On 5th January 2021, the President of the Republic of Ghana assented to the Insurance Act, 2021 which effectively repeals the Insurance Act, 2006 (Act 724). This note sets out, at a very high level, some of the key highlights of the new insurance legislation.
(a) National Insurance Commission and its Mandate
Though not new, the new legislation affirms the position of the National Insurance Commission (“Commission”) as the regulator of the insurance business and practice in Ghana. The objects of the Commission include promoting a fair, safe, efficient and stable insurance market, and the development of a sustainable insurance market. The Act tasks the Commission to contribute to the stability of the financial system of the country.
From a consumer protection standpoint, the new legislation clothes the Commission with the mandate of protecting the interest of customers. It is expected that the Commission would achieve its aims by issuing directives, directions, instructions, and guidelines to insurers, reinsurers and insurance intermediaries.
(b) Framework Guiding the Commission’s Decision-Making Process
The Act states in mandatory terms that the Commission in going about its duties is required to be guided by the following:
(a) international standards and best practices;
(b) a risk sensitive approach in the regulation and supervision of licensees.
(c) effective risk management by licensees; and
(d) cost efficiency by lessening or taking away unnecessary compliance cost.
Aside from these statutory guiding points, the Commission is expected to be independent in the performance of its function, and in doing so, is not subject to the control and direction of any other person.
The Commissioner of Insurance spearheads the activities of the Commission.
(c) Rules Governing Practice of Insurance and Foreign Insurers
As a general rule, it is an offence for a person or entity not licensed by the National Insurance Commission to carry on insurance business in Ghana. For clarity, an unlicensed insurer or reinsurer cannot enter into a restricted insurance contract, occupy any premises to carrying on an insurance business, or invite persons to enter into, renew, or vary an insurance contract.
The new legislation allows foreign insurers (not licensed to operate in Ghana) to open contact offices in Ghana. Generally, contracts with foreign insurers are not allowed unless specific approval is sought from the Commission. In approving an insurance contract entered into with a foreign insurer, a number of conditions must be met. First, the Commission must satisfy itself that no local insurer has the capacity to insure the risk covered under the insurance contract, or there is no licenced insurer who is willing to insure the risk covered under the insurance contract.
(d) Categories of Insurance Licences
The new regime permits an insurance company to obtain and operate under any of the following licences: (a) Insurance contract, (b) reinsurance contract, or (c) innovative insurance licence (which is further split into either (i) innovative insurer licence, and (ii) innovative reinsurer licence). Insurers, reinsurers or insurance agents must abide by the terms of their licences or risk cancellation.
It is important to note that subject to some exceptions, the Commission cannot grant a licence that authorises its holder to carry on both short term and long-term insurance business.
(e) Terms of licence
Licences permitting insurance practice are valid for twelve months from the date of issue and afterwards may be renewed.
A licence may be terminated for a variety of reasons. The insurance business practitioner may voluntarily apply for the termination of the licence. A licence may also be cancelled where (a) the licensee fails to commence business within six months from the date of the issuance of the licence; (b) the licensee provides false information; (c) where the licensee has ceased operating; (d) the licensee has been wound up or resolved.
A licence may only be cancelled after the Commission is satisfied that the licensee does not have any liabilities under an insurance contract. The Commission, is however, required to notify the licensee before the termination of the licence.
(f) Commission’s Control over Licensed Entities
The Act contains a number of provisions detailing how Commission supervises the activities of the Insurance practice and practitioner. For instance, a person cannot become a significant owner of a licensed insurer without the Commission’s approval.
Similarly, a significant owner of a licensed insurer or a licensed reinsurer cannot increase, reduce, or cease to be a significant owner of an insurer or reinsurer without the prior approval of the Commission.
Changes in control in an insurance company cannot take place without the approval of the Commission. The Commission is required to approve the appointment of a director, senior manager, or any employee playing a key role in the running and administration of the business of the insurance company. Similar approvals are required for their removal.
The Commission also aims to ensure compliance with capital adequacy ratio regime and also prudential standards.