If you think risk management and insurance are expensive, then try crisis management. COVID-19 has given us a better platform to analyze them. “What if?” is the simple question responsible for igniting invention, ingenuity and even revolution throughout the history of business. “What if” most importantly prepares our mindset to identify risks associated with business operations, growth and sustainability. Today, however, businesses at the cutting-edge of innovation understand that risk management and insurance are more than an invisible safety net. Risk management is essential to the DNA of every decision. Risk Management helps to balance the opportunities and threats in our business environment.
The Ghana Industry
The private sector in Ghana is comprised of diverse industries. Agriculture is a key economic sector in Ghana. We have energy, tourism, real-estate, mining, financial and many other sectors. The mining sector in Ghana is one of the most important in Africa, but the significant water and energy resources required for its operations make it vulnerable to changing temperature and rainfall rates.
A growing number of households and other commercial and state users are also competing for the water and energy resources available. Micro, small, and medium enterprises (MSMEs) constitute about 92% of all businesses in Ghana. The various industries include:
- agriculture, fisheries and forestry,
- banks, financial institutions and insurance,
- building and construction,
- mining, and
The growth of these industries will have a great impact on building the country’s economic resilience.
Cash flow is the lifeblood of every business enterprise. Without a stable flow of cash inward from goods sold or services rendered, there will be inadequate funds to meet the continuing cost of maintaining the business and having to pay wages/salaries of employees even when their services cannot be used. This is a clear case of what COVID-19 has exposed businesses to. Schools and other institutions, enterprises, and activities were closed down – but they continued to pay their staff. These could be achieved with a proper business continuity plan in place, which should include the right insurance policies in place. The following insurance policies are designed to protect businesses against eventualities and help them to grow.
Business Interruption Insurance
The loss of income or profit emanating from the closure of enterprises, supply chain disruptions, slowness in importation and exportation and general trading would have been mitigated if enterprises had business interruption insurance or loss of profit insurance.
What does a Business Interruption Policy Seek to do?
- The Business Interruption policy meets the shortfall in cash needed, but which has not been earned to pay the bills to maintain the business (rent, rates, interest payable, insurance, etc.);
- To meet the cost of notice and redundancy payments for employees who have to be dismissed or laid-off;
- To meet the cost of employees who remain, but who are not fully productive;
- To fund the increase in cost of maintaining production after the fire or the extra cost of continuing production elsewhere (subject to an economic limit);
- To restore the net profit.
The Business Interruption Policy covers lost income often resulting from the following:
- Damage to the policyholder’s property
- Damage to the property of a customer or supplier’s supplier
- Government action such as evacuation orders
- Damage to properties which attract customers to the policyholders’ s business
Fidelity Guaranty Policy
Employee infidelity includes misusing the company’s funds or stealing from the company on a large scale. Stealing the occasional office supply or padding an expense report is disloyal, but employee infidelity usually refers to more serious offences: such as embezzling large sums of money, regularly taking goods that add up to considerable amounts, or submitting expense reports that are completely false, false reimbursement requests among others.
If you employ cashiers, bank clerks, accountants, or sales teams within your business, they will be frequently exposed to things like cash and valuable business stock.
The Fidelity Guarantee Insurance policy is designed to indemnify the employer or business owner against loss as a result of the dishonesty of persons holding a position of trust in the organisation. Fidelity Guarantee insurance will protect the business owner by compensating him/her for any direct financial losses that result from acts of dishonesty by employees.
What are the covers/benefits provided?
The Fidelity Insurance Guarantee policy covers direct pecuniary loss suffered by business owners by any act of fraud or dishonesty committed by any of the insured’s employees:
- In connection with his/her employment and duties
- during the Period of Insurance
- during his/her uninterrupted continuance of employment
- discovered during the Period of Insurance or within 6 months thereafter, or within 6 months after his/her death, dismissal or retirement, whichever shall occur first.
Workmen’s Compensation Insurance
This provides compensation on behalf of the employer to the employee when he/she experiences any work-related injuries or death. This covers the cost to workers and employers, in both a financial and a social sense. This insurance policy is not compulsory in Ghana now. But the workmen’s compensation Act gives a responsibility to the employer to compensate the employee for any work-related injury or death. This in most parts of the world began during the industrial revolution and continued into the early part of the twentieth century.
Before this Act, no-fault workers’ compensation was available. Injured employees could only receive payment for work-related injury or illness if they successfully sued the employer, which was often difficult. Employers, meanwhile, had to pay defence costs for each claim filed by an injured worker. Many injured workers turned to charitable organizations for financial assistance, but those organizations were eventually overwhelmed.
