A government directive to ministries, departments and agencies (MDAs) to purchase or renew their insurance cover with only wholly or partially owned state insurance companies is stirring controversy in the insurance industry.
Some players in the industry say that the apparent introduction of monopoly into the industry is likely to affect the operations of private companies which are playing key roles in the economic development of the country.
President John Dramani Mahama, in a directive dated December 9, 2013 to all ministers of state and signed by Dr Raymond Atuguba, the Executive Secretary to the President, said with immediate effect MDAs should purchase or renew their insurance cover required in the course of government business solely with insurance companies wholly or partially owned by the state.
According to the directive, any MDA which had cause to do otherwise must first of all obtain the required permission.
“I would be grateful if all ministers could ensure that MDAs under the jurisdiction of their ministries comply strictly with this directive,” Dr Atuguba said in the letter to the MDAs.
Reaction from Insurers
Operators in the insurance industry are, however, not happy with the directive.
Members of the Ghana Insurers Association (GIA) and the Ghana Insurance Brokers Association (GIBA) have described the directive as a discriminatory order which seeks to preclude private insurance companies from participating in the insurance business of government.
They have, therefore, written to President Mahama to, in the interest of the growth and development of the insurance industry in Ghana, reverse the directive with immediate effect.
“It is our respectful opinion that the current directive is completely at variance with the positive efforts that your government is making to promote the private sector as the engine of growth,” they said.
Number of Insurance Companies
Out of the 48 licensed insurance and reinsurance companies in the country, only State Insurance (SIC) Ghana Limited, SIC Life Insurance Company Limited and Ghana Reinsurance Company (GRC) Limited are either partially or wholly owned by the state.
However, the SIC is a public listed company whose shares are held by both local and foreign investors, with the government owning about 40 per cent shares.
The GIA and the insurance brokers argued that the privately owned insurance and broking companies made a significant contribution to the economy, as the industry employed 4,000 permanent staff and more than 5,000 people as insurance sales agents.
“This discriminatory directive will lead to retrenchment of staff and loss of income-earning opportunities for the large number of citizens who sell insurance as agents,” they said.
The industry, they said, exclusively funded the operations of the National Insurance Commission through the payment of fees and levies and also made significant contributions to the National Road Safety Commission, the National Health Insurance Authority, the Motor Insurance Compensation Fund, the Fire Fund, as well as the national treasury through the payment of various taxes.
Private insurance companies, they said, also undertook significant corporate social responsibility projects that benefited marginalised and deprived segments of the population.
“We are at a loss as to who the real beneficiaries of this directive will be in the long run. We are in no doubt that the directive will not inure to the benefit of the nation and will only serve the interest of a few individuals,” they said.
Explaining further the action of the government, a source at the Presidency said the directive was not to crowd out private insurance companies.
It said if any MDA had any reason to renew insurance with a private company, it could apply for permission to do so.
It said the insurance law provided that an insurer had the liberty to choose any insurance company to do business with.
In the late 1980s, Section 64 of the Insurance Law 1989, PNDCL 227, required all government agencies, statutory bodies or corporations in which the government owned more than 50 per cent interest to be insured with the SIC.
After about two decades, the law was repealed because it was found to be inconsistent with government policy on the private sector and government’s obligations under international treaties.
That led to the enactment of the Insurance Act, 2006, Act 724 which removed the monopoly enjoyed by the SIC and created conditions for a level playing field for all market players.
In the reinsurance market, it was also found that the GRC was also enjoying monopoly.
Parliament, therefore, repealed the Ghana Reinsurance Organisation Law, 1984 (PNDCL 79) and the Ghana Reinsurance Organisation (Amendment) Law 1987 (PNDC Law 169). Subsequently a 20 per cent compulsory legal concession to the GRC which came into effect in 2009 was also removed.
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