Risk management in the Ghanaian insurance industry

Abstract Purpose The purpose of this paper is to examine the risk management practices of life assurance firms and non-life insurance firms. Methodology Through 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.

Findings The 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.

Originality Research 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.

Article 1 Introduction The quality of risk management is a crucial issue not only for the survival and profitability of the insurance industry, but also for the 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 all types of risk.

The principles of effective management of financial risks concern such issues as: An autonomous risk assessment department (RAD); An independent chief risk officer (CRO); The effective validation of the pricing mechanism and other models used in the institution by the RAD; The proper separation of the audit department from the RAD; A clear policy on risk appetite levels; The timely communication of risk information to top management . Any insurer that ignores these risk management practices can run into serious financial distress

2 Overview of the insurance industry in Ghana The history of the Ghanaian insurance industry dates back to the 1920s, with the establishment by the British of the Guardian Royal Exchange Assurance (Gh) Limited now known as Enterprise Insurance Company in 1924.

3 Literature review 3.1 Best practice risk management 3.2 Enterprise risk management 3.3 Risks in providing insurance services Actuarial risk Systematic risk Credit risk Liquidity risk Operational and legal risk

5 Discussion of findings 4 Methodology The study compares the risk management strategies of Ghanaian life insurance and non‐life insurance companies 5 Discussion of findings 5.1 Risk policy document 5.2 Risk appetite levels 5.3 The independence of the RAD 5.4 Reasons for risk management 5.5 Risk information reporting 5.6 The reports of the CSB 5.7 Key financial indicators of the industry

6 Conclusion and implications This study investigated the state of risk management in the Ghanaian insurance industry. The results of the study revealed some differences and similarities in the risk management practices of life and non‐life insurance firms. The setting up of risk policy documents and risk appetite levels by the life insurers is a sign of good risk management systems. Some of the firms in both life business and non‐life operations do not have independent risk assessment units. Many of them depend on their internal audit units for the assessment and the underwriting of risks.