In response to the Act, the insurance industry fulfilled its social responsibility by developing an insurance product that is not based on negligence and assists injured workers. Workers’ compensation insurance remains a key resource for both employers and employees, by protecting employers and providing workers with quick recovery and compensation for work-related injuries or illnesses. In addition to these observable benefits to individuals and employers, workers’ compensation also benefits society at large by, for example, reducing lawsuits and promoting commerce in most litigation-prone areas.
It is still difficult in Ghana to know if employees are being compensated fairly by their employers for work-related injuries. This is one of the reasons why it should be compulsory for employers to have workmen’s compensation insurance.
By 1929, over 6,000 people were killed annually in road accidents. Many of these accident victims and their dependents were unable to recover damages because the motorist concerned in the accident was uninsured, and they were also not in a position to compensate the victims. To protect accident victims, many countries acted by making third-party liability insurance compulsory, or having security with the Accountant General.
In Ghana, the Motor third party Act is Act 1958. The following are a few of the things you need to know about your motor third insurance Act 1958:
“Subject to the provisions of this Act, it shall not be lawful for any person to use or cause or permit any other person to use a motor vehicle on a road unless there is in force about the user of the vehicle by that person or that other person, as the case may be, such policy of insurance or such a security in respect of third-party risks as complies with the requirements of this Act. If any person acts in contravention of this section he shall be guilty of an offense and shall, on summary conviction thereof before a Resident Magistrate, be liable to a penalty not exceeding two thousand dollars or to imprisonment, with or without hard labour, for a term not exceeding six months or both penalty and imprisonment”.
This saves the business a lot of money from motor-related accidents. Enterprises are saved from legal costs and other third-party motor death/injury-related expenditures. Motor Comprehensive insurance also protects vehicles against the cost of accidental damages, theft, and fire damages. The funds to manage these eventualities can be pushed to other sectors of the business.
Through the seventeenth century, many homes were built and roofed entirely of wood. In London, when fires broke out at the time, tradesmen through their guilds raised money for fellow tradesmen and their families. The largest fire which occurred at that time was the ‘Great Fire of London in 1666’. Since no formal insurance existed at the time, this event meant a large financial loss for property owners. London created what they called the fire offices. Growth of the fire offices increased competition, which coupled with the lack of technical underwriting history resulted in huge losses for some of the offices.
Fire can be very destructive and has caused a lot of injury, death and property damage throughout history. That is why the Insurance Act, 2006 (Act 724) Section 183 and 184 have made it compulsory for all owners and/occupiers of Private Commercial Buildings, and even buildings under construction, to obtain the Compulsory Fire Insurance Policy. The Law states:
- Every commercial building shall be insured with an insurer against the hazards of collapse, fire, earthquake, storm and flood, and an insurance policy issued for it.
- The insurance policy shall cover the legal liabilities of an owner or occupier of the premises in respect of loss of, or damage to property, bodily injury, or death suffered by any user of the premises and third parties.
- For the purposes of this section, ‘commercial building’ means a privately-owned building to which members of the public have ingress and egress for the purpose of obtaining educational or medical service, engaging in commercial activity for the purpose of recreation or transaction of business.
The Fire Insurance Policy
The company shall indemnify the insured on any part of the whole property that shall be destroyed or damaged by fire or lightning at any time after payment of the premium and during the period of insurance stated in the Schedule, or before 4 o’clock in the afternoon of the last day of any subsequent period in respect of which the Insured shall have paid to the Company and the Company shall have accepted the premium required for the renewal of this Policy. The Company will pay to the Insured the value of the property at the time of the happening of its destruction or the amount of such damage or its option reinstate or replace such property or any part thereof.
- Limited or domestic Explosion
Other extensions include most allied perils. These are flood damage, burst-pipe, windstorm, earthquake, impacts from vehicles, the collapse of buildings, and many others.
Business enterprises lose money many times, either in transit or at their premises. The risk of losing money in transit or a safe at the insured premises can be transferred to an insurance company. The term Money shall mean Cash Bank and Currency Notes, Treasury Notes, Postal and Money Orders, Cheques (whether open or crossed), Postage and Revenue Stamps or any documents negotiable for money at their face value. There are various types of money insurance. These include the following:
- Money in transit
- Money in the safe or strong-room
- Money on premises during business hours
- Money on premises out of business hours (Not in safe)
- Money in residence of the Proposer’s authorised Employees
- Money in the custody of Proposer’s senior staff
Loss or destruction of or damage to money belonging to the insured or for which the insured is responsible from any cause whatsoever in the circumstances or situations described in the policy. Loss or destruction of or damage to any safe strong-room or till in which the money is contained caused by theft, or attempt thereat, occurring during the period of Indemnity is covered under the money insurance policy.
