Ghanaian Insurance Research Articles

Intellectual Capital Efficiency and Risk-Taking Behaviour of Insurance Companies in Ghana

ABSTRACT Our study focused on the link between intellectual capital efficiency (ICE) and its individual components and underwriting risk. It examined the effect of ICE, and structural (SCE) and human capital (HCE) efficiency on the underwriting risk of Ghanaian life and non-life insurers. It used panel data of 31 insurance firms in Ghana, of which 14 and 17 were life and non-life insurers, respectively, from 2008 to 2019. A generalized least squares estimation technique was used to examine the relationship between ICE and underwriting risk in life, non-life, and the entire insurance sector. The results suggest that there is a significant negative relationship between HCE and underwriting risk in the Ghanaian insurance sector. However, there was no relationship between ICE and underwriting risk and between SCE and underwriting risk. As the first to examine ICE and risk-taking behavior in any African country, our study is significant in managerial decision-making and insurance policy formulation to reduce risk in the insurance industry.

Tax planning and financial performance of insurance companies in Ghana: the moderating role of corporate governance

The insurance industry is a contributor to gross domestic product (GDP) in the Ghanaian economy and, thus, effort at improving its financial soundness through tax planning (TP) could enhance its level of GDP contribution. Previous studies on TP have been conducted mainly among the non-financial firms, with few on banks. This study turns the attention of TP towards the insurance industry, which has been a good source of fund mobilization in the country. Within the systems panel dynamic generalized method of moments (GMM) framework, the study examined the moderating impact of corporate governance (CG) on the relationship between TP and the performance of insurance companies in Ghana. The study employs the causal design to examine the extent and nature of the cause-and-effect relationship between the quantitative variables used. The data comprised of 117 observations from 35 Ghanaian Insurance firms over the 2012–2017 period. The study found evidence of a non-linear relationship between tax planning measured by effective tax rate (ETR) and the performance of insurance companies measured by return on equity (ROE) and return on asset (ROA). Moreover, the study found that CG moderated the relationship between TP and the performance of insurance companies. The study recommends that managers of insurance companies intensify the CG measures to help mitigate the agency conflict and associated costs between management and shareholders.

Exploring the Effects of Classical Auto Insurance Rating Variables on Premium in ARDL: Is the high Policyholders’ Premium in Ghana Justified?

To better understand the actual rating variables that affects Auto insurance Policyholders’ premium, this paper attempts to provide empirical evidence to justify which ones are significant and needed to be considered by insurers by adopting the autoregressive distributed lag (ARDL) model. In satisfying all the conditions for ARDL application, unit root, Heteroskedasticity, normality, dynamic stability and serial correlation tests were conducted. We estimate the effects of each rating variable on Premium taking into consideration whether the policy of the insured is Third-Party or Comprehensive. These rating variables in the ARDL model serves as the independent variables that establishes the short and long-run relationships between them and the Premium as the dependent variable. The results suggest that not all the classical rating variables used in the market significantly impact Premium. Whiles, to some extent, we found a varying degree of variables impact on Premium depending on the insurance type, the autos cubic capacity, which plays a cogent role on the basic Premium in Ghana, is insignificant. Also, policyholders’ age characteristics are statistically significant but are excluded in the premium calculations. Thus, this paper shows the need to consider all the other possible rating variables, including policyholders’ age into the Ghanaian insurance pricing system, whiles autos cubic capacity considering the weight it put on the basic Premium should be re-examined. This would help to obtain a financially balanced and optimal pricing system for policyholders.

Gender Influence on Emotional Intelligence Among Middle Level Managers in the Ghanaian Insurance Industry

One of the key elements for organizational development and success has been recognized as emotional intelligence (EI). The goal of this study was to determine the emotional intelligence profile of middle level managers who are in charge of implementing new policies and bringing about change in the insurance sector in Ghana. It was also determined how these middle-level managers' gender affected their emotional intelligence. 260 respondents from 26 selected Ghanaian insurance companies participated in the study. Data collection involved using the Boston EI questionnaire. Utilizing correlational and descriptive statistical analysis, the collected data was examined using the statistical software, SPSS. Pearson analysis MANOVA and 3- way ANOVA were performed to test the study hypothesis. According to the study results, insurance company middle level managers had good overall EI scores. The study also found that middle level managers differed in EI levels when gender was considered. The finding from the study therefore gives conclusion that gender is a considerable measure of EI level of middle level managers in the Ghanaian insurance industry

