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1. The Insurance Industry in Ghana
Insurance service organizations in Ghana can be recorded under two fundamental headings to be specific life coverage and non-life coverage with some real key players, for example, SIC Insurance Company, Phoenix Life Assurance Company, Metropolitan Insurance Company, Provident Life Assurance Company and Life Insurance Company among others.
The insurance business was strengthened by the presentation of new capital, administrative and consistence necessities from the National Insurance Commission (NIC). Also, the Insurance Commission in 2015 issued endorsed commission rates for protection mediators for all lines of organizations.
This review planned to survey the execution of Ghanaian protection industry a contextual analysis of the SIC to recognize quality and shortcomings of the business to address them with the goal that more individuals can be pulled in to the business which is one of the significant difficulties of the business as of now.
The outcomes proposed that there is shakiness of development in the protection business in SIC as a result of undercutting of premium rates, high withdrawal and surrender rates, and high installments of cases and low level of public awareness about the insurance business among others.
The interest for insurance is relied upon to develop for the accompanying reasons: increasing center working class, increasing consciousness of the significance of protection to people, corporate bodies and the state, development and extension of the economy mining and oil investigation guarantees tremendous protection premiums and expanding monetary intermediation. With the declaration of the Insurance Act, it is normal that control of the business will be reinforced which would empower the reasonable administration of insurance agencies.
Insurance agencies are split in two: life coverage and non disaster protection. The Life workplaces were GLICO Life Insurance Company Limited, Quality Life Insurance Company Limited, Enterprise Life Insurance Company and State Life Insurance Limited. The Non-life organizations were GLICO Insurance Company Limited, Quality Insurance Company Limited and State Insurance Company Limited, Enterprise Insurance Company Limited. The National Insurance Commission gave profitable data with respect to the examination since it is the administrative body and incorporates industry information.
Our examination will cover non-life coverage organizations, with a focus on State Insurance Company.
2. Premium undercutting
Premium undermining is the practice where an insurance agency furtively offers customers unreasonably low premiums with a specific end goal to pick up a competitive advantage. It must be underlined that the practice is deceptive as well as criminal, as the NIC may deny a defaulting guarantor's permit. The thought process of engagement is as a rule to build the business portfolio, yet this constantly drains the safety net provider's stores, making it troublesome for them to respect claims, some of the time.
The following are some of the reasons for premium undercutting:
i. Price Differentiation
Commonly, the insurance sector in Ghana is that of a Perfect Competition, where players offer comparative items. Estimating then turns into the real wellspring of separation. Undoubtedly, other than the acknowledged rates, back up plans are additionally permitted to offer constrained rebate rates. The test, be that as it may, is the place a few safety net providers offer rates far or more the adequate least rebate.
ii. Poor underwriting
Another important area is the specialized fortitude of the guarantor. Where the endorsing officer's skill misses the mark concerning satisfactory gauges, they tend to quote bring down premiums, without legitimate profiling of the hazard.
iii. Marketing and operational polarity
Another key range is the standard conflict between the promoting and operations divisions. While the operations division is worried about actually endorsing arrangements, their partners in promoting are centered on rounding up more business, all things considered, demand obliging certain dangers. This frequently creates enormous clash between the two units; prompting bargains, which could prompt premium undermining.
iv. Leaked quotations
Frequently some Insurance Intermediaries who scout the market to get premium citations for their customers have a tendency to prudently uncover citations acquired from the opposition to other forthcoming safety net providers with a specific end goal to secure much lower citations.
v. Poor claims payments
The powerlessness of a few safety net providers to respect certifiable cases when they fall due implies that they need to undermine premiums to stay above water.
3. Case study: State Insurance Company
SIC Insurance Company Limited is one of the most established non-life insurance organizations in Ghana. It follows its underlying foundations to the year 1955, when the Gold Coast Insurance Company was set up. It was renamed Ghana Insurance Company in 1957, when Ghana achieved freedom.
SIC is a main supplier of general or non-life insurance company in Ghana. Its business operations cover fire, marine, marine and flight, and mischance protection. SIC likewise gives forte protection items, for example, hoteliers and relaxation arrangement, a strategy for the neighborliness business.
The growth rate of the SIC has slowly decreased from 2012 to 2013, but was increasing from 2013 to 2015 and from 2012 to 2015. The decline in the growth rate could be attributed to decline in market share, higher payment of claims to customers and undercutting of premium rates among other reasons, while the increasing trend could be attributed to the expansion of the market.
