Insurance, ‘The Ordinary Ghanaian’, And Economic Growth

I am not an expert in insurance. The focus of this piece would be my observation as an economist. A little background would help put this piece in proper context so in case I make any factual error regarding theories and practices of insurance, the experts in the field would forgive me.

I was offered an opportunity by Vanguard Assurance Company Ltd to do a three months (February to May, 2011) industrial attachment with them, having failed to secure a job after my graduation from the university in 2008. I was attached to the business development unit. So the focus of this piece will be my observations and experiences as an economist serving as an insurance marketing officer. Now let’s move back to the core business the piece.

Insurance is a promise of reimbursement or indemnity by an insurance company to businesses or individuals as a result of a pre-identified potential risk which has been insured against. In simple language, individuals and/or businesses with similar risks contribute small amounts as premiums to an insurance company, the company then indemnify them (restore them to their financial or business standing) should any of the insured persons or businesses suffer any loss as a result of the pre-identified potential risks.

Insurance dwells heavily on the law of large numbers. The larger the people and/or businesses with similar potential risk, the larger the amount of premiums paid to the insurance company, and the viability, large and diversified investments and returns, or financial strength of the company. The insurance company will then be able to pay claims promptly and adequately to insured businesses and individuals should any of them suffer a loss as result of the risk insured against.

After the basic training at Vanguard Assurance, I was asked to start operating as a marketing officer for the company, with a monthly target. Indeed, looking at the insurance products at Vanguard Assurance Company, and the varied risks in the Ghanaian society, I thought I would not have any difficulty at all exceeding the monthly target of GH¢2000 every month. So I was very eager to hit the market, and I wanted to do that running!

The reasons for my optimism of sterling sales performance are obvious. The core factor of insurance is risk. Without risk, there would not be the need for insurance policy of any kind, and Ghana is a country of all kinds of risks. Fire outbreaks have become daily normal occurrences. It looks and sounds unacceptable, and of course, our leaders and policy experts have said so. But that is what we see and experience. The rhetoric of these leaders and experts always come after the loss.

We recall the fire outbreak at the Ministry of Foreign affairs in which government properties were destroyed with great disappointment. We remember the fire outbreaks at Former President Rawlings residence and many other private residencies across the nation in which personal properties were destroyed with so much pain. The incessant fire outbreaks at the Makola market and other markets across the nation, and so many business premises is a worry to all well meaning Ghanaians.

So fire outbreaks cut across board, no mercy for any person or group of persons. In many of these fire accidents, precious lives are lost; some are disabled, whilst others are traumatized for life. That’s why insurance is so basic a human need.

Floors in some parts of Accra and Ghana as a whole seem like an annual ritual. We only have to wait for the time, and possibly prepare for it. The risk seem known, however, the magnitude of the risk still makes it unpredictable, and therefore the need for insurance. For instance, some people in Ashaiman and Sweduru may have been aware of possible floors in case of torrential rains, but they may never have thought of the magnitude of the one that occurred on the 20th of June 2010, and claimed several lives, destroyed several homes, businesses and other properties, and left many people traumatized till date. Floors in some parts of Northern Ghana are yearly occurrences, and we lose tones of food products to this. The story is virtually the same for many parts of Ghana.

Accra and some parts of Ghana are earthquake zones, we are told. Indeed Ghana has experienced an earthquake before. I remember in a particular night in 2009, most of us in Accra slept outside the comfort of our rooms because of rumours of impending earthquake. You remember the conspiracy theories and brouhaha that followed it? Many Major towns in Ghana are along the coastal line. Some of these towns like Accra, Takoradi, and Tema host our major companies and institutions. Indonesia, and quiet recently, Japan have told us loudly what the sea can also do, aside its positive side of providing us with means of transportation, source food and livelihood, and recreation. The sea can also be a serious threat to our survival.

