Lynda Odro is an Associate of the Chartered Insurance Institute (ACII), UK.
She was appointed CEO of insurance firm, Hollard Ghana in 2015.
She has over twenty eight years experience in the insurance industry.
She holds a BA degree in Economics and Statistics from the University of Ghana, Diploma in Insurance from West African Insurance Institute and an Executive MBA from the Ghana Institute of Public Administration (GIMPA).
In this interview with Citi Business News, she talks about the impact of the country’s current economic challenges on the insurance industry and a number of issues affecting the sector.
Citi Business News: Tell us your impressions of Ghana’s insurance industry from the perspective of a CEO of one of the biggest insurance companies in the country.
Lynda Odro: The insurance industry over the years has grown. Gross written premium has increased as our economy did well and as the economy suffered, gross written premium also dipped.
Because after all, insurance is to cushion the economy, make people more positive about the investments they make.
If the environment is not conducive for increase in investments, insurance is going to suffer. In the past, the increase in the growth of the gross written premium has been over 30% but currently it has dipped to about 17% and I’m afraid if the economy doesn’t pick up, the insurance premiums are going to suffer just as all the industries that are connected to the economy are going to suffer.
Citi Business News: How bad were you hit last year when the cedi depreciated significantly?
Lynda Odro: It was bad, because insurance is to settle claims and when we pay claims we either pay the new replacement value, we pay cash or we repair. So if the interest rate is up, prices are going up. So when you go to the market to replace an item, it’s going to be more expensive at the time of replacement than when you were anticipating how much to charge and clients are not going to be happy with less than what they thought the insurance would give them. So, we have had difficulties with our clients who have also said that “there goes the insurance people again, they are not delivering on their promise.” But the promise is to put you in the place that you were before, with the depreciation where would you be? It means that they are worse-off in terms of whatever is coming to your pockets and that doesn’t make them happy. When it comes to motor insurance, most of the parts are imported so with the increase in taxes at the ports, the increase in the exchange rate that they need to get their imports in, the cost of the parts have skyrocketed. So what happens with the insurance claim? We are having to pay more out as claims. What happens to the financial ratios? You go to your claims ratio and it is going through the roof and the claims is a critical part of the underwriting performance. So when claims are going up, your management expenses are going up, your gross written premium is not coming in because the industries that you’ve set to insure are not doing good business. You are going to suffer an underwriting loss.
Citi Business News: Barely 2% of Ghanaians have insurance what is the challenge in getting more Ghanaians onboard.
Lynda Odro: I think the greatest challenge is that people do not believe that insurance works because they haven’t interacted with insurance in one way or the other. How many people have vehicles? Look at the total population of 25 million. How many people have assets which are so valuable to them that they’ll want protection for? and those who have the valuable assets have found means of feeling safe behind their high fences and their electric fences and behind their bulldogs. That is not what insurance is for. It is not to prevent the intruder but to give you your property back when that intruder does come. Insurance is there to protect you against the liability that you might face. Insurance is there to replace your assets, to make sure your business doesn’t falter when you have that incident. So, it’s due to education. We have to make sure that people understand that insurance works. And they’ll understand that insurance works if they have some dealings with us. So, we need more education of people. Then we come to the economy. This country has more than 60% agricultural, peasant farmers. So what is there that you need. That is why the micro insurance is doing well. Because that is where the bulk of our people are and the premiums are affordable. When I say affordable, it’s because the exposure to the business that they are bringing is very limited so they can pay lower premiums. Until we get the understanding at that level, insurance works, it will trickle down to the middle class which is growing and which will continue to grow if the economy does well. Then it’s up to the insurance companies to pay the genuine claims when they are due to be settled.
Citi Business News: Before we get to the genuine claims issue, you talk about education. It is said that people don’t know about insurance but we think that the biggest problem is the claims payment.
Lynda Odro: There are things that you ought to do to get your loan but does anybody say that the bank is making people go through hell? No, we are both in financial inter mediation and once you are doing financial inter mediation you need to be careful and be sure what you are doing. When there is a claim, again mind you, about more than 80% of claims are fraudulent, fraudulent because people are trying to claim for things which were never insured or want to inflate the claim when it happens. So you need to do due diligence as a proper manager of the funds which belongs to all the policy holders. So that before you pay out a claim to anybody, it will not jeopardize the fund which you are holding, and you have to make sure that you only pay out the genuine claims. So I think people should understand that just as the banks give those loans, we pay their claims. And if you are going for a bank loan there are things you ought to do, insurance companies also require you to do certain things, so they should not think that it is because insurance companies want to make their lives difficult, but insurance companies want to protect the fund which doesn’t belong to any one individual, but the people who have pulled resources together.
Citi Business News: Could it also be that some insurance sales executives do not give proper explanation to prospective insurance policy takers?
Lynda Odro : Yes that is true to an extent because non-life insurance companies use brokers, we our typed agents. The brokers are professionals, so they do the job, they explain to the clients all that they have to do. The onus is on the insurance company to make sure that our typed agents are trained and they do not miss sell. Because if they miss sell, anything they do falls back on us, and sometimes that is the dilemma we face. Because then the discussion at the beginning when they take the policy is not robust enough. There is not enough discussion as to what is required, what is being insured, and that is what we are dealing with, and we are making sure that before you become an agent, you have a certain minimum level of education and we take you through a series of training, and re-training, refresher courses on how to sell, explain what our products are and how you can access a genuine claim when the time comes.
