By Joseph GHANDI (ACIIG) and Felix AKYE-BEKOE (FCIIG)
The informal economy, a significant and pervasive segment of Ghana’s workforce, is a central focus in both academic and policy discussions due to its extensive reach and complex relationship with development outcomes. As the International Monetary Fund (2021) highlights, activities within this sector, if properly documented, could substantially contribute to tax revenue and gross domestic product (GDP).
However, households and small businesses operating within the informal sector face heightened vulnerability to various risks, including natural disasters, illness and the death of a family member. According to the National Insurance Commission (NIC) of Ghana and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) (2012), these risks often exceed the protective capacity of savings or informal risk-sharing mechanisms.
The Ghana Poverty Reduction Strategy (GPRS) aims to empower the informal poor to better manage their financial risks, but this goal remains partially unmet. One effective approach to managing such risks is through enhanced microinsurance programmes. These programmes are designed to provide low-income individuals with insurance products tailored to their specific needs. A more rigorous involvement from traditional insurance providers, supported by regulatory enforcement and legislation, could improve the substantial challenges related to low insurance coverage and penetration in the informal sector.
Despite Ghana’s overall insurance coverage trending upward to 30 percent, significant challenges persist in extending insurance penetration to underserved populations. In 2020, approximately 9 million Ghanaians had microinsurance coverage, primarily for life and health risks. However, the United Nations Development Program (NUDP, 2020) notes that the range and value of this coverage remain limited. As of 2019, the penetration rate was around 3 percent of GDP, including health insurance and pensions.
The National Insurance Commission (NIC) had set a goal to increase this to 10 percent of GDP by 2021; yet this target remains unmet, with coverage below 2 percent when excluding health insurance and pensions. This indicates that many individuals in the informal sector remain vulnerable to various financial risks not covered by their current microinsurance policies.
The NIC recognises the crucial role of microinsurance in extending coverage to underserved populations, particularly within the informal sector, which comprises approximately 80 percent of Ghana’s workforce. However, only a few licensed Technical Service Providers, such as aYo Intermediaries, Milvik Ghana Limited (BIMA), Star Micro and MicroEnsure, are actively distributing micro and inclusive insurance products. By the end of 2011, the NIC database listed at least 16 microinsurance products available in the Ghanaian market.
Recently, Priority Insurance Ltd. Co. introduced ‘Home and Office 360’, an innovative product tailored to the informal market. This product combines coverage for fire, burglary, robbery, personal accidents and public liability, supplementing existing life and health insurance options. This comprehensive coverage aims to address gaps in current offerings and potentially enhance market responsiveness.
As the sector evolves, the true impact of these initiatives on the informal market will become clearer. In the meantime, expanding microinsurance to enhance access and coverage is essential. We recommend the following strategies to achieve this:
- Diversify product offerings: Develop a range of microinsurance products that cater for various needs within the informal sector, including health, life, property and agricultural insurance. This diversification can attract a broader customer base.
- Modular coverage: Offer modular or customisable insurance plans that allow individuals to select and pay for only the coverage they need. This approach makes insurance more accessible and affordable.
- Leverage technology: Utilise mobile technology and digital platforms to facilitate the distribution of microinsurance products, ensuring they reach underserved populations effectively.
- Strengthen distribution channels: Partner with local businesses and community leaders to act as intermediaries for distributing microinsurance products.
- Enhance education and awareness: Implement educational campaigns and financial literacy programmes to increase understanding of microinsurance benefits and options.
Expanding microinsurance in Ghana’s informal sector is crucial not only for increasing coverage, but also for providing a robust safety net for a significant portion of the workforce. Implementing these recommendations will address current gaps, enhance the effectiveness of microinsurance, and ultimately improve financial security for Ghana’s informal sector workers.