The Effect of Age on Emotional Intelligence Among Middle Level Managers in the Ghanaian Insurance Industry

Emotional intelligence has been identified as one of the critical ingredients for organizational change and success. This study sought to ascertain the emotional intelligence profile of middle level managers who are responsible for change and policy implementation in the Ghanaian insurance industry. The effect of ageon the emotional intelligence of these middle level managers was also ascertained. The study was a quantitative one that engaged 260 respondents from general, life and micro finance insurance companies in Ghana.Boston EI questionnaire was used to collect data. The obtained data was analyzed using correlational and descriptive statistical analysis. SPSSwas employed for this statistical analysis. The study found that, middle level managers of the insurance companies have high total EI scores. The study also found that middle level managers do not differ in EI levels based on age. Therefore, concluded that age is not a significant factor toeffect EI levels.

The Effect of Work Experience on Emotional Intelligence Among Middle Level Managers in the Ghanaian Insurance Industry

The study was a quantitative one involving two hundred and sixty (260) middle level managers from the Ghanaian insurance industry selected through purposive sampling. Data was collected using the Boston EI questionnaire and a review of documented works, article, journals and books on the subject area of EI. Data was analyzed using SPSS computer program. The statistical techniques employed were the multivariate analysis of variance (MANOVA) and the 3-way analysis of variance (3-way ANOVA). Pearson’s correlation was employed to ascertain the significance of the linear correlation between the dependent variable emotional intelligence (EI) and its components and independent variable, work experience. Based on the analysis, it was found that middle level managers have high EI score of 106. It was also found that there is a difference between the EI levels of these managers and their work experience. The study therefore conclude that work experience does have an effect on the EI levels.

What accounts for the high underwriting losses in the Ghanaian insurance industry?

PurposeThis research explores to answer the question: What accounts for the substantial underwriting losses in the Ghanaian insurance industry?Design/methodology/approachThirty-four (34) insurers' audited financial reports covering the period of 2007 to 2017 were analysed through dynamic panel regression to uncover the underlying causes of high underwriting losses in the Ghanaian insurance industry.FindingsThe findings indicate that efforts at increasing market share by overtrading add no value to insurers underwriting profitability. The underwriting risk suggests that the industry charges disproportionately too small premiums for the risks it underwrites. This may indicate under-pricing by some insurers to grow their customer base.Practical implicationsThe findings have implications for managerial efficiency and risk management structures that align compensation with underwriting efficiency.Originality/valueThe association between managerial preference and the underwriting performance of insurers in emerging markets has rarely been researched. This study responds to this knowledge challenge.

Exploring the nonlinear effect of size on profitability: evidence from an insurance brokerage industry in an emerging market

PurposeThis study examines the possible nonlinear effect of size on stakeholder and shareholder profitability in the Ghanaian insurance brokerage industry.Design/methodology/approachThis study employs a panel dataset of 64 Ghanaian insurance brokerage firms spanning 2011–2015. Static [ordinary least squares (OLS), fixed effect and random effect and dynamic (two-step generalized method of moments (GMM))] estimation techniques are employed to analyze the data.FindingsThe study finds the existence of both economies and diseconomies of scale and scope theories in the Ghanaian insurance brokerage industry confirming the existence of nonlinear nexus between size and performance. This finding is consistent for both stakeholder and shareholder profit performance. Thus, the results show that size improves profitability of insurance brokerage firms, but beyond a certain threshold, the relationship turns negative as size negatively affects profitability.Practical implicationsThe research findings have implications for both policy and research; the study recommends that Ghanaian brokerage managers should understand that not all growth is good and exercise a duty of care when applying growth strategies by monitoring size effect on performance so as not to go beyond the inflection point. Further research can be done to examine this effect in other contexts, timeframes and jurisdictions.Originality/valueThis research is unique in that it employs a panel dataset consisting of 96% of insurance brokerage firms in Ghana whilst employing both static and nonstatic regression models to examine the effect of size. The research analysis adopted is robust, and the findings are significant. Also, the lack of empirical studies on the operations and dealings of auxiliary institutions such as the insurance brokerage firms adds value to this research.

