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Improving MSMEs’ access to insurance services will depend on an input-fed segmented approach
“So, Madam, you mean if for example, I take custody of a client’s vehicle for repairs and fire guts the vehicle, the comprehensive motor insurance on the vehicle does not cover the accident?” The selfconfident effervescent but momentarily surprised middle-age young auto mechanic had quizzed the insurance sales person. “Yes! Exactly the point, Mr. Adams, the moment the vehicle owner releases his vehicle into your custody for repairs, motor insurance on the vehicle is momentarily deactivated. And that, you are solely liable on whatever happens to the vehicle including fire”, the consummate insurance sales person replied rather politely. Mr. Adams would later buy an insurance policy the same day, having been dazed with this explanation.
At this point, a prominent silence has crept into the sales event organized in an open space under a shady tree, which gave shelter from the scotching sun. “That is the more reason why you will need the Mechanic Internal Risk Policy to cover your business. You will also need the personal accident policy for yourself and your workers”. The garrulous insurance sales person seemed to have regained and sustained the audience of her solicitous listeners. Several other questions that ensued at the meeting that day were clear pointers to the fact that, these people (MSMEs) wallowed in stark ignorance of insurance literacy (including risk literacy).
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Such was the experience we witnessed at an open field sales event when we started piloting the newly developed financial products in collaboration with our partner financial service providers (including insurance companies) under the GIZ Programme for Sustainable Economic Development (PSED). Globally, insurance penetration is pegged at 6.3% with Africa accounting for 2.8%, according to the Bright Africa report, 2019. This rather abysmal statistic for Africa’s insurance penetration is even largely related to insurance subscriptions for the formal sector, whilst fraction attributed to the informal sector where MSMEs dominate continues to be negligible. This indicates severely low insurance penetration for the MSMEs subsector in Africa. Factors such as insufficient products available for MSMEs, low insurance literacy, limited marketing channels for sales of insurance services, and lack of sound regulatory guidelines in the insurance sector for the MSMEs market are key reasons accounting for low penetration in the MSME segment. In responding to the yawning insurance gap for MSMEs in Africa, with Ghana as no exception, the GIZ intervention “Improving MSME Access to Financial Services” being executed by AFC Agriculture and Finance Consultants in consortium with GOPA Worldwide Consultants and CDC Consult undertook a giant stride to narrow this gap. As a first step, the project team identified three partner MSME sector associations, namely; The Ghana National Association of Garages, Ghana Cooperative Fashion Designers Association, and the Ghana National Tailors & Dress Makers Association. The project then offered intensive training on financial literacy (including insurance and risk literacy) to these MSMEs. The aim was to induct these MSMEs into financial literacy, and make them
more viable for accessing financial and insurance services. On the other hand, the project identified some partner financial services providers (including insurance companies) in Ghana, and offered technical assistance and capacity building to these institutions in areas of MSME product development, sales techniques for MSME market, etc. The project also maintained active engagements with the relevant financial regulatory authorities to understand the regulatory environment within which these financial institutions operate in context of MMSE subsector. Eventually, the project team in collaboration with its partner financial services providers and the leadership of the partner MSME associations cocreated innovative need-based financial services (including insurance) for these MSMEs. In all, the process of the product creation was rather iterative, input-fed and engaging with all relevant stakeholders in the demand and supply sides of financial services in Ghana. That day, Adams eventually bought insurance policy for the first time for his business and his workers. Narrowing MSMEs’ insurance subscription gap in Africa will hugely depend on developing input-fed need-based segmented insurance services, rather than a random wholesale approach.
Written by: Samuel Kojo Darko Financial Sector Expert AFC Agriculture and Finance Consultants