Insurance is a Social Good; more so Life Assurance. Life assurance is a financial planning tool that guards against the harsh realities of life; uncertainties and unforeseen events that suddenly befall us. It provides for continuity of income and mortgage payment protection in the event of death, financial protection in the event of disabilities and critical illness, and pays out annuity in retirement. It ensures funds for children’s education, financing for funeral expenditure and other emergencies.
Insurance penetration, measured as total insurance premiums expressed as a percentage of GDP, remains very low in Ghana. So is insurance density; ratio of total insurance premiums to the total population – insurance premium per capita. While insurance penetration remains below 2% in Ghana, 2014 reports issued by the Swiss Re and African Insurance Organization reveal insurance penetration in South Africa to be 14.5%, Namibia 7.5%, Mauritius 5.7, and Botswana and Kenya both at 3.17. As captured in the 2014 KPMG Insurance In Africa report; Life insurance remains particularly underdeveloped outside of South Africa due to poverty. Individuals will only start to think about long-term savings once their short-term needs are fulfilled, which means that life insurance is not an affordable option for most people on the continent. Indeed, this means that a lot of low income earners, who incidentally need it most, are automatically cut off from the benefits of Life Insurance policies; leading to “financial exclusion”.
In Ghana, many times, stories are told of children who dropped out of school because they lost a parent. Indeed, more tragic circumstances of children’s dreams being shuttered because a parent became suddenly incapacitated through injury or critical illness are recorded daily. These unfortunate scenarios lead to increases in social vices amongst the youth and loss of productive human capital for the nation. It is the case that many of these dropouts could turn out to become Qualified Actuaries and Chartered Financial Analysts; two very scarce professional skills in the financial services sector in Ghana currently. Unfortunately, as a nation, we have failed to quantify the social and economic cost to families and the larger economy as people suffer such fates daily.
Group Life Assurance (GLA) policies are very good solutions that countries deploy as compulsory employee benefit schemes to safeguard against these social mishaps. By its nature of offering, GLA deepens Financial Inclusion as people who ordinarily will not purchase, or cannot afford, otherwise very important insurance products will be provided for by their employers. This provides social safety nets for the poor, hitherto financially unreached, socially and economically unprotected employees. Whilst it provides safety nets, the insurance premiums payable by the employer on behalf of all employees is bulk and covers multiple lives, hence significantly increases insurance penetration and insurance density in the country.
Group Life Assurance
GLA is designed to enable employers make provision for beneficiaries of employees who die or become incapacitated while in employment. It provides for the payment of bulk sums of money to beneficiaries as replacement for lost income upon the occurrence of a tragic risk event in the life of a breadwinner. The cover is arranged and signed by the employer as policyholder with the employees as lives assured. Premiums payable by the employer is tax exempt expenditure.
GLA provides 24 hour cover for employees anywhere; not restricted to the work environment. The Sum Assured payable to a beneficiary on the occurrence of any risk event is well documented at the inception of policy. The sum assured for each employee is usually expressed as a multiple of the annual salary (1x, 2x or 3x), but can also be an equal flat amount for all employees. Social groups and professional associations can also secure GLA cover for their membership.
In many countries around the world; including South Africa, Kenya and Nigeria, GLA protection for employees is a compulsory employee benefit scheme just like pension contributions. In Nigerian specifically, the Pensions Reform Act 2004 created the avenue for GLA to become compulsory with minimum benefit of three times (3x) total emolument payable as sum assured. The Nigerian legislation proceeds to stipulate that “where the employer failed, refused or omitted to make payment as and when due, the employer shall make arrangement to effect the payment of claims arising from the death of any staff in its employment during such period”. In effect, it places very heavy liability on employers who fail to comply with the law. It further directs that all companies must display their GLA policy certificates conspicuously in their premises as evidence of compliance. It is worth mentioning that the Nigerian legislation also provides for risk events of employee “disappearance” to be covered under GLA.
In Ghana, however, GLA remains optional. As such, only few companies – mostly multinational and very few indigenous ones – acquire full scale packages of GLA in place for their employees. Most companies will deploy the very basic cover of Workman’s Compensation (WC) just to comply with the law. Other employers choose the Group Personal Accident cover which also comes with limitations on benefits due employees. Refreshingly, the Ghana Insurance Association (GIA) and the National Insurance Commission (NIC) are currently championing the agenda for GLA to become compulsory.
GLA as HR Tool – Employee Value Proposition
It is the case that the Human Resource (HR) functions of some businesses in Ghana cannot appreciate the competitive advantage and brand mileage gains in advancing the cause of Employee Benefit Schemes; the likes of GLA. Best practice has it that employee benefit schemes sit under the custodianship of HR functions so that HR Managers can at all times articulate and advocate the strength of their brand relative to staff welfare. Unfortunately, in some of the companies where these policies exist, the deployment of these benefits sits as desk job in various other departments than the HR. These other departments do administer the GLA policy but obviously rob the HR function of a key role in ensuring staff welfare and propagating same as a strong employee value proposition.