A Critical Examination of the Effect of Size on the Profitability of Insurance Brokerage Firms in Ghana

This paper takes a critical look at the effect of firm size on the profitability of Ghanaian Insurance brokerage firms. Specifically, the paper examined the effect of firm size (measured by total assets) on firm profitability (measured by ROA and ROE) from a lagged perspective (i.e. the lagged effect of size), non-linear perspective, and across quantiles, using fixed effects, random effects, robust and PCSE estimation techniques. Analyzing a unique data of 64 insurance brokers from 2007 to 2015, the findings show that firm size exhibited a significant and positive short term effect on firm profitability but the relationship turned negative in the long term showing a non-linear relationship of size on profitability, with an inflection point above the mean firm size. However, the non-linear effect was evident in the 50th and above percentile of brokers but not in the lower quantiles. The lagged values of size also significantly affected firm profitability but it was not as pronounced as the short-term effects. The study recommends larger Ghanaian insurance brokerage firms take a staggered and reflective approach in its growth measures.

Insurance and economic growth in Ghana

PurposeThe Ghanaian insurance industry has been transformed significantly from state-led to a market-driven one over the past decades. The empirical literature on the causal relationship between insurance and economic growth has been mixed, but little study on this has been done in Ghana. This study therefore empirically examines the effect of the growing insurance industry on the economic growth in Ghana.Design/methodology/approachQuantitative research design was deployed in the study. The study used Johansen–Juselius cointegration test and vector error correction model. The study deployed quarterly data from the first quarter of 2006 to the second quarter of 2018 sourced from the World Bank (World Development Indicators), National Insurance Commission, Ghana Statistical Service and Bank of Ghana.FindingsFindings revealed that there is a significant and positive short and long-run relationship between insurance and economic growth in Ghana, bidirectional causality between insurance and economic growth and also a long-run effect of innovations (shocks) in insurance on economic growth.Research limitations/implicationsOne of the limitations of the study is the unavailability of quarterly data of some of the variables.Practical implicationsThe study recommends the development and implementation of policies that promote an increase in coverage and access to insurance products to enhance economic growth.Originality/valueThe study finds a bidirectional causality running from insurance premium to economic growth and from economic growth to insurance which is consistent with the feedback hypothesis in the case of Ghana. Impulse response functions and the variance decompositions revealed that innovation (shock) in the insurance industry has a positive impact on economic growth.

The Impact of COVID-19 on Emerging Insurance Industry: The Ghanaian Evidence

This study explored the impact of the COVID-19 pandemic on the operational and financial performance of the Ghanaian insurance industry using secondary and quantitative data from NIC, in a quarterly form from year 2018 to first quarter of 2021. Using descriptive, graphical and trend analysis, the findings of the study uncover the negative impact of the COVID-19 pandemic on the operational and financial performance growth of the insurance industry and options for policy recommendations. More specifically, the findings show that in the wake of the COVID-19 pandemic, the number of policy holders in both life and non-life declined as well as the value of both life and non-life policy underwritten by insurance firms. Moreover, there was a higher rate of decline in the life aspect of underwritten policy than that of the non-life. Also, both of life and non-life gross premiums experienced a dip in performance growth in the COVID-19 era which can be attributed to the decline in the number of policy holders in the wake of the COVID-19 pandemic. Furthermore, the value of total assets for both life and non-life segment of the industry experienced a declining growth rate within the survey period, while investment growth and performance of the insurance industry was also negatively impacted for both life and non-life consistently despite some periods of ups and downs. With respect to the operational aspect of the insurance industry, the findings show that claims benefits paid had declined consistently in the pandemic period whereas managerial efficiency in terms of management expenses had declined with the arrival of the COVID-19 pandemic and this may suggest a general level of improvement in the managerial efficiency in the industry. Policy recommendations for future studies were offered.

The Impact of COVID-19 on the Insurance Industry

This study investigated the impact of COVID-19 on the insurance industry by studying the case of Ghana from March to June 2020. With a parallel comparison to previous pandemics such as SARS-CoV, H1N1 and MERS, we developed outlines for simulating the impact of the pandemic on the insurance industry. The study used qualitative and quantitative interviews to estimate the impact of the pandemic. Presently, the trend is an economic recession with decreasing profits but increasing claims. Due to the cancellation of travels, events and other economic losses, the Ghanaian insurance industry witnessed a loss currently estimated at GH Ȼ112 million. Our comparison and forecast predicts a normalization of economic indicators from January 2021. In the meantime, while the pandemic persists, insurers should adapt to working from remote locations, train and equip staff to work under social distancing regulations, enhance cybersecurity protocols and simplify claims/premium processing using e-payment channels. It will require the collaboration of the Ghana Ministry of Health, Banking Sector, Police Department, Customs Excise and Preventive Service, other relevant Ministries and the international community to bring the pandemic to a stop.

