By Mawuli Zogbenu
It is for the good of everyone in the family that a mother would force a bitter concoction down the throat of a sick child’ – A Ghanaian proverb.
It is not for the fun of it when owners of most drinking bars in Ghana put the following inscription in their bars: ‘This bar would survive if only friends and family members don’t buy on credit’.
A friend recently told me how surprised he was to learn that some people could actually buy insurance on credit. According to him, this revelation dawned on him when he heard that the National Insurance Commission (NIC) was implementing a policy to reverse this trend for a ‘cash and carry’ regime. To him, the new regime should have been the normal practice as far as access to insurance is concerned.
He was totally oblivious of the fact that taking up an insurance policy and paying premiums at a later date had become a normal practice in the country over the years. In view of the importance of insurance to him, he could not concede the idea of buying insurance on credit and even refusing to pay the premiums involved.
To him, assuming everybody is allowed to buy insurance on credit, where would the insurers get money to pay claims on insured events! I wish we all had this mind-set when it comes to insurance.
Sad to say, not everyone shares this view. The NIC, therefore, had a daunting task of changing people’s perception about insurance and helping them to appreciate the importance of insurance, and the need for them to pay for their insurance coverage to enable them to enjoy better services from insurance companies, especially in the payment of claims.
In view of this, the NIC, prior to the commencement of the new regime, had to make a lot of noise about the fact that an individual or a corporate entity could no longer buy insurance on credit. With the new regime, the payment of premium was a condition precedent upon a valid insurance contract.
The reactions
The announcements came with mixed reactions or rather mixed expectations as some insurance practitioners, especially those in the marketing departments, thought that this was going to make it difficult to meet the already high, sometimes, unrealistic targets set by boards and senior management of insurance companies.
The reason? They sell to friends, relatives, cronies, acquaintances, and big institutions and want to make it flexible for them by giving them the option to spread payments over a period, mostly with the issuance of postdated cheques. Change always comes with a natural feeling of uncertainty and sometimes the fear of the unknown.
Some industry watchers also fear this move will worsen the current low insurance penetration rate (percentage of insurance premiums to Gross Domestic Product (GDP)), which stood at a paltry 1.42 per cent as at the end of December 2013.
I must hasten to add that the majority of policyholders buy certain insurance policies because of their compulsory nature. For instance, the purchase of motor insurance and fire insurance for private commercial buildings, including those under construction, is a case in point.
The question is; who would suffer in the end in the event of a mishap? I ask.
Why this regime?
Over the years, the Ghanaian insurance market has been struggling with huge levels of premium debts on the books of insurance companies and this impeded on the ability of insurance companies to provide the best of services to their clients, including the payment of claims in a fair and prompt manner.
It is for this reason that the NIC decided to issue a ‘No Premium No Cover’ directive in the effective from April 1, 2014. Basically, the policy seeks to stop insurance companies from extending cover to individuals or businesses that do not pay all their premiums upfront.
The Commissioner of Insurance, Ms Lydia Lariba Bawa, in a recent statement disagreed with some negative reaction with the new regime. As of December 2013, premium debts on the books of insurers reached GH¢149 million and this negatively affected the liquidity and solvency of most of the companies, resulting in their inability to pay claims promptly. The commissioner said the lack of liquidity in the sector was the reason many Ghanaians perceived the industry to be unreliable.
Suffice it to say, it is a ‘bitter pill’ that would help the industry to stand on its feet and improve public trust and confidence in the insurance market. From observations made so far, many individuals or business entities have come to understand the policy and it is only a matter of time and it would be fully embraced.
As it were, some of those who have, for instance, insured their vehicles comprehensively were compelled to reduce it to third party with the excuse of economic challenges. But wait a minute – for me, this should be the more reason why we should even insure our vehicles comprehensively.
By illustration, if one owns a car valued at say GH¢25,000, the highest premium he or she would pay is GH¢1,500. If he or she only has a third party cover and loses this vehicle to theft or fire, ‘his economic’ situation would become even worse because he would need that GH¢25, 000 or so if he or she still wants to continue being mobile.
Is it not ridiculous to learn that some insurance companies have strong balance sheets yet their premium incomes are in arrears and that they had to resort to loans to pay claims sometimes?
Fortunately, the life companies have almost invariably complied with this age-old practice of ‘cash and carry’ before the implementation of this policy except for a few group life and / or corporate businesses which this policy has come to fine tune anyway.
It is in the best interest of the client to pay premiums upfront for a healthier relationship between insurers and the insuring public.
Progress made so far
It is therefore refreshing news to learn that the NIC is reporting an encouraging response to its directive to insurance companies to only provide cover for risks which have been fully paid for. In other words, the commission enjoins all insurance companies to provide cover for only indemnities for which premiums had been fully paid.
What is best practice?
This policy was earlier implemented in Africa’s largest economy, Nigeria, by their National Insurance Commission (NAICOM) which took effect from January 1, 2013. Strict and punitive sanctions were levelled against recalcitrant insurance operators who issued policies or granted covers in violation of Section 50 (1) of the Nigerian Insurance Act, 2003; which stipulates that “the receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk, unless the premium is paid in advance.” This policy is said to be adhered to strictly in the Nigerian insurance industry.
Consequently, only insurance covers for which full premium have been received in advance either directly by the insurer or through a duly licensed insurance broker, are recognised as insurance contracts in the eyes of the law.
Back in Ghana, the same level of seriousness has been attached by the insurance regulator and supervisor to the policy and the NIC has therefore dealt swiftly, decisively and punitively with non-compliance with the new regime.
Who benefits?
The benefits of the ‘No Premium No Cover’ is that the insured would be ready to pay fully upfront for insurance, and the insurers become more liquid and are able to pay claims promptly as well as provide other ancillary services to their clients.
Similarly, insurance agents and brokers would be paid adequate commissions / brokerages with corresponding extra good quality service and re-insurers would also receive their share of premiums on time.
It is mainly by so doing that the insuring public could have more confidence in insurers unlike previously where negative perceptions were held against the sector.
As indicated earlier, the NIC has left no stone unturned in policing the policy and enforcing it to the letter. It has also not spared the rod and did not hesitate in disciplining recalcitrant insurance companies, whipping them with fines to let them fall in line with the directive.
What is happening elsewhere?
The good news is that the implementation of the ‘No Premium No Cover’ policy in Nigeria’s insurance sector has proved to be beneficial to the industry. The insurance industry posted a projected premium figure of 285 billion Nigerian naira ($1.8 billion) as of the end of 2013; a year after the policy came into effect.
Cash-backed business represented more than 80 per cent of this amount, a significant improvement from the past when receivables accounted for 60 per cent and cash business less than 40 per cent as reported by the Nigerian Business Day newspaper.
In Ghana, it is still early days to assess the impact of the policy on the insurance industry. This would be looked at in other write-ups. It may be a bitter pill now for both businesses and individuals to swallow but it would heal both the insuring public and the insurance industry.
Let us get it right to protect ourselves against economic losses and also sustain the insurance industry and like the drinking spot operator “This industry would survive only if friends, relatives and businesses do not buy on credit!”
