When market experts commend an enacted piece of regulation, you know that it is worth checking out. In a recent Country Workshop organised by the Microinsurance Network (MiN), in partnership with the Ghana Insurers Assocation (GIA), representatives from insurance companies and distribution partners operating in Ghana joined the insurance authority itself in presenting the key aspects of the new Insurance Act 2021 (Act 1061), which came into force in January 2021.
But why exactly has it led to a palpable excitement in the industry and why has it been labelled “good” regulation? With an already-flourishing inclusive insurance market and a decent set of underlying enabling conditions, the new Insurance Act is poised to further accelerate inclusive insurance uptake, but before going into its specifics, it might be worth defining “good” regulation.
Answers differ according to benchmarks, and even ethical considerations, but experts have tended to settle on the following objective framework to qualitatively assess regulation:
So how does Ghana’s new Insurance Act fare under these five key tests?
1. Legislative Authority
The new legislation is part of the National Insurance Commission’s (NIC) initiatives to conform to international standards and to increase its competitiveness in the international market. In relation to inclusive and microinsurance, it is one of the few markets in the world to have passed specific legislation, whereas in most jurisdictions it is essentially under the overall mandate of the insurance supervisor.
The new insurance act defines an “inclusive insurance contract” as the product which is targeted at a segment of the population that is usually underserved by insurance. A “microinsurance contract” at its turn, is defined as an insurance product that a) is designed to meet the needs of low-income persons; b) is marketed to low-income persons or specific description of low-income persons in a particular geographical area; c) the premium charged under the product is affordable to low-income persons; and d) is accessible to low-income persons.
While it is always important to leave room for the supervisor to make practical adjustments and updates without going through lengthy political process of changing legislation, the establishment of the inclusive and microinsurance concepts in the legal framework certainly provides stronger grounds for the insurance authority to regulate it and avoids questioning of the underlying legislative authority to specific aspects of the regulation. This is especially relevant when the framework provides certain exceptional exemptions restricted to the inclusive insurance business, such as the licensing of insurance intermediaries to distribute and sell inclusive and microinsurance products.
2. Accountability
The question of accountability is addressed as a general issue in the Insurance Act, established by the NIC to provide regulation and supervision of the insurance market and related matters. The NIC’s Governing Body consists of politically appointed representatives, designated by the President, as well as representatives from the Ghana Bar Association and insurance trade bodies. Noteworthy, the law explicitly states that, from the two freely appointed seats nominated by the President, one must be a woman. Finally, the law establishes the mandate of the Commission and provides any person who feels aggrieved by a decision the right to appeal to court within 30 days.
3. Due process of regulation
The law was fruit of a truly consultative method, incorporating contributions from several stakeholder groups, not restricted to the insurance. This democratic influence over the legislative process and the diversity of stakeholders comprising the NIC serves not only to legitimise it, but also ensures that the regulatory procedure is undertaken by the insurance authority, which must consider different views, including those of market representation bodies.
The Insurance Act mandates that the NIC must take into account a) international standards and best practice relating to the regulation and supervision of insurance companies and insurance intermediaries; and b) the proportionate application of the international standards taking into consideration the stage of development of the insurance market. Moreover, there is a Requirement to consult before issuing, amending, revoking or replacing the Regulations, Guidelines or approved forms. This entails the requirement to provide the substantially affected persons with a copy of the existing regulation and the proposed amendment, as well as with reasonable opportunity to make written representations to the NIC, which should be considered by the Commission during the process. According to the law, the Requirement to consult may also be carried out through consultations with any professional or trade association that represents the affected persons.
This welcomed flexibility ensures a balance between more extensive participatory rights and effective decision-making, ultimately staving off stagnation in the regulatory system.
4. Regulatory expertise
While the legislative process requires general legal knowledge, with the participation of sector-specific experts as was the case with the Insurance Act, the infra-legal regulatory procedure should rely on stronger technical expertise to come to balanced decisions on incomplete and changing information, without requiring excessive justification. The Insurance Act establishes several qualification requirements for the Commissioner and its Deputy, including a professional insurance qualification and at least ten years of post-qualification experience in insurance matters for the former and five years for the latter.
5. Efficiency of the regime
The claim to efficiency can be the most controversial when considering regulation. Given the imprecision of mandates granted by policymakers to regulators and the lack of objective goals set, it is usually difficult to ascertain whether regulatory frameworks lead to the best allocative efficiency – the optimal distribution of goods to make at least one consumer better off without making another consumer worse off – and the best dynamic efficiency – incentivising of process and product innovation, and flexible responses to changes in demand. This is, however, exactly where the new Insurance Act of Ghana sets itself apart and shows great promise.
By embedding the concept of inclusive insurance and microinsurance explicitly in the insurance law, the legislator lays out a clear framework for the development of the market, which is reinforced by the Act’s general provisions of developing a sustainable insurance market and the support and encouragement of financial inclusion within insurance. This is landmark recognition for inclusive and microinsurance, as in many emerging markets regulators still struggle justifying their role in market development and balancing it with their mandates of consumer protection and financial stability.
The palpable excitement permeating the dialogue at the recent MiN Country Workshop convey a perception amongst market players that the new Act provides an improved robust regulation for both the provision of inclusive and microinsurance and the development of innovative business models.
The new Insurance Act enables new license categories for inclusive insurance distribution channels: the “microinsurance agent”, a person who acts as an insurance agent, specifically dealing with microinsurance contracts, and the “technical service provider”, a company who offers support for the provision of insurance services, including a) product development services; b) underwriting policies; c) distributing policies; d) administration of policies, including premium collection and customer services; and e) administration of claims. It also allows for the exemption of specified persons from the requirement to obtain an insurance intermediary license to act as an insurance agent for the distribution and sale of inclusive and microinsurance contracts.
Furthermore, the law provides a set of enabling rules for the creation of a sandbox space that encompasses licenses for innovative insurance intermediaries, insurers and reinsurers. These licenses are conditional to projects that incorporate new or different technological or innovative measures, and they can last up to two years. The applicant needs to demonstrate that its customers have been adequately protected; and that the grant of the innovative license will not materially impact the NIC’s ability to supervise. And it goes further, in considering consumer protection, the NIC should consider the sophistication of the customer.
Having successfully ticked the five key boxes for regulatory quality, all these elements together seem to justify the excitement of the insurance authority and of the market as a whole. Collaboratively, a well-rounded framework was built, with malleability for regulatory development moving forward. With such an enabling regulatory environment now in place, players from across the insurance value chain are well-poised to design relevant products to take people’s protection to a new scale in Ghana.