Insurance C’ssion ceases issuing new licenses

By Fred SARPONG

The National Insurance Commission (NIC), the regulator of the insurance industry, intends to put on hold the issuing of any additional license to prospective insurance investors, as it prepares to map out strategies to strengthen the industry.

In an interview with Isaac Yaw Buabeng in Accra, Head of Marketing, Research and External Relation at the NIC, he indicated that the decision taken by the commission is to make the industry a viable sector for both investors and beneficiaries.

Even though the commission has received some applications from prospective investors, Buabeng said the applications are being put on hold until the commission realizes that the sector is ready for more insurance companies.

As to whether the commission is okay with the minimum stated capital of US$1 million for the companies, Buabeng said that Ghana’s insurance industry is too young to witness such an increase as compared to the Nigeria insurance industry which stated minimum capital stands at US$15 million.

But he quickly added that the commission is asking all the existing insurance companies which want to enter into the oil and gas business should increase their minimum stated capital from the usual US$1 million to US$5 million. “This is because the oil and gas industry business involves a lot of risk,” said Buabeng.

The insurance industry in Ghana has positioned itself to write the oil and gas business. The industry has formed a consortium so that the business is written on co-insurance basis.

The insurance companies will participate in the business according to the strength of their balance sheet. This is done so that the companies can match the liabilities with their assets.

At the end of the day a greater percentage of the business will go into reinsurance until the companies build the required capacity.

After the shares by the Consortium of Insurance Companies, the excess will be reinsured with reinsurance companies on the international market.

A typical package policy is said to be structured with several sections and could be placed as a policy for one unit for one drilling contract or more typically an annual policy for the assured fleet.

A significant proportion of underwriting capacity is also available from the oil companies themselves through the participation of their captive insurance companies. As the oil company grows, building up its market capitalization and developing a spread of assets in different geographical areas, it is able to retain more of its own risks. It is usual for an oil company to self-insure this risk through the establishment of a captive insurance company.

The captive will generally be located in a country where it can be administered in a tax-efficient manner and will be responsible for accepting premiums for the share of risk written by the captive and paying claims there on.

Nowadays captives owned by large multinational companies in the oil sector or otherwise are sophisticated organizations and may participate in various levels of its parent’s programme and may have its own reinsurance network.