Citi Business News: How has the BoG policy rate affected your operations?
Lynda Odro: We are faced with two positions. When it comes to settlement of claims, interest rate goes up, cost of living, inflation. So our expenses go up. When it comes to claims expense, it comes to the management expense, all goes up. Now when it comes to our investments the banks are paying higher so then we gain from them. So it means that we lose when it comes to the management expenses so then the under writing results can be impacted negatively. However, when it comes to profits before tax, you have your exchange gains and you have your investment income going up. So sometimes, of the core business that we do, we may suffer an under writing loss but because of the way the interest rates have gone, most of our investments are in government Treasury Bills and some corporate bonds and stuff so we gain over there. But the current thinking now is that the insurance companies need to have profitable core business. Your underwriting insurance business should be profitable and then the exchange gain and the interest on your investments just cushions you up. So we have to make sure that in spite of the fact that the expenses are going up, we have to contain the cost by being more prudent with where we spend our money and also making sure that every cedi we spend brings us some value because we are watching the underwriting.
Citi Business News: What are some of the high risk areas that are difficult for insurance companies to get in?
Lynda Odro: The first one is financial guarantee. Financial guarantees are in the true sense not insurance, they are bonds, because, the insurance company and the insured are two different parties. And there is an unforeseeable event which when it happens would put the insured at risk so we the insurers come in and give them their due. But when it comes to bonds, there are 3 parties. You want to ensure that A will do his part so that B can also do his part. So it’s no longer a two-way process, its 3 way and you are guaranteeing that a third party will carry his part of the bargain. So let’s say we have heard about all these financial guarantees that have all gone bad. A business man has an idea he goes to the bank for money to bring his idea into fruition and then the financial house asks the insurance company to guarantee that that third party will really bring his idea into fruition. So now you are being asked to guarantee that a third party in whose business you have no link will deliver to the finance house. You can imagine how difficult that is. So what is the unforeseen circumstance here, that the man will not deliver or he will deliver. It does not depend on any outside or extraneous situation. So that is a very high risk area which I don’t think any insurance company should do, that is one. Then flooding, again, it is a perennial situation. If it does not happen on the fourth year it will happen on the third or fifth year. Accra plains is flood prone, there is a map which shows exactly what has happened to the original flood plains in which we have built. So really, when the rains come from the Aburi Mountains they will find their natural way. And then you come to the Odo channel, IN June when it happened the rains, the insurance companies had their hearts in their hands because if you haven’t moved, if you the insurer, hasn’t got your client to move or your client to take certain massive infrastructural arrangement to prevent the flood, you are going to be hit. So that is another area. Then it comes to infidelity of employees which we give the fidelity guarantee on. You go to the produce buying companies…. they have given an insurance cover which says that when they default in paying the monies into chests for the cocoa, the insurance company will pay back to the produce buying companies. This is somebody’s fidelity that you are guaranteeing, he will not fiddle with the books but where do you know him from, how much of their business operation do you know? What systems have they put in place to ensure that there’s no malfeasance.
Insurance companies who write those businesses need more due diligence and yet, when you go asking for more information, insurance is found as intrusive but for that same company to get a bank loan, they will not find the questioning of the bank as intrusive. Why is that the case? Remember I said that we are all in the inter mediation space. We are all financial services companies.
Citi Business News: What do you think can be done to deal with such problems?
Lynda Odro: For the financial guarantee, it is a no-no.
There is no way any insurance company should write a financial directive and the regulator has even advised that it is not an area that we should go into and I think it is good advice.
When it comes to the flood, the clients should put in mitigating factors. If an insurer wants to do flood insurance because the law says you should provide insurance against natural perils including flood for commercial buildings it did not say content. So you can insure the building and leave out the content because after all, when the flood come, the building will stand but the content will be destroyed. So what do you want to do? Do you want to insure the building and content and pray that the flood does not take it away? No, you should so what a professional will do. The company should move from that area otherwise they would not get cover, they ought to move.
Citi Business News: What is the turnaround time in ensuring that claims payment are done.
Lynda Odro: For my company, from the moment you bring the discharge voucher, the discharge voucher means that we have agreed on what the quantum of loss is and the payout should be done. We give you, your check within 48 hours and we have been known to settle claims promptly, for the past God knows how long. Our company is known for settling claims promptly.
Citi Business News: You want to be number 2 in the next 3 years, where will the company be in the next 5 years?
Lynda Odro: The next 5 years we should be number 1.
Citi Business News: What makes your company so unique that you want Ghanaians to turn their attention to you?
Lynda Odro: Because we are a local company with a global focus. With the current marriage with Hollard Insurance International, they have a track record. They are number two in South Africa and that is no mean achievement.
They are the second largest insurance company in South Africa and they have a lot that they have learned whilst they dealt in Southern Africa. With an asset value of almost $2 billion, surely, they must have done something right. They left local management in place because they believe that local management knows the terrain, so together with the competencies that they bring, we are going to increase market share and increase profitability.