Tsunami is not a pleasant experience. As a developing nation, without the required amount of necessary human and technical expertise to deal with tsunami and other allied perils makes our condition even most unfortunate. Armed robbers have become so bold in Ghana in recent times. They seem to have a career path and targets to meet as well! They attack individuals in their homes, offices, cars, businesses, and even government officials with security guards are not immune to them. They do this in the night or broad day light. As for the road accidents in Ghana, we have failed woefully as a nation. They occur daily, and seem inevitable, and the cost to us as individuals and the nation at large is very huge. According to records from the Ghana Police Service, just this year alone, we have already recorded 5,340 accidents, with 740 deaths and 4,950 people sustaining various degrees of injury. This is just within the space of five months (January to May).

So for the risks which make insurance so basic in Ghana, we would lose focus of our discussion if we want to continue with them. These risks as we noted earlier are across political, social, economic or religious class of any kind in Ghana.

My real frustration and shock came when individuals and businesses did not even want to give me the opportunity to speak the moment I introduced myself and business. There was fire outbreak in parts of the Makola markets few days before I started my marketing. Most of the shops and properties in the market are uninsured, yet the owners seem very allergic to insurance. They have no or little time for insurance officers to even explain insurance products to them, which they can take advantage of to protect their properties.

Some of the market women would directly or indirectly insult you. One of my colleagues was asked whether she did not have anything doing daily, than to be moving around disturbing people about insurance. When you approach a shop, either the manager himself/herself or one of the sales persons would tell you that the manager has gone out or travelled, and so you should come back later. You follow up for number times before they tell you that they are not interested in insurances, thereby wasting your precious time and resource. Of course, they were some who would receive you well.

The lackadaisical attitude toward insurance by businesses owners in our markers cut across board. I am only using the Makola market as an example because most of my target shops were in that market. Indeed, a shop owner in Cantonments said she was not worry about burglary or fire because her shop is nearer to both the Police and Fire Services Headquarters. She has forgotten that fire can sometimes be faster and fiercer than fire fighters, or thieves and/or robbers can be so notorious and do not even spare the police officer.

After failing to market the shop owners’ policy as I wished, and still mindful of my targets, I turned to motor policy. For motor, I was encouraged by the law that makes it mandatory for vehicles to have at least a third party motor insurance policy.

Despite the high rate of road accidents, I observed that, had it not been for the law, many people would not have insured their vehicles. So many car owners opt for third party insurance policy. They are concern about prices of insurance products and companies than the quality of the product, or the ability of the insurance company to pay claims. They are careless whether companies are paying the right claims per value of their vehicles or not, because they don’t also want to pay the right premiums. What is important to car owners regarding insurance policies is to do away with unnecessary police disturbance and extortions.

For residential insurance products, ‘the ordinary Ghanaian’ doesn’t want to hear of them. The story is the same for travel insurance products, except for people who want to travel to countries where travel insurance is a requirement for visa acquisition. Indeed, a woman told my colleagues that her life, home, and business are already insured by Jesus Christ. She has forgotten, or does not know that even Jesus Christ, whilst on earth, prayed regularly to the Father in heaven for protection. In fact, God himself have asked us to protect ourselves and properties, an endorsement of insurance because insurance is all about protecting yourself and properties from a loss resulting from a potential risk. The ‘ordinary Ghanaian’ makes the god factor takes over the reasonable need for insurance. Maybe we think there are not Christians, Muslims, traditionalists, or religious adherents of any kind in Japan, Indonesia, or Haiti, or God loves us more than the people in these nations, or we are more of God’s children then they are.

