Insurance Market penetration in Ghana: Case study Vanguard Life Insurance Company Limited.
Insurance Market Penetration in Ghana: Case study Vanguard Assurance Company Limited
Keywords; Market penetration, Vanguard Assurance, Insurance, Ghana.
Newton Bezeng
Founder BeNew Insurance
Email: newtonbezeng@outlook.com
Website: https://benew.business.site
Blog: benewinsurance.blogspot.com
Facebook: https://web.facebook.com/Benewinsurance
LinkedIn: https://www.linkedin.com/company/benew-insurance
Twitter: @newtonbezeng
Table of contents Pages
Cover page ………………………………………………………………………………………………....….……...…. 1
Table of Contents ……………………………………………………………………………………….…….….…....… 2
Abstract ……………………………………………………………………………………….…….…....……..…......…. 3
Introduction …………………………………………………………………………………….……….……...…….…. 4
Company description and major issues ……………………………………………………...………….……...…....…. 4
Section A; Problem Statement for the Low Insurance Penetration………………………………....….…...…….....….. 6
i) The realities about the insurance market in Ghana ……………………………………………….…….....….....…… 6
ii) Analysis and statistics on the insurance trend in Ghana …………………….………………………… ……..….… 6
Section B; Statement of Cause(s) for the low insurance penetration ……..………………...……………….…...…..…7
i) The causes of low insurance penetration by Vanguard Assurance ………………….….……...……….……. ….…..7
i) The downplay of ethics and its effects on Vanguard Assurance insurance penetration……………………....……...7
The neglect of strategic human resource development (motivation) vis-a-vis Vanguard Assurance Ghana’s employees …………………………………………………...………………………………………………………...….8
Section C; Possible Alternatives Solutions to guarantee insurance penetration in Ghana ………………....….... ….. 9
i) Mergers and Acquisitions ..………………………………………………..…………………………….……......…... 9
ii) Vanguard a Copycat innovator and stay away from copyrights infringements ………………………….….…….10
Section D; Recommended action plans practically applicable to boost insurance Penetration ……………………………………………………………………………………………………………….........……...12
i)The introduction of microinsurance insurance by Vanguard Assurance Ghana …....…………..…………..….……12
ii) The payments of insurance premium through mobile wallets using the Unstructured Supplementary Service Data (USSD)network …………………………………….…..……………………………………………………..………..13
iii) Managerial remedies for Vanguard Assurance to attain its market penetration objectives………………………………………………………………………………………………….…….……....14
Conclusion ………………....……………………………………………………………………………….…….…..…15
References ………………………………….……………………………………………………………..…….……….16
Abstract
This case study will be centered around examining the principle of market penetration concerning the insurance industry in Ghana. In particular, I will be using the case study of Vanguard Assurance Company Limited to critically examine this principle and see how its operation in the insurance industry has been affected positively or negatively by the principle of market penetration and the way forward concerning their activities. Possible alternatives solutions to guarantee insurance penetration in Ghana and recommended action plans that may be applied to boost insurance Penetration looking at Vanguard Assurance Company Limited as a case study.
Introduction
Market Penetration has been the major objective for small or giant companies, national or multinational organizations to gain a greater portion of the market share. Market penetration can be obtained successfully if an organization exploits the principle as a competitive advantage for its competitors. According to Will, (2019), Market penetration is a measure of how much a product or service is being used by customers compared to the total estimated market for that product or service. Market penetration can also be used in developing strategies employed to increase the market share of a particular product or service. The overall of this paper is to provide an analytical presentation of what the Insurance market penetration in Ghana looks like. Our choice of Vanguard Assurance as a case study for this analysis is because it is one of the oldest indigenous insurers therefore suitable for the purpose.
Company description and major issues
Vanguard Assurance Company Limited began operations in October 1974 as a composite insurance company and has the enviable record of being the first private indigenous insurance company in Ghana. At inception, Vanguard offered only two classes of business - Life and Fire. Over the years, the company diversified its product portfolio into a one-stop composite insurance company underwriting all the major classes of Life and Non-Life insurance, (Vanguard Assurance, n.d.).