Scholastic Assessment of Insurance Productiveness from the Marketing Perspective

The Ghanaian insurance industry is on “life supporting machine” finding it very difficult to attract potential customers to patronize their services. Existing customers are also not loyal at all the reasons am yet to unravel. Individuals as well as organizations lack the interest of investing their scares resources in the insurance industry. Thus managers in this spectrum have to make it a point to constantly seek new ways to improve their services with the strategic intent of “loyalising” the hard won customers. It’s in the light of this that, this study is undertaken to examine whether relationship marketing strategies can be one of the assured ways of developing loyal customers. Again to ascertain how trust influence these relationship marketing strategies and customer loyalty. The population of the study is of some section of insurance subscribers in the greater Accra and central regional part of Ghana. Hypotheses of the study were analyzed using correlation and hierarchical regression analysis. Self-administered questionnaires were distributed to respondents. The researcher theorizes and investigates that there are high positive correlation between the four underlying constructs of relationship marketing and customer loyalty. The results of this study again indicated that all the independent variables (communication, competence, commitment and bonding) have a positive significant impact on (dependent variable) customer loyalty through trust as the mediating variable. Managers are to note that the propensity to create customer loyalty depends on the level of trust they have built with its customers. Thus, the focus should be on investing in the customer’s trust which will subsequently lead to customer loyalty. Management of insurance services are to note that the findings provides a more reliable and empirical measure for describing and evaluating the level of their customer loyal with the services they deliver. It again provides empirical support for strategic decisions in several critical areas of their operations, and above all, provides a justifiably valid and reliable guide for designing workable relationship marketing strategies for creating loyal customers.Originality of this study is proven because it has empirically refined the body of knowledge relating to customer loyalty in the Ghanaian insurance industries.

Insurance regulations, risk and performance in Ghana

Purpose This study aims to examine the hypothesis that the effect of insurer risks on profitability is conditional on regulation, using two main regulatory directives in the Ghanaian insurance market as a case study. Design/methodology/approach This study used the robust ordinary least square and random effect techniques in a panel data of 30 insurers from 2009 to 2015 to test the research hypothesis. Findings The results suggest that regulations on no credit premium and required capital have insignificant effects on profitability of insurers. On the contrary, this study documents evidence that both policies mitigate the effect of underwriting risk on profitability and suggests that regulations significantly mitigate the negative effect of underwriting risk to improve profitability. Practical implications The finding suggests that policymakers and regulators must continue to initiate, design and model regulations such that they help tame risk to improve the performance of insurers in Ghana. Originality/value This study provides first-time evidence on the role of regulations in controlling risks in a developing insurance market.

Dynamic cost productivity and economies of scale of Ghanaian insurers

Previous insurance efficiency studies have focused on cost efficiency or static and dynamic technical productivity and therefore ignored dynamic cost productivity. Previous studies have also failed to consider economies of scale at the firm level. This study employs a panel data of insurers to assess the dynamic cost productivity growth in Ghana from 2005 to 2014. We also explore the determinants of cost productivity growth in the Ghanaian insurance industry. We find that the introduction of the Insurance Act of 2006 saw some large cost productivity growths; however, since 2012 the industry has been facing some marginal cost productivity decline. The cost improving policies in the Act that encouraged cost efficiency must be revisited by regulators, as it seems that the industry is going back to the pre-regulation cost environment. Additionally, not many insurers have been operating at the optimal production scale over the period.

The Market Structure of the Ghanaian Insurance Market

The insurance industry offers the Ghanaian economy a prospect to assemble enormous native savings for long-term, indigenous currency investment and provides an opportunity to generate employment. Insurance enhances the confidence of households, including the amassing of long-term savings against the loss of wage earners and sinking their reliance on community welfare provisions. This paper uses both SCP Paradigm and a quantitative research method; and aims to elucidate the existing procedures of measuring market structures and demonstrate the use of these measures for the selected industry. Using market share, concentration ratios, and Herfindahl-Hirschman index it was revealed in this research that a few large firms continue to dictate the market. Nonetheless, there are no monopolistic inclinations in the Ghanaian insurance market and firms are at liberty to compete with each other for market shares. This paper concludes that, the Ghanaian Insurance industry has undergone a structural change from 2014 to 2016.