Goods in Transit Insurance
The Insurance Company will indemnify the Insured against accidental loss of or damage to the whole or part of the property insured, owned by the insured or for which they are responsible resulting from:
- an accident to the carrying vehicle
- theft following violence or threat of violence against an employee of the insured or carrier other than at the insured’s premises. This should normally occur in the course of transit by the means of conveyance as stated in the policy.
The Company may at its option repair, reinstate, or replace any such property lost or damaged or may pay in cash the amount of the loss or damage.
Liability insurance is a part of the general insurance system of risk financing to protect the policyholder from the risks of liabilities imposed by lawsuits and similar claims. Liability insurance is designed to offer specific protection against third-party insurance claims – i.e. payment is not typically made to the policyholder, but rather to someone suffering loss who is not a party to the insurance contract.
The following liability insurances constitute liability insurance: Public Liability, Product Liability including Product Guarantee/Recall, Employers’ Liability/Workmen’s Compensation, Professional Liability, Directors’ and Officers’ Liability.
Public Liability Insurance
A Public Liability policy protects an Insured against his legal liability to third parties for damages in respect of accidental:
- (i) Death or bodily injury including illness
- (ii) Loss of or damage to tangible property
Occurring within the territorial limits and arising in the course of or in connection with the insured’s business.
Professional Indemnity insurance
Professional indemnity insurance is also known as Errors and Omissions (E&O) insurance. This policy protects the professional person. It protects them against the liability to pay damages to persons who have sustained financial loss arising from their professional negligence or that of their employees, in the conduct of the business.
Who needs the cover?
Any person who gives advice, designs, or provides similar services and presents him/herself as a professional to the client. Examples of professionals requiring PI cover are:
Accountants Interior Designers
Architects Insurance Brokers
Assessors Loss Adjusters
Attorneys Town Planners
Commercial Consultants Financial Institutions
The insured’s legal liability to compensate third parties for negligent and wrongful acts in the performance of their profession, including legal defence costs and expenses.
Accident Policies, Asset All Risk Insurance policy, plant and machinery policies, Group Life policies, Keyman Insurance policy, and many others are to provide protection and peace of mind for enterprises to grow their businesses. Agriculture is one of the key economic sectors in Ghana. The Ghana Agricultural Insurance Pool has been set up. The Ghana Agricultural Insurance Pool (GAIP) is a subsidiary business unit under the Ghana Insurers Association (GIA). The aim of GAIP is to protect farmers and other players in Ghana’s agricultural industry from the negative economic effects of climate change and perils associated with agriculture/agribusiness. As a solution, GAIP develops a sustainable portfolio of innovative insurance products which mitigate the financial risks associated with this risks.
Holistic Risk Management
Insurance is very important, but it should not be looked at in isolation. The whole risk that affects sustainability of the industry should be looked at holistically. Traditionally, risk management has been associated with preventing property damage and injuries. Companies install alarms and sprinkler systems to prevent and minimize fire damage. They issue helmets, goggles and gloves to the factory and labour-intensive workers. And in areas where the weather is a severe risk, companies construct special buildings or barriers to combat wind, rain or hail threats.
Some industries have always insured against common hazard risks such as fire, flood, property damage, employee accidents and theft. However, organizations are subject to a myriad of risks beyond those hazards which can inflict not only physical damage but also strategic, financial and operational damage. That’s why it’s important to understand how to take a more holistic approach to manage risk – and to foster the kind of communication and collaboration needed to make that approach successful.
The holistic approach to managing risk is much broader in scope – examining all areas of the business, not just hazard risks. It encompasses the analysis and predictability of business processes and organizational decisions. It mandates taking a broader view of all possible results a company may be exposed to, as well as the collaboration of internal and external stakeholders to identify, assess and treat risks. All stakeholders must communicate with not only each other but also their supervisors, the organization’s risk manager, and the board of directors to ensure that the organization is truly following a holistic risk management approach.
The writer is a staff of the National Insurance Commission. He is also the Leading Managing Partner of Jusbel Risk Consult limited. He is a Chartered Insurer and an Associate of the Chartered Insurance Institute of United Kingdom and also Ghana (ACII-UK, ACIIG),
Managing Evolving Risk, American Institute for Chartered Property and Casualty Underwriters, 1st Edition, 2020. Edited by Michael W. Elliot