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30 years of insurance broking in Ghana – the way forward

By: Mawuli Zogbenu

‘If it is worth celebrating, it is worth examining’ - Author

The 30th anniversary celebration of the Ghana Insurance Brokers Association (GIBA) was recently launched on the theme: ‘Celebrating 30 years of insurance broking in Ghana: Achievements and challenges.’

For a sector that has contributed less than two per cent to the country’s Gross Domestic Product (GDP), it is important that GIBA, being one of the key contributors to the insurance penetration rate, is celebrated.

The call by the Commissioner of Insurance to GIBA to move from its ‘basic services to the provision of sterling services’ couldn’t have come at a better time, especially after 30 years of broking experience in Ghana.

In celebrating its achievements and examining its challenges, this week’s write-up seeks to understand the sector while throwing more light on other related brokerage matters in Ghana.

Brief History of the Ghana Insurance Brokers Association (GIBA)

GIBA is the national trade association for Ghanaian licenced insurance brokers and represents the voice of brokers and an advocate for insurance consumers. Inaugurated in October 1988, one of its core objectives is ‘to promote, raise, maintain and uphold a high standard in insurance broking and consulting practice’.

With current membership strength of 72 brokerage firms, its first President was Dr Selby Ashong-Katai, with the immediate past President being Mr Nathan Adu who had just handed over the wand to the first female President of the Association, Mrs Lena Adu-Kofi.  

Confusion about who a broker is
Two years or so ago, I received a call from a friend who expressed worry as to why his company should give their insurance portfolio to an insurance  broker to manage when that could actually be done directly with an insurance company.

I painstakingly explained to him why he should be pleased that his company should engage the services of an Insurance Broker as ‘it makes life easier’.

Who are Insurance Brokers?
Insurance brokers can be described as specialists in insurance and risk management who act on behalf of their clients by providing advice on insurance with the view to promoting the interests of their clients. They are invariably willing to help their clients identify their (i.e. clients) insurance needs and also help the client to decide on what to insure and where to insure.

According to the Canada Insurance Brokers Association (CIBA) ‘an insurance broker works for you (client) rather than an insurance company’.  Brokers use their professional knowledge and experience to help to properly assess insurance needs, shop for the best value in insurance coverage and help to pursue a claim in the event of one.

Insurance brokers generally work for the client in the insurance procurement process and act independently in relation to insurance companies. They help their clients in the choice of specific insurance policies that would meet their needs. Clients are presented with alternatives by way of choice of insurance companies and products.

The good news about engaging the services of a broker is that their clients enjoy high level professional advice in insurance at no cost to them. Unlike the insurance agent who generally works for the insurer, the insurance broker works for the client and is paid brokerages (commissions) by the insurance companies without charging the clients.

Due to their professional nature, insurance brokers are licensed to work with several insurance companies in the placement of risk on behalf of their client.

How brokers work
Brokers invite quotes from selected insurance companies and support clients in determining the appropriate limit of cover as well as the product from a range of products and also provide information on the claims payment profile of various insurers.

In some business jurisdictions, there are distinctions among brokers depending upon the types of specialised products they are licensed to sell – some are licensed to sell both life and non-life products, while some others may be limited to either of the two.

There are also reinsurance brokers who solicit, negotiate and sell reinsurance cessions and retrocessions on behalf of ceding insurance companies seeking coverage with reinsurers.
Benefits to the client
The engagement of a broker makes the insurance process more efficient for both the client and the insurer. Regardless of the legal role in which a broker is acting, the manner in which the broker approaches all such placements for their clients is as an intermediary – working on behalf of their clients to facilitate insurance contracts with insurers that have the ability and capacity to insure their risks.

Administratively, the broker replies to all correspondence between the insurer and the insured and ensures that renewals are done on time using a process-based approach which is increasingly used around the world.

The importance of brokers in insurance practice
The importance of insurance in contemporary economies is unquestionable. Clearly, insurance serves a broader public interest far beyond its role in business matters and its protection of a large part of the country’s wealth cannot be under-estimated.

Apart from facilitating the placement and purchase of insurance, they complement the insurance placement process. They are a critical channel of distribution as the client sometimes feels more at home dealing with them than dealing directly with insurance companies.

Insurance brokers have become very critical as they complement the efforts of not only the National Insurance Commission (NIC) but also the Ghana Insurers Association (GIA) to improve on the insurance industry’s total capacity on an oily wheel.

Some challenges
A challenge for brokers has to do mainly with getting competitive rates for their clients. By so doing, there is the tendency to coerce insurers to unrealistically reduce rates or undercut premiums to levels that could simply pass for uneconomic!

This is the reason the Insurance Commissioner in his statement at the launch did not mince words when he called on all brokers to ‘collaborate in order to curb all malpractices in the sector that were affecting the sector’s contribution to the GDP’ and to say premium undercutting is one such undesirable practices may amount to singing an old familiar song!

Ownerships / shareholding nature
Many brokers in Ghana are owned or rather headed by experienced insurance practitioners who have retired from service in mainstream insurance practice. They are usually top executives whose expertise in insurance consultancy cannot be challenged. This is good for the health of the insurance industry; having professionals who ‘know what time it is’.

One disadvantage here, however, is that some of them may prefer placing businesses at their former places of work or with their ‘connections’ within the industry without recourse to the efficiency and whether they can help in addressing the needs of the broker’s clients. Some brokers also without exhausting the local capacity place their businesses in overseas markets.

The way forward
Brokers have a responsibility to ensure that the right premiums are charged even though it is a known fact that they do not determine the pricing of insurance products.

There is the need to recognise the fact that they also have a responsibility towards insurers to ensure that all the parameters in rating a risk have been applied properly and at the same time balancing the equation to obtaining good terms for their clients.

The practice of placing businesses with companies they have some ties with may be putting some other companies at a disadvantage, hence the need to transact business based on fair practice and the ability of the other insurers to deliver based on client specifications as well as risk profile.

Some local brokers are the channels through which external reinsurance placements are effected and this must be done in such a way to protect the local capacity before resorting to external business arrangements.

With the not-so-pleasant perception about the sector, it is needless to say that insurance brokers indeed inspire confidence in the insuring corporate world and this reputation must be guarded and improved on as we mark 30 years of insurance broking in Ghana. Congratulations, GIBA!

Until next week, “This is insurance from the eyes of my mind” GB