Figure 1. Gross Premium of SIC, during 2012-2015
Source: Company Reports, 2012-2016
Figure 2 indicates that competition has intensified. However, by the close of the quarter, a total of GH¢ 174, 494,728 was generated by 22 out of 23 companies from general insurance business.
For example, a breakdown of premium wages show that SIC Insurance Company, the country's greatest financier, has extended its lead in wage income by rounding up about GH¢ 43.6 million in the period under survey.
The positioning among the main five still continues as before as Enterprise Insurance Company (EIC) earned GHC¢24.1 million while Metropolitan Insurance, Vanguard Insurance and Star Assurance produced GH¢ 22.1 million, GH¢ 19.6 million and GH¢18.9 million individually.
The main five organizations created around 73.7% of the aggregate premiums produced this quarter. In any case, the majority of the new organizations that joined the market as of late have additionally strengthened their advertising exercises. Firms like Allianz and NEM Insurance are under five years in operation.
Figure 2. Gross Premium and market share of the first 5 insurance companies
From the above figure, we could see that SIC is the leader with 25% market share, while on the second place is Enterprise Insurance with almost less of its market share (14%). Regarding the Gross Premium, SIC is leading with 43.6 GH on the first quarter of 2017, while the second place leader has only 24.1 GH earned.
4. Methods against the practice of premium undercutting
Some industry professionals have wailed over the wonder alluding to it differently as malignant and savage. They demand that the marvel must be stopped from developing in any way before it expends the business. For sure, the current mild increase in engine protection premiums, and the orderly open objection that welcomed this, could loan an unobtrusive trustworthiness to the propagation of this unsuitable demonstration, as the safeguarding open in their defenselessness, are getting to be value delicate.
With the present insurance penetration rate under 2%, the common outcome of an extending negative open view of the protection business in Ghana, remotely brought about by premium undermining, is a falling low industry entrance. At the point when there is a general feeling that safety net providers would prefer not to respect guarantees, the general population may lose trust in the business, which could bring about their activity of insignificant consistence. In this manner, denying guarantors of required assets for venture, and reinsurers the obliged stores to moderate future dangers.
Despite the rivalry between the more than 43 authorized insurance agencies in Ghana, product development is practically non-existent. Guarantors should now concentrate on item improvements, by tweaking the advantages, keeping in mind the end goal to make particular character for their items.
This will make an administration where organizations contend on their components, rather than discovering approaches to unscrupulously outmaneuver each other on evaluating.
With the appearance of innovation and human resourcefulness, specifically, safety net providers must start to tailor their items to particular customers' needs while giving constant training.
This will constantly reestablish the disintegrating open trust in the business, while making the empowering conditions to expand the business entrance.
5. Conclusions and recommendations
The insurance sector contributes hugely to the monetary development of numerous economies by changing over reserve funds made by people into arrangement of advantages and smoothing speculation returns, and also permitting these people to partake in the thriving of the economy and Ghana is no exemption to this.
The Ghanaian protection industry by and large is confronted with various difficulties; eminent among them is the low level of open mindfulness. One essential means by which the insurance sector can counter this test is to give customary refresh to general society about their dealings, operations and advance inside the business.
To accomplish this, execution estimation has accordingly turned into a vital instrument to depend on keeping in mind the end goal to make mindfulness among Ghanaians simply like all other budgetary establishments do.
Net premium salary in the insurance sector for both Life and Non-life organizations continued expanding from year to year. Be that as it may, the development rates changed. Wasteful protection guaranteeing, high administration costs, high installment of cases, undermining of premium, high withdrawal and surrender rates of protection arrangements have brought about the vacillation or insecurity of development in the business.
The insurance agencies in the business embrace some level of methodologies to increase upper hand to remain on the ball inside the business. Utilizing vital apparatuses in day by day operations is one of the real development components among the insurance agencies in Ghana.
Guidelines and directions are fundamental for creation a level playing field for rivalry. To that degree, the National Insurance Commission assumes a critical part in controlling the exercises of all organizations in the protection business of Ghana.
Based on the findings and conclusion drawn, the following recommendations are made:
i. Growth rate of premium pay has not been steady. The insurance sector must be creative in designing insurance products to draw in the public's interest in life and health insurance, which will lead to increase of gross income.
ii. The industry needs to make public awareness through promotion of items as well as by giving instruction on the significance of being insured.
iii. Reduction of premium charges to draw in vast client base.
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