and its devastating impacts on local communities.
“With regard to systemic risks associated with climate change, our economy is only minimally protected and the protection gap is growing. Reinsurers must collaborate with Cedants to provide solutions that not do only exclude catastrophic climate-related risks but find smart ways to close the protection gap.”
He further reveals that the NIC is working on an Environmental, Social and Governance framework to help the industry respond to and mitigate mounting climate change risks, together with the social, equity and governance issues. The NIC is also collaborating with the Cyber Security Authority to issue cybersecurity directives for the insurance industry.
Mrs. Monica Amissah, Ghana Re’s acting Managing Director, shares her enthusiasm over the industry’s potential going forward. “The world is undergoing transformation, and with it the insurance industry is presented with a chance to redefine its role in society. Economic uncertainties may create a heightened demand for risk mitigation strategies, and as insurance professionals we are uniquely positioned to provide innovative solutions that cater to the evolving needs of our clients.”
All this can be part of strong market growth. So far, despite the economic turmoil afflicting the Ghanaian and global economies alike, the local industry has remained resilient. Data in the 2022 Financial Stability Review published by the Financial Stability Council of Ghana show that gross premiums in the industry surged strongly by 25%, reaching GH¢6.56billion; and total assets grew appreciably, too. The Review also affirms that the insurance industry has maintained its growth trajectory in the first half of 2023, despite impairment losses from the recently concluded Domestic Debt Exchange Programme.
But growth needs to be accompanied by increased collaboration and technical sophistication if it is to be sustainable. Here, the roles of insurance market operators’ various genres require some level of change.
Insists Andoh: “Reinsurance firms must begin to look broadly beyond the traditional function of assuming risks from Cedants to a more sustainable approach of providing cedants with reinsurance optimisation plans. Reinsurance companies should be willing to provide technical support to insurers so they can be cost-effective, with optimal reinsurance protection that enables profitability of the Cedants”.
Concludes Solomon Lartey: “The path forward demands strategic acumen and collective resolve. More fundamental adjustments should be considered to maintain the ongoing culture of innovation, while making customer-centricity the focal point of the industry’s standard operating model. Insurers also have to broaden their historical focus from risk and cost reduction, to also prioritise greater levels of experimentation and risk-taking that drive ongoing innovation, competitive differentiation and profitable growth”.
