Premium Undercutting In Ghana: Unhealthy Practices

Premium Undercutting In Ghana: Unhealthy Practices

Premium undercutting is the practice where an insurance company secretly offers clients unrealistically low premiums in order to gain a competitive advantage.

For instance, a broker will solicit for quotation from an insurance company on behalf of a client but the insurer go behind the broker to quote a ridiculously low price to win the business.

According to the practice is not only unethical but criminal, as the NIC may revoke a defaulting insurer’s licence. The motive of engagement is usually to increase the business portfolio, but this invariably depletes the insurer’s reserves, making it difficult for them to claims. As a customer watch out, if for the first time of insurance , you are offered 50% "No Claim discount". Why will Insurers engage in premium undercutting?
The following are some of the reasons some insurers undercut premium:

Price Differentiation
Typically, the insurance landscape in Ghana is that of a Perfect Competition, where players offer similar products. Pricing then becomes the major source of differentiation. Indeed, besides the accepted rates, insurers are also allowed to offer limited discount rates. The challenge, however, is where some insurers offer rates far and above the acceptable minimum discount just to keep you in their books
Poor underwriting
Another area worth noting is the poor underwriting skills of the underwriter. Where the underwriting officer’s expertise falls short of acceptable standards, they tend to quote lower premiums, without proper profiling of the risk or following the due diligence to access your profiles well.

Marketing and operational dichotomy
Another key area is the usual clash between the marketing and operations departments. Whereas the operations department is concerned about technically underwriting policies, their counterparts in marketing are focused on raking in more business, as such, insist on accommodating certain risks. This often generates huge conflict between the two units; leading to compromises, which could lead to premium undercutting because the marketers want to meet their targets.

Leaked quotations
Often some Insurance Intermediaries who scout the market to obtain premium quotations for their clients tend to discreetly disclose quotations obtained from the competition to other prospective insurers in order to secure much lower quotations. This tie their hands and it will take only Ethical companies to stick to their principles and values.

What your Insurance Broker should do for you

Poor claims payment
The inability of some insurers to honour genuine claims when they fall due means that they have to undercut premiums to remain afloat, thus shooting themselves in the shoe.

What do I do as a customer?
It is therefore imperative for the insuring public not to be enticed by ridiculously low premium offers, but rather ascertain whether the offered premium matches the risk cover, as well as the ability of the insurer to settle claims when they arise.

After all, if the average cost of fuel in Ghana is GHC 15 per gallon, one will certainly be suspicious and inquisitorial if a pump station is offering the same gallon for GHC5!  

7 Signs of Unethical Insurance Broker


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