It is well documented that the biggest sway on decisions by top officials and the best employees to change employers is employee welfare and job satisfaction. As such, for an employer, the biggest retention tool to keep your best employees, or attract and draw in the best talents in the market, is rather the employer’s total Employee Value Proposition; not salaries alone. It is the expectation of top executives and best talents that employers would demonstrate interest in the welfare of their family just as they commit to the welfare of shareholders’ interest and those of other stakeholders. GLA protection for employees is one such tool that empowers the workforce to remain motivated and produce optimum results.
The NIC and other Regulators
The National Insurance Commission (NIC), as regulator of insurance business, has on many occasions voiced concern about the low insurance penetration and density rates in the country. Miss Lydia Lariba Bawa, commissioner of the NIC, speaking at a seminar to train journalists on insurance reporting in April 2015, lamented the poor state of insurance penetration in Ghana. The commissioner on various other occasions indicated the NIC’s strong support for the advocacy by the Ghana Insurance Association towards GLA becoming compulsory in Ghana. In advocating this, the regulator is conscious that GLA offers such platform with aggregated numbers and bulk premiums to ensure deeper penetration and density of insurance in the country.
Of the many functions of the NIC, the regulator remains the chief custodian of the Ghana Insurance Act 2006 (724). The insurance act is explicit that “a person shall not enter into a contract of insurance with an offshore insurer”. As custodian of the legislation, the regulator is to ensure that the law is respected by all; especially multinational companies. It is observed that some multinational employers in Ghana insure the lives of their employees, mainly through their parent companies, with offshore insurers not registered in Ghana. This practice results in “premium flight” for which insurance penetration remains low in Ghana.
In recent years, various industry regulators have become keen on ensuring local content and local participation by Ghanaians in their respective industries. That is commendable; however, it is not enough to have local content without the welfare of such workforce receiving paramount attention. Industry regulators across all sectors must channel enough energy towards ensuring that players in their respective industries treat their Ghanaian workforce fairly just as they do their employees in other parts of the world where GLA is compulsory. Employee life protection policies are just as important as promoting health and safety in the workplace.
For instance, it must be unacceptable that Ghanaians work in such dangerous and hazardous places as oil rigs without adequate levels of GLA policies. Whether by legislation or convention, it is worth considering that no company gets license to operate in Ghana unless it has taken steps to provide appropriate life assurance covers for its workforce. The extent of cover must not be substandard and the cover cannot be placed with the parent company, or offshore insurer, outside Ghana as the law stipulates. Life Assurances companies in Ghana and their Reinsurance treaties have enough capacity to provide cover for all employees locally.
The way forward
It is critical that all stakeholders; including government, the regulator, insurers, insurance brokers and labour unions come together to champion the course of this very important Social Good to the benefit of the nation’s workforce and its economy at large. The GIA and NIC must continue their advocacy with much more intensity in getting government to appreciate the social good in making GLA compulsory. Insurance companies must be at the forefront of educating corporate institutions about the benefits of this solution for their workforce. Industrial labour unions must advocate staff welfare benefits like GLA to be captured in compulsory bargaining agreements than salary increments alone.
While GLA remains optional for now, the insurance act is explicit that risk originating from Ghana cannot be placed with offshore insurers. Accordingly, all employers and organizations with GLA covers for their employees must ensure compliance to the spirit of the law by avoiding any act that can be technically interpreted as insuring lives offshore. Considering that compliance to local legislation is a requirement of financial reporting, external auditors must ensure they check and report on such compliance prior to approving annual financial reports of companies. The NIC must be in constant touch with auditors to push this agenda in financial reporting.
The NIC must establish liaison with other industry regulatory bodies, together with their supervising government ministries, and request of all to ensure that players in their respective industries provide details of Life Assurance packages they have for their employees. With this, the regulator is able to ascertain high-level strategic data to determine industry compliance or otherwise to the insurance act. With same data, the regulator is able to pinpoint by sector or industry where this insurance product’s uptake is low hence targeted emphasis and education in that regard.
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By Sosthenes K. Konutsey
The writer is an advocate for Financial Inclusion initiatives with combined 13 years’ career in the Financial Service Sector – Banking, Insurance and Pensions.
Email: sos2581@yahoo.com
- See more at: http://citifmonline.com/2015/07/24/group-life-assurance-tool-for-social-protection-financial-inclusion-and-insurance-penetration/#sthash.aFQTghH8.dpuf
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