Today, Vanguard Assurance is a subsidiary of the Vanguard Group underwriting only non-life
insurances. As a pacesetter, Vanguard Assurance played a leading role in the establishment of the following successful companies such as; -Vanguard Life Assurance Company Limited -Ghana Leasing Company -CAL Bank -Vanguard Properties Development Company Limited -Juaben Rural Bank, (Vanguard Assurance, n.d.).
Vanguard Assurance has a vision; to be the preferred Insurer fulfilling our customer needs and aspirations, a mission; to offer financial security through innovative insurance solutions that delight our customers, and finally with the values that; believing the customer is always right, esteem in integrity and honesty, rewarding productivity and innovation and considering both the insurer and the insured are one family, (Vanguard Assurance, n.d.). With all these fine visions, mission, value why is market penetration or consolidating the Ghanaian insurance market still a problem with Vanguard Assurance Company Limited?
The National Insurance Commission has increased the minimum capital requirement for insurance companies in the country from ¢15million to ¢50 million (approximately $9,269,790.27). According to a statement from the NIC, insurance companies have up until June 30, 2021, to meet the new minimum capital requirement, (Joseph, 2019). Vanguard like all the other insurance companies in Ghana have a huge financial challenge to raise funds to meet the minimum capital demand.
Section A; Problem Statement for the Low Insurance Penetration
(i) The realities of the insurance market in Ghana
According to market professionals, the low insurance penetration rate (less than 3%) in Ghana is accounted for by the public's lack of awareness of the importance of insurance, (AtlasMagazine, 2020). A GhanaWeb confirms the fact that; ‘the country’s Insurance penetration rate has dropped to 1 percent from the previous rate of 1.12 percent, the 2018 report of the National Insurance Commission has revealed’ (GhanaWeb, 2019).
(ii) Analysis and statistic on the insurance trend in Ghana
Table 1: Insurance growth rate from 2013 to 2018 (National Insurance Commission, n.d. Pp,9.)
The market insurance growth rate in Ghana has no consistent trend rate. It has neither been growing in arithmetic nor in a geometric rate, showing there is a problem with the market penetration as it has been influenced by the incoherence of the figures in the table above.
Section B; Statement of Cause(s) for the low insurance penetration
(i) The causes of low insurance penetration by Vanguard Assurance Company Limited
The causes of the low insurance penetration by Vanguard Assurance Ghana, in general, are the causes for the low insurance penetration in Ghana which ranges from; studies that suggest the lack of knowledge about insurance products by the population, majority of low-income earners, challenges faced by insurers in marketing the insurance products, Vanguard Assurances Ghana, has a common challenge which is low public confidence coupled with a deep-seated mistrust of insurance companies, (National Insurance Commission, n.d. Pp, 17-19.).
(ii) The downplay of ethics and its effects on Vanguard Assurance insurance penetration
The essence of ethics is knowing is right and wrong, and then doing what is right. Moral and ethical principles are based upon values such as integrity, honesty, justice, and trustworthiness, (Affordable CE-USA, 2013. Pp, 3). Some of the area’s most companies including Vanguard Assurance will go unethical contrary to the code of conduct set by the regulator(s) for example National Insurance Commission (NIC) of Ghana is; misrepresentation, altering applications, premium theft, unlicensed sales, forgery, misleading sales techniques, illegal rebates, untruthful policy replacements, discrimination, untruths advertising practices, (Affordable CE-USA, 2013. Pp, 6-9). Commonly found during financial auditing there are huge figures patterning to ‘business acquisition fee’ an unethical practice that gives managers the right to offer financial compensations to other corporate executives for offering/facilitating business contracts awards a practice that is killing the industry.
The neglect of strategic human resource development (motivation) vis-a-vis Vanguard Assurance employees
Our analysis will be based on the school of thought of Soft human resource management (HRM) techniques that focus on employees; training, development, commitment, and participation in the organization, (Senyucel, 2009. Pp, 16.). Vanguard has to ensure that HRM techniques are adaptable to industrial and societal trends to give her a competitive advantage against her competitors through training and development which eventually leads to commitment and participation. Commitment and participation can also be boosted by the theory of motivation.
