By Lena ADU-KOFI (BA, JD, LUTCF, HFCIIG)
Insurance may commonly be viewed as an arrangement by which a company or the State undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. Banking, on the other hand, refers to the system of financial institutions, like banks and credit unions, that provide financial services, including accepting deposits, lending money, facilitating transactions, and offering various financial products. In Ghana, the banking sector is regulated by the Bank of Ghana (BoG), and comprises commercial banks, which are licensed to conduct the business of banking, and non-bank financial institutions, which are licensed to conduct business of a financial nature, under the Banks and Specialised Deposit-Taking Institutions Act, 2016, Act 930.
The insurance sector, on the other hand, is regulated by the National Insurance Commission (NIC), and it is made up of insurance, reinsurance companies, and insurance intermediaries that are licensed under Ghana’s Insurance Act, 2021, Act 1061. In Ghana’s regulatory framework for the insurance sector, health insurance is overseen by a separate national body—the National Health Insurance Authority—established under the National Health Insurance Act, 2012 (Act 852).
The insurance and banking sectors are increasingly getting intertwined, with banks offering insurance products and insurance companies acting as financial intermediaries, leading to a complex nexus of risk management, financial stability, and economic growth.
The Role of Insurance in Strengthening the Banking Sector
The insurance sector plays a crucial role in enabling the banking sector to fulfill its responsibilities within the Ghanaian economy. It provides essential risk-mitigating solutions to help banks manage the significant exposures they face. Handling money or engaging in trade inherently involves risk, and effective management of these risks is vital to maintaining public trust and business sustainability.
Risk Management
Risk management is the process of identifying, evaluating, and controlling potential risks that could affect a company’s operations, earnings, and capital. An effective risk management strategy involves risk mitigation (Ahmed, 2017). Banks face various risks such as hazard risk, operational risk, credit risk, and many others. If these risks are not properly managed, they could lead to the downfall of a successful banking business in Ghana. Fortunately, the insurance industry plays a crucial role by offering traditional insurance products that provide essential protection against these risks.
Hazard risk in banking typically stems from physical threats that can cause direct damage to a bank’s property, operations, personnel, or assets. These risks include events like fires, natural disasters, cyberattacks, terrorism, and other dangerous situations or potential harm related to internal processes, bank buildings, systems, or external events that could disrupt operations and result in financial losses. To mitigate hazard risks, the insurance industry offers various coverage options for banks, including Assets All Risks Insurance and Fire and Allied Perils (covering risks such as fire, flood, earthquake, storm, vandalism, etc.) to protect assets like buildings, branches, ATMs, equipment, and furnishings. Other available coverages include Electronic Equipment Insurance, Motor Insurance, Business Interruption (BI) Cover, Cyber Insurance, Crime Insurance, and Bankers Blanket Bond (BBB) with Professional Indemnity.
Additionally, Public Liability insurance is offered to protect third parties who visit the bank. Operational risk in banks refers to the potential for loss arising from errors, disruptions, or damages caused by people, systems, or processes. Banks face various operational risks, including cyber threats, system failures, fraud, and employee errors. To mitigate these risks, the insurance sector offers products like Cyber Liability Insurance, Bankers Blanket Bond (BBB), Professional Indemnity Insurance, Business Interruption Insurance (BI), Directors and Officers Liability Insurance, and Keyman Insurance. Additionally, for worker-related injuries, policies like Workmen’s Compensation Insurance, Group Life Insurance, and Health Insurance are offered. These coverages provide financial protection against disruptions, ensuring business operations continue smoothly and helping banks manage risks without incurring significant losses.
Credit risk is a major challenge for banks, especially when it comes to loans and advances. Insurance products such as credit insurance, loan protection schemes, mortgage insurance, guarantees, and surety bonds play a vital role in mitigating the risk of borrower defaults and their underlying causes. By safeguarding banks against these defaults, these products help alleviate financial strain during periods of economic instability, ensuring the smooth operation of banks. Additionally, insurance contributes to boosting consumer confidence in the banking sector.
