Insurers ordered to clean books by Dec.

The National Insurance Commission (NIC) has directed insurance companies to clear their books of all debts by the end of this year, as it begins implementation of the “No premium, No policy” directive next week.

The Commissioner of the NIC, Lydia Bawa, said insurance companies that fail to collect outstanding premium debts incurred since 2012 will be compelled to write them off since the regulator wants to ensure that insurers begin the next financial year on a clean slate to protect the industry’s stability.

“Insurance companies are to collect their outstanding premiums from policyholders or write them off as bad debt before December 31, 2014,” she said.

Ms. Bawa made this known when she unveiled a new indigenous life insurance company, Esich Life Assurance Company Limited, on the market. This brings the total number of licenced insurance companies to 44, which are all competing in a market where the insurance penetration rate is estimated at 1.5% in a population of about 26 million.

Total capitalisation of the industry -- both life and general insurance -- in 2012 was GH₵538million, from GH₵434million the previous year.

In 2012 the industry grossed GH₵851million in premium income, which was a 35 percent growth over the previous year’s figure of GH₵628million.

Total assets for the industry reached about GH₵1.45billion in 2012 from GH₵1.16billion in 2011.

The NIC is worried some insurance companies have resorted to unconventional practices by reporting huge amounts of outstanding premiums while at the same time making equally large amounts of provision for bad debts without significant subsequent recoveries, putting the entire industry at risk.

Figures from the industry’s operations last year are not available. However, data indicate that insurance companies were owed a little over GH₵130million in premium debts at the end of December 2012, a situation that makes it difficult for insurers to honour claims when they fall due.

The debt, which is 0.35% less than that recorded in 2011, was incurred as a result of people who took various insurance covers without paying the required premium.

At the same time, claims paid by insurance companies increased by 35.8% from the previous year to GH₵99.8million at the end of 2012.

The NIC says it is concerned the outstanding premium profile could hurt the industry, necessitating the formulation of the “No premium, No cover” policy to protect the interest of all stakeholders -- as the present practice exposes the industry to liquidity risks.

“The huge outstanding premiums have had a significant knock-on effect on reinsurers. Firstly, insurance companies are unable to pay their reinsurance premiums while the premiums remain unpaid by the policyholders. Subsequently, the reinsurers are unable to pay their retrocessionaires. This creates serious credit risk exposures for both the insurers and reinsurers.

“Secondly, when the premium debts are eventually declared bad or doubtful and have been written-off, it creates complications for reinsurers as they would have already placed the business with their retrocessionaries,” the commission said.

Some insurance practitioners have told the B&FT that the practice of some insurers issuing policy covers without collecting the appropriate premium has arisen in the face of growing competition within the industry.

The NIC has said that its efforts to encourage people to take up insurance policy cover will be hampered if insurers continue to undertake practices that put them in difficulty in regard to honouring claims when they fall due.

“The current state of affairs has not only increased the credit risk of insurers, but has also introduced uncertainty into the market as to the capacity of many insurers to meet their obligations to insurance policyholders and other stakeholders.

“It has contributed significantly to the inability of insurance companies to pay claims promptly and adequately,” it added.

The NIC said it will ensure strict adherence to the “No premium, no cover” policy in a bid to bring sanity into the industry.

It said it has instituted a number of punitive measures for insurance companies that fail to adhere to the policy, including charging insurers 10 times the amount involved for granting cover without premium.

By Elliot Williams & Evans Boah-Mensah