Senyucel, (2009. Pp, 23-24), points out that; our economy depends on our motivation and commitment of employees and it is the heart of the central feature that distinguishes HRM from traditional personal management and also a major player for motivation is money (employees’ remuneration). When the training, development, and motivation is well instituted by the HRM strategically, the intrinsic, extrinsic, and social motivators of the theory of work is established which becomes a competitive advantage to the company, ‘even though a pitfall of management approaches is that no management style can stand-alone’ (Laegaard & Bindslev, 2006. Pp,119.).
Section C; Possible Alternatives Solutions to guarantee insurance penetration in Ghana
One of the aspects plaguing the penetration of insurance products to the masses is negative publicity some insurers have portrayed such as unwilling to pay claims adequately on time or go bankrupt which may be as a result of bad faith on the part of the insurer or in inadequate funds to meet claims premiums. 'As such the NIC together with the Ministry of Finance and Economic Planning, the regulator discussed in 2017 implementing another significant rise in the minimum level of funds companies will have to keep on their books. While the official decision has yet to be announced as of February 2018, suggested levels have reached as high as GHS50m ($10.8m), with more recent reports putting the proposed change at GHS30m ($6.5m)', (Oxford Business Group, 2019). Section 69 (1) (a,b) of the Insurance Act of Ghana stipulates that; (1) An insurer shall ensure that its capital is maintained in an amount which is not less than (a) The minimum capital applicable to the insurer as stated in the Second Schedule, or (b) The amount that the commission may by notice direct under subsection(2). Regulators are aimed at wiping out this stigma by creating an enabling and conducive business climate for insurers.
i) Mergers and Acquisitions (M&A)
'There are essentially two kinds of mergers and acquisitions: strategic and financial. A financial merger or acquisition is pursued, as the name implies, for financial reasons often to pick up some quick cash or as an investment. Strategic mergers and acquisitions offer a solution to a different business problem. Perhaps the acquirer is looking to grab a new product line, add some additional facilities, enter a new market, or gain expertise and intellectual property,' (Lee, 2020).
Our focus on Vanguard's case will dwell on both financial and strategic mergers and acquisitions. This is because Vanguard aimed to penetrate the market and expand its market share. Vanguard merging and or acquiring smaller grassroots brokerage insurance firms and agencies will give her an entering step into mass insurance which is one of the solutions she can rely on to stay on top of the market. Implementing M&A Vanguard will gain the following advantages as pointed out by Lee Frederiksen (2020), in his article ‘professional services marketing today’; Fills critical gaps in service offerings or client lists, Efficient way to acquire talent and intellectual property, Opportunity to leverage synergies, Add a new business model, Save time and long learning curves.
ii) Vanguard a Copycat innovator and stay away from copyrights infringements
To stand as the pacesetter in the market that is to say coming up with innovations and staying at the top is challenging because it entails huge finances. Looking at our case study Vanguard Assurance with her problem to top up her minimum operational capital as stated by the National Insurance Commission (NIC) it would not be a good venture to set the pace by investing more finance on innovative ideas geared towards insurance penetration. Vanguard Assurance should copy from competitors and tailor to their own strategies.
Dr. Yew Kam Keong, Ph.D. had suggested that 'the act of adopting a solution that has been used successfully in another industry or profession, is a more reliable, affordable route to innovation. Copycat innovation is about adapting a proven solution to come up with an innovation, thereby minimizing risk and optimizing success. Yew further explains that Coming up with breakthrough ideas and innovations is indeed tempting and glamorous. Success could be market domination. However, this strategy carries the biggest risks and demands massive efforts and resources. It is an activity that is complex, costly, and with very little promise of a return on investment. Work on the successor of the successful product has to start immediately, which means that the successive research budget must be increasingly higher than the original innovation. In the same light in Yew's article; Accenture, the largest business consulting company in the world, published an article entitled Leading by imitation in their Outlook advising that “more and more businesses are grabbing great ideas wherever they can get them elsewhere in their industries or beyond. But the true high performers are actively creating systemic competitive advantage by elevating their imitation game.” The prestigious journal Harvard Business Review, in its April 2010 issue, also endorsed the view that imitation is more valuable than innovation. Findings article is that “imitation is underappreciated. It can be a more important growth than innovation is. Imitation is not mindless repetition; it’s an intelligent search for cause and effect.”