Boosting Consumer Confidence
Insurance plays a crucial role in strengthening customer confidence in the banking sector by promoting trust and security. This is achieved through various product offerings that protect customers’ deposits and ensure business continuity for banks in the event of a claim.
For instance, customers are more likely to trust that their funds are safe if they know that their banks have cyber insurance and a Bankers Blanket Bond (BBB) in place to safeguard their savings.
Additionally, insurance policies that cover outstanding mortgage or loan payments in the event of death or permanent disability help reassure customers that their families will not face financial hardship. In Ghana, all deposits held by banks and Specialised Deposit-Taking Institutions (SDI) licensed by the Bank of Ghana are insured, except for those that fall under the exclusions outlined in Section 13 of Act 931, as amended (Ghana Deposit Protection Corporation, 2025). This system encourages public trust in banks, promotes financial stability, and helps prevent panic withdrawals during periods of economic instability.
Banks partner with insurance companies through Bancassurance to serve as distribution channels for products such as life, accident, health, property, motor, loan protection, and travel insurance. These product offerings provide additional security for customers, such as mortgage insurance that protects both parties in the event of death or loss of income, thereby enhancing customer experience and fostering loyalty.
Financial Stability
Insurance plays a crucial role in ensuring the financial stability of the banking sector by assisting banks in managing both individual and corporate risks. This starts with banks purchasing necessary insurance policies to cover various potential risks. These policies help banks protect their capital reserves by transferring large, unexpected risks through reinsurance, ensuring they maintain sufficient capital levels. Insurance also acts as a safety net, enabling banks to continue operations without depleting their reserves. In the event of external disruptions such as political instability, natural disasters, or economic shocks, insurance helps banks recover and maintain stability. The loss of assets by a bank can impact its capital adequacy, portfolio at risk, and cash flows, potentially sending a negative signal to the market. This was evident in Ghana after the June 3, 2015, Flood Disaster (Asumadu-Sarkodie, Owusu, & Rufangura, 2015) and during the Financial Sector Clean-Up Exercise of 2017-2019 (Kwami, 2023).
According to the Bank of Ghana, a key factor in stabilising the financial sector of Ghana during the recent banking crisis (2017-2019), was the resilience and improved performance of the insurance industry (See Bank of Ghana, 2023: 17). Apart from the industry saving its client base with strict contract-retention and life product non-variation directives, enough reserves were strictly maintained in the system to cushion financial stability (See Bank of Ghana, 2023: 17-18). The net effect of these intentional measures was to shore up confidence in the banking and financial sectors to forestall collateral damage in the financial sector of Ghana (Ministry of Finance, 2023). Insurers also help the banking industry and the wider economy to achieve Financial Inclusion.
Financial Inclusion
Financial inclusion is the availability and equality of opportunities to access financial services. According to the World Bank, “financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way” (World Bank Group, 2025). Affordable financial products and services – such as transactions, payments, savings, credit and insurance – help people manage risks, build wealth, and invest in businesses. Inclusive insurance and risk-financing approaches are designed to make financial protection accessible to underserved populations to bolster their resilience against various risks arising from natural disasters and economic shocks.
In Ghana, low-income earners are often concerned about the safety of their money in banks, especially after the forced closure of several financial institutions between 2017 and 2019. (Bank of Ghana, 2019).
Insurance helps alleviate these fears and uncertainties by providing a hedge against potential risks. When consumers and depositors are assured of the partnership between banks and insurance companies to protect their deposits and financial investments, they are more likely to continue doing business with the banks. This increased consumer confidence fosters greater financial inclusion, assuming other factors remain constant (Sammy, 2024). The synergistic relationship between insurers and banks also helps the banking sector bridge the gap and reach the low-income population through Microinsurance.
Bridging the Gap to Reach Low Income Population Through Microinsurance Products
Microinsurance is insurance specifically designed to protect low-income individuals and households, offering affordable coverage for common risks like illness, injury, or death, and is typically delivered through easily understood contracts and efficient channels (Dror & Piesse, 2014). Through microinsurance, affordable and accessible insurance products are offered to low-income individuals, helping them cover health, life, and agricultural risks. By partnering with insurance companies, banks provide bundled products that combine banking services with insurance coverage, such as life, accident or health insurance alongside savings accounts and loans. This approach not only improves access to insurance but also encourages financial literacy and inclusion, helping individuals engage with both the banking and insurance systems.