The increasing risks of tsunami, floors and earthquakes are a manifestation of climate change in the world in which we all live in. So, one of the surest ways out of these possible threats is insurance, and not to cry to God in the event of the loss. Admittedly, Insurance has come a long way in Ghana. The influx of insurance companies, the growth rate of existing ones, and the supply of innovative insurance products into our market attest to the fact. It is also a reflection of the growth of the economy over the past decade. What the companies now need is to identify the main sectors that drive the growth of the economy and take proper advantage of them. Nevertheless, I think the ‘ordinary Ghanaian’ still needs greater education as far as the concept of insurance is concerned. My experiences and observations have shown that the ‘ordinary Ghanaian’ has his /her own definition of insurance, or operations of insurance companies. Insurance by its nature depends largely on promise between/among parties, and the abilities of the parties concern to honour their promises. Thus the principles of integrity and transparency are core ingredients in this, and these ingredients reinforce each other. Now, to the ‘ordinary Ghanaian’ insurance companies lack integrity and transparency. He/she believes insurance companies collect your hard earned money on promise, but refuse to honour their side of the promise of paying clams, or at best frustrate you before giving you ‘something small’. Now imagine the loss of jobs as a result of the seemingly daily fire outbreaks, armed robberies, floors, and road accidents. Imagine the loss of incomes to individuals, businesses, and government. Imagine businesses that are truncated, the lost of employment and incomes. Imagine the loss of human resources and properties through road accidents. These are basic economic implications of leaving majority of businesses in the informal sector uninsured. The point is that after ensuring sound macroeconomic grounds, we need to ensure and maintain two critical factors for economic growth. First, we need to grow new businesses, and second, and more importantly, we need to ensure the continuity of existing businesses. Insurance is a critical tool for both factors. It mobilizes investment funds for new and existing businesses, and also provides protection for existing businesses to perpetuate, explore, and flourish. The informal sector, for instance, is a very significant sector of the economy. The sector provides goods and services at affordable prices to larger segment of the population outside the reach of the formal sector. The sector, by its nature, permeates all sectors of the economy, and therefore provides a lot of employment and income to majority of Ghanaians. As noted earlier the key to making insurance attractive to business owners in the informal sector is rigorous education by major stakeholders like governments, civil societies, business organizations and advocates, trade unions, and more importantly, insurance companies. Any move towards educating business owners in the informal sector should be participatory. The leadership in the informal sector should be an integral part of the process from the design stages to implementation of any insurances education program. Investors and government have been fighting for the reduction of interest rates, especially in the wake of continuous reduction in inflation rate. To achieve this goal in real terms, we would need to look at the demand and supply of money in real terms as well. Once the demand is high than supply, the call for reduction would remain a mere preaching. Insurance companies are serious financial intermediaries in today’s financial system. If the informal sector is adequately brought into insurance, we could increase the amount of investment funds both for government and the private sector. We could reduce our external borrowing drastically, and our vulnerability to external financial shocks. Increase in the supply of investment funds could help reduce interest rates, and make the cost of borrowing cheaper, thereby deepening financial intermediation. Whilst focusing on the traditional role of paying claims, I think the financial intermediation role of insurance companies in Ghana can further be broadened, especially in relation to the informal sector. The simple reason being that there are still a large chunk of businesses in the informal sector which are uninsured, and financial intermediation in the sector is also very shallow. If insurance companies can study this sector very well, supply innovative and affordable products to suit the demand of businesses in the informal sector, we would experience more growth in our economy. Some may argue that they are several of such kind of products in the markets. My point is that most of these products are designed for the formal sector and the elite class. Unfortunately this group is in the minority at this stage of our growth. To pursue our growth agenda, we need to look at the informal sector as well, because we have an economy with a very large informal base. Again, to be able to properly break into the sector, insurance companies will need to provide innovative, attractive, and affordable products compatible with the needs of businesses in the sector. Rigorous education and market campaigns should be in conjunction or precede this. To be a gate way to West Africa, Ghana needs a very strong economy. Very strong economy requires very strong financial base and stability. We need to look within for capital and reduce our dependence on external sources of funding for both public and private expenditures. Interest rates need to be reduced to reasonable levels to make investment funds available. To this end, insurance companies still have a lot to do to help us as far as our economic growth agenda is concern.

Karimu Suale [email protected] [email protected]