Insurance companies were owed a little over GH¢130 million in premium debts as at the end of December 2012, a situation that makes it difficult for insurers to honour claims when they fall due.

The debt, which is 0.35% less than was recorded in 2011, was incurred as a result of people who took various insurance covers without paying the required premium.

At the same time, claims paid by insurance companies increased by 35.8% from the previous year to GH¢99.8million at the end of last year.

B&FT has gathered that the insurance companies have made efforts to recover some of the debts.

Nonetheless, the National Insurance Commission (NIC) is concerned the outstanding premium profile could hurt the industry and has proposed a “No premium, no cover” policy to protect the interest of all stakeholders in the insurance industry -- as the present practice of some companies issuing policy covers without collecting the appropriate premium poses too much risk to the industry.

The commission has communicated its intentions, which it believes will address the premium situation, in a statement to the Ghana Insurers Association and the Ghana Insurance Brokers Association for their inputs.

“The huge outstanding premiums have had a significant knock-on effect on Reinsurers. Firstly, insurance companies are unable to pay their reinsurance premiums while the premiums remain unpaid by policyholders. Subsequently, the reinsurers are unable to pay their retrocessionaires. This creates serious credit risk exposures for both the insurers and reinsurers.

“Secondly, when the premium debts are eventually declared bad or doubtful and have been written off, it creates complications for reinsurers as they would have already placed the business with their retrocessionaires,” the commission said.

Some insurance practitioners have told the B&FT that the practice of some insurers issuing policy covers without collecting the appropriate premium has arisen in the face of growing competition in the industry.

Currently, there are 43 insurance companies in both the life and non-life insurance sectors, which are all competing in a market where insurance penetration is less than two percent.

The NIC has said that its efforts to encourage people to take up insurance policy cover will be hampered if insurers continue to undertake practices that put them in difficult situations to honour claims when they fall due.

“The current state of affairs has not only increased the credit risk of insurers, but has also introduced uncertainty in the market as to the capacity of many insurers to meet their obligations to insurance policyholders and other stakeholders.

“It has contributed significantly to the inability of insurance companies to pay claims promptly and adequately,” it added.