Section D; Recommended action plans practically applicable to boost insurance Penetration
i) The introduction of microinsurance insurance by Vanguard Assurance Ghana
Microinsurance aims to cover lives and protect the assets of low-income individuals and families from natural disasters, illness, death, accidents, and crop failure among others. By doing so, it enables low-income individuals to manage their risks better by providing them with a safety net that can stop them from falling back into poverty, (Camilo, n.d.).
A higher proportion of household members in urban areas do not have a policy (60.5%) compared to the rural areas (39.5%), (National Insurance Commission,n.d.). With the low rate, Vanguard has a great opportunity to increase her market share through copycat mass insurance, a product she is exploiting partially of which this research paper is aimed at encouraging Vanguard Assurance to get fully involved in mass insurance exploitation. The mass insurance project should be accompanied by the use of Insurtech which 'insurance companies across the globe are highly investing in digitization to simplify the transaction process and improve the functionality of the insurance payment system. The adoption of insurance technology has allowed businesses to assess risks related to the market, counterparty credit, operation, and liquidity. Insurtech also allows insurance companies to improve customer engagement and provide faster services', Grand View Research, (2019).
ii) The payments of insurance premium through mobile wallets using Unstructured Supplementary Service Data (USSD) network
'Voice is the most obvious of these channels, and it is widely used by insurers today to communicate with clients. SMS is more complex to implement typically requiring integration with an SMS aggregator but it can be an extremely cost-effective channel for, for example, reminding customers when premium payments are due because sending such reminders can be entirely automated. The USSD (Unstructured Supplementary Service Data) protocol allows for secure, interactive sessions that can be suitable for policy enrolment and administration, and it is accessible on even very low-end handsets. However, insurers must typically negotiate directly with mobile operators in order to gain access to this channel' (Camilo, n.d.).
Vanguard basing her strategy on our copycat strategy she can roll in one or all of the already existing microinsurance products in the market that some competitors are providing already for example; "Kilimo Salama (Safe Agriculture) is a weather-index microinsurance product designed to protect farmers from the risk of drought and of excess rain. It was launched in partnership between UAP Insurance, the Syngenta Foundation for Sustainable Agriculture (SFSA), and Safaricom. Globe in the Philippines has piloted the Hospital Benefit Plan, a loyalty-based hospital insurance scheme specially designed for all qualified recipients of GCASH remittances. Notwithstanding Vanguard already provided a microinsurance life product with Tigo Ghana with the support of Bima and microEnsure”, (Camilo, n.d.). Our focus is for Vanguard to gain more market share by introducing the other microinsurance products that exist already in the market.
iii) Managerial remedies for Vanguard Assurance to attain its market penetration objectives
Business ethics should be one of the aspects Vanguard must institute in its penetration strategy to be able to meet with her market expansion goals. Business ethics examines a business situation, activities and decisions where the issues of right and wrong are addressed. Where right and wrong are defined as morally right or wrong rather than financial or business strategy, Sarna, 2012).
Also, for Vanguard to succeed in such a venture employee motivation should be at the top of the company's agenda. ‘The dominant motivating factor for productivity is money. Vanguard Assurance growth depends on the motivation and commitment of employees’, (Senyucel, 2009. Pp 23). Employee motivation can be measured using nonfinancial performance measures such as the balanced scorecard. The balanced scorecard is used to measure employees’ motivation and evaluate their performance using financial, internal business processes, learning, and growing customer expectation, (Heisinger. & Hoyle, 2012. Pp 1098).
Conclusion
In an attempt for Vanguard Assurance Ghana to gain market shares in an already tied competitive market, there are a number of strategies I have proposed making it easy and feasible such as Vanguard getting into merger and acquisition, or becoming a copycat. In order to make her penetration more practicable, she is obliged to get into microinsurance insurance using the Unstructured Supplementary Service Data (USSD) network with the application of some managerial remedies as prescribed. Market Penetration has been the major objective for small or giant companies, national or multinational organizations with the aim to gain a greater portion of the market share. The insurance industry in Ghana has been a very sensitive player in society. The actors in the industry are striving to gain the market by instituting the principle of market penetration. We use the case study of Vanguard Assurance to illustrate the shortcoming faced in access to a greater share of the market through market penetration.
References
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