In Ghana, microinsurance has seen rapid growth over the past decade as more and more insurance providers have expanded their services to the low-income market. And in this, the collaboration between banks and insurance companies is commendable. For instance, Opportunity International and The Development Bank of Ghana (DBG) have devised a collaborative scheme to support farmers in Ghana. Alongside its local offshoots of Opportunity International Savings and Loans Limited and Sinapi Aba Savings and Loans Limited, microinsurance and microfinance services are being rendered to connect more than 1.5 million clients with savings accounts or microloans; provide loans to over 5,000 low-cost non-government, reaching 1.4 million children; and support over 250,000 smallholder farmers (See Opportunity International, 2025).
Diversification of revenue streams through collaboration
Banks and insurance companies are expanding their customer base and diversifying revenue streams through partnerships and collaboration. By offering insurance products such as mortgage insurance, credit life insurance, and health insurance, banks can provide more comprehensive services and differentiate themselves in a competitive market. These partnerships also create opportunities for cross-selling, where banks offer insurance products like loan protection or life insurance alongside their banking services. Additionally, collaboration allows banks and insurance companies to reach underserved populations, especially the unbanked, by using mobile agency banking platforms to deliver insurance products in rural areas where access to traditional banking services is limited.
Conclusion
In developing economies, strategic partnerships between bankers and insurers can significantly boost financial inclusion, economic growth, and effective risk management. Insurance plays a pivotal role in strengthening the banking sector in Ghana today by mitigating risks, ensuring financial stability, and enhancing consumer confidence.
Through strategic partnerships and the provision of comprehensive insurance products, banks can better manage operational, credit, and hazard risks, which help protect their capital and ensures business sustainability. Moreover, insurance products offer customers added security, fostering trust and encouraging financial inclusion, particularly among underserved populations. By continuing to collaborate and innovate, the banking and insurance sectors can work together to create a more resilient and inclusive financial system, driving growth and stability in the banking sector ultimately (Bhave, 2014; Maison & Maison, 2019). Banks are the prominent face of Ghana’s financial sector. However, to instill greater confidence in the public regarding financial products, collaborative offerings between insurers and banks can enhance financial inclusion and expand market reach as espoused in this paper.
Recommendations
This paper recommends regulatory flexibility, collaborative banking, joint-public financial education, and consumer sensitisation, along with customised products to meet the unique needs of Ghanaian financial consumers. Regulatory flexibility allows agencies to assess and adjust rules to minimise burdens while achieving their goals. Collaborative banking fosters partnerships between banks, insurers, and other stakeholders to strengthen the ecosystem and expand the market. Joint-public financial education and consumer sensitization enhance consumer protection, especially in digital contexts, by improving disclosures, complaint handling, and financial literacy. Ultimately, collaboration between the insurance and banking sectors will support economic growth and stability in Ghana.
About the Author:
Mrs. Lena Adu-Kofi has over 38 years of experience in management, leadership, and the insurance industry. She is the co-founder and CEO of Safety Insurance Brokers Ltd (SIBL). Mrs. Adu-Kofi made history as the first woman to be licensed as an insurance broker in Ghana and the first female president of the Insurance Brokers Association of Ghana (IBAG). She was also honoured as one of the AIO-PILA Top50 women in insurance in Africa 2022. She holds a BA in Social Science from Kwame Nkrumah University of Science & Technology, as well as a Juris Doctor of Law (JD) from New England Law | Boston, MA, USA. Additionally, she is a Life Underwriter Training Council Fellow (LUTCF) and an Honorary Fellow of the Chartered Insurance Institute of Ghana (HFCIIG).
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Credit: The GH Bankers Voice magazine
Handling money or engaging in trade inherently involves risk, and effective management of these risks is vital to maintaining public trust and business sustainability.
The post Strengthening the banking sector: The vital role of insurance appeared first on The Business & Financial Times.
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