Insurance Cash-and-Carry – so far, so good



In an earlier publication on this subject two years ago, I did make reference to the positive impact the No Premium No Cover Policy (NPNC) has had on especially the Nigerian insurance sector and how its implementation in Ghana was going to inure to the benefit of the Ghanaian economy as well if sustained.
In this edition, I will be throwing more light on the story of Ghana’s insurance industry and how the insuring public seem to be appreciating its implementation as time wears on.

The Initial Apprehension

Until its implementation, many people were totally oblivious of the fact that taking up an insurance policy and paying premiums at a later date was a normal practice in the country over the years. In view of the importance of insurance to this category of people, they could not conceive the idea of buying insurance on credit and even refusing to pay the premiums involved subsequently.

To them assuming everybody was allowed to buy insurance on credit, it was going to be naturally impossible for insurers to get money to pay claims on insured events! This mindset is certainly one that I will personally desire of the chunk of the insuring public.

The National Insurance Commission (NIC), therefore, had a daunting task in changing people’s perception about insurance and helping them to appreciate the importance of insurance and the need for them to pay promptly for their insurance coverage to enable them to enjoy better services from insurance companies, especially in the payment of claims.

The New Regime and Initial Reactions

With the new regime, the payment of premium was a condition precedent upon a valid insurance contract. The announcements came with 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? Some sell to friends, relatives, cronies, social connections, and big institutions and want to make ‘things’ flexible for them by giving them the option to spread payment over a period mostly with the issuance of postdated cheques.

Change always comes with a natural feeling of uncertainty and sometimes fears of the unknown. In furtherance of that, some industry watchers also feared this move was likely to worsen the current low insurance penetration rate which is under two per cent.

Why this regime?

Over the years, the Ghana 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 (NPNC)” Directive in the Insurance Market effective April 1, 2014. Basically, the policy seeks to bar insurance companies from extending cover to any individuals or businesses that do not pay all their premiums upfront. I shudder to imagine how many people can buy motor vehicles on credit yet think that the relatively small premiums payable must be on credit.

As of December 2013, premium debts on the books of insurers reached GH¢149 million and this negatively affected the liquidity and solvency of some companies, resulting in their inability to pay claims promptly. It is important to compare this with the over GH¢333 million claims paid after the June 3 disaster alone!

Suffice it to say, it is a ‘bitter pill’ that had helped and would continue to help the industry to stand on its feet and increase public trust and confidence in the insurance market. From cursory 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 will be fully embraced.

As it were, some of those who have, for instance, insured their vehicles comprehensively were compelled, at the initial stages, to reduce it to third party. That notwithstanding, some indications also point to the fact that having come to terms with the understanding of the policy, many people are reverting to the comprehensive covers.

Is it not ridiculous to learn that prior to the NPNC policy, some insurance companies had strong balance sheets that looked so good but the chunk of what was in these are premiums in arrears!

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 (in lieu of available statistics) 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.

Many insurance companies are getting fully used to the policy and clients have a full understanding of it as the NIC had often cracked the whip on some intractable insurance companies. In other words, the NPNC, one of the best policies of the NIC ever, 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 premiums 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.

According to the Nigerian Business Day newspaper, the Nigerian insurance industry posted a projected premium figure of 285 billion Nigerian Naira (US$1.8 billion) as of the end of 2013, a year after the policy came into effect.

Back in Ghana, the same level of seriousness has been attached by the insurance regulator to the policy and it may still be early days yet to assess the impact of the policy on the Ghanaian insurance industry though ‘the weather looks clear’ with positive signals.

Who benefits?

The benefits of the NPNC are that the insured will be ready to pay ‘comprehensively’ upfront for insurance, the insurers become more liquid and are able to pay claims more promptly as well as provide other ancillary services to their clients.

Similarly, insurance agents and brokers will be paid adequate commissions / brokerages with corresponding extra good quality services and re-insurers will 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.

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 has not hesitated in disciplining recalcitrant insurance companies with pecuniary penalties to let them fall in line with the directive.

It may seem to be a bitter pill from the onset for both businesses and individuals. Only God knows where many insurance companies would have been by now if this policy were to be absent prior to June 3, 2015.

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!”

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