Online corporate social responsibility communication: an emerging country’s perspective

PurposeThe purpose of this paper is to examine the determinants of online corporate social responsibility (CSR) reporting of the insurance industry in Ghana. Specifically, it explores the impact of firm age, size and origin on online CSR reporting using data from 31 private insurance companies in Ghana.Design/methodology/approachThe authors employ ordinary least squares regression analysis in the estimation of the influence of the predictive variables on firms’ online CSR disclosure.FindingsThe findings indicate positive insignificant association between online CSR disclosure and firm-specific characteristics (i.e. firm age, size and origin). These findings are robust to different specifications.Originality/valueResearch directed towards online CSR communications amongst private insurance firms in the context of emerging market are almost non-existent. This study therefore makes an important contribution by addressing the imbalances of CSR reporting in Ghanaian insurance firms.

Loss reserve variability and loss reserve errors

Purpose – The purpose of this study is to assess the level and variability of Ghanaian property and liability insurer’s reserve estimates to examine its sources and ascertain if reserve errors are random or not (i.e. manipulated or not). Design/methodology/approach – It uses information on insurer claim reserve provisions, claims outstanding, claims incurred and claims paid for the period of 2000-2010. Categorizing the sources of variation as endogenous and exogenous, the authors use the panel correlated standard error regression model to determine sources and magnitude of industry reserve error. Findings – The study finds that size, age, lag of loss reserve error, inflation rate and real gross domestic product are significant in determining the degree of reserve error variation. Type of ownership (domestic or foreign) is, however, not a significant source of variation. Further, the authors found that industry reserve errors are random (not manipulated) across firms, suggesting that sampled insurers act independently on reserve error decision making and are not influenced by industry trends and competition. Research limitations/implications – The main research study limitation is the difficulty involved in obtaining annual statements from insurance companies in Ghana. Reluctance of companies to make statements available impeded on the smooth flow of the study during data collection. Practical implications – Policy-wise, this suggest that regulatory bodies can uniquely set reserve error levels for existing firms with little influence on competition. Further, the Ghanaian insurance regulator does not to focus on the type of ownership (foreign or local) when setting regulatory standards. However, size of the company and age (length of operation) should be considered. Originality/value – This paper is the first empirical study to examine the loss reserve error and loss reserve variability of Ghanaian property and liability insurance companies.

The influence of ownership structure on performance of Ghanaian insurance and banking firms

As at 2005, Ghana diversified 351 state-owned enterprises (either fully or partially owned), which attracted a substantial foreign direct investment into the country. This was to introduce efficiency into the management of these public enterprises, hence, the belief that ownership and, in particular, specific type of composition of corporate ownership structure has an impact on a firm's performance. This paper examines the influence of ownership structure on firm performance in Ghana as one of the buoyant and emerging economies in Sub-Saharan Africa. Using data from a period of2000-2010, panel regression was employed to analyze the impact of three major types of ownership structure and the determinants of performance. The ownership structures that are employed in this study are: (1) foreign ownership, (2) Government ownership, and (3) Close corporations. Using two accounting-based measures of financial performance (i.e. return on equity (ROE) and return on asset (ROA), and based on the sample of banks and insurance firms the result showed that both closed corporations and government-owned firms did not perform better than the foreign owned firms. The study also found that inflation and exchange rate are the two main macroeconomic variables that influence firm performance.

Risk management in the Ghanaian insurance industry

PurposeThe purpose of this paper is to examine the risk management practices of life assurance firms and non‐life insurance firms.Design/methodology/approachThrough a comparative case study methodology, the study assesses the state of risk management in both life assurance companies and non‐life insurance firms to determine whether they exhibit different or similar risk management practices. The results of the survey were also analyzed and compared to the principles of good practices in financial risk management.FindingsThe findings of the study revealed some differences and similarities in the risk management practices of life and non‐life insurance firms. Almost all the life companies have stated their risk appetite levels, which enable them to identify which risks to absorb and which ones to transfer. But non‐life insurance firms have not laid down their risk tolerance levels explicitly. The results further revealed that the industry lacks sufficient personnel with the requisite risk management skills and that the sector does not manage risks proactively, rather they do so in a reactive response to regulatory directives.Practical implicationsEffective management of risks by insurers will increase the penetration of insurance in Ghana.Social implicationsRisk management is a crucial issue, not only for the survival and profitability of the insurance industry, but also for the socio‐economic growth and development of the whole economy. As major risks underwriters, insurance companies need to adopt good practices or quality measures in the management of financial risk. This is important, more so, as the industry prepares to re‐position itself to underwrite the risks in the emerging oil and gas industry of Ghana.Originality/valueResearch into financial risk management in the insurance industry from the Ghanaian perspective is rare. This study is therefore timely and its findings are invaluable for the efficient management of financial risk in the insurance industry.