Crasner Capital vice president Andrew Young outlines the importance of the insurance industry in Ghana and the lessons Nigeria has to offer

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Many countries over the past few decades have experienced a dramatic change in the importance of services in their economies. Ghana’s service sector has displaced other sectors as the leading contributor to GDP, reaching over 50% since 2012.

The sub-sectors leading the growth are the Information and Communication and Finance and Insurance subsectors. The insurance industry has maintained around an annual 30% growth rate since 2009, with life insurance gross written premium growing at even faster rates (approaching 40%).

The financial services industries are thus more advanced than many other industries within the country and can hopefully provide a platform for growth for the changing Ghanaian economy. This was the message by Vice-President Kwesi Amissah-Arthur in November in his call for the insurance industry to take a lead role in the development of the economy.

The call to action from the national government is pertinent in the second biggest economy in West Africa, given the excitement about the industry in the big brother of the region, Nigeria.

Both countries are severely underpenetrated in terms of insurance coverage. The insurance industry in Nigeria is growing and consolidating, and as such is a big focus for foreign direct investment (FDI). The talking points revolve around the untapped potential in the country and what plans and products can be developed to reach them.

There now seems to be encouraging movement on the ground in this direction and this has been further stimulated by open legislation on the part of the national insurance commission, allowing foreign ownership of local companies.

The environment in Ghana is a little less encouraging for foreign investors, at least in the short term. The country is considered to have one of the most politically strong environments on the continent coupled with good economic growth. However, in recent years, a sharp depreciation of the Ghanaian cedi together with the deepening of an energy crisis within the country, has not only had an effect on growth but also an effect on the growth outlook. Growth has also been supported by public sector investment in infrastructure, which has led to public sector debt at around 66% of GDP. Both inflation and interest rates remain high. Add all of this up, and there is perhaps a bit too much uncertainty to attract a wave of FDI.

There are some positive signs for the medium term however, given the strong development in the production of oil and gas together with public and private sector spending on infrastructure, which should be viewed as improving the platform to do business. Having the IMF on board to develop a stabilisation program is also a good sign for investors.

The insurance industry

Not dissimilar to the macro view of the country is the view of the insurance industry in Ghana, which displays a number of both encouraging and concerning characteristics. Looking across to the big brother for guidance, the Ghanaian industry should also look to learn from the successes as well as the mistakes made in Nigeria.

Having a look at the industry firstly from a technical point of view, the more consolidated Life industry seems to be transparent in their risk appetites. This clarity in strategy allows them to identify which risks to absorb and which to transfer.

The more fragmented non-life industry on the other hand are not explicit in their risk appetites. As a result, and in particular, the non-life industry has struggled from the under-pricing of credit risks, these bad debts leading to significant underwriting losses.

The variable performance in the non-life industry can be attributed in part to heightened competition but also to risk management. The industry displays a shortage of risk management skills, according to a study from the Catholic University College of Ghana and the Ghana Business School.

Sound risk evaluation is absolutely essential in terms of company profitability. Beyond the company level, risk management is key to sustainable growth of the industry, the development of the broader economy and socio-economic wellbeing within the country.

This is particularly key when viewed in light of Nigeria’s insurance industry, which has been unable to attract the large and lucrative risks from the oil and gas industry. The industry looks directly to Europe for their underwriting needs and the local market and regulators play catch up to retain some business within its borders.

The oil and gas industry in Ghana is still in its ramp up phase, which provides the insurance industry the chance to position itself to accept the large risks. In order to do this, there are two lessons to be taken from the Nigerian market:

Risk Management

Given the highly competitive commercial environment, the key to a strong performing company is risk management. The oil and gas industry, especially offshore projects require expertise in risk evaluation and pricing. The larger companies have a better chance to recruit and retain able employees but the other option is to attract foreign talent, which ties in with our second recommendation below.


In order to drive market consolidation, the National Insurance Commission (NIC) has acted to mandate increase capital bases (of GHS15m, up from GHS5m), and this is not the last time that this will happen. The next stage is to implement risk based solvency requirements. There is thus no reason that companies should be caught scrambling to meet new capital requirements.

The legislation allows 60% foreign ownership of insurance companies. Give the attention that has been drawn by the industry in other African countries, especially Nigeria, Ghanaian companies should look to take advantage of the interest and capital flows. This will enable not only the ability to attract larger risks but beyond the capital, focused private equity funds can also bring with them the necessary skills which may be lacking in the local market.


The government’s call for the industry to step up is a sign of confidence and companies should now look forward and position themselves to service the evolving economy.