Assessing Risk Perception and Insurance Knowledge in Accra, Ghana - Literature review Example

?According to Barjaktarovic et al risk is the divergence of the expected results on an investment on the basis of movement of financial constraints, which have impact on the loss of money either by a company or an individual, while risk perception is an aspect of insurance that deals with the ability to predict any possible risk condition which will be the cause of damage or loss. There have been many losses to the people of Accra, Ghana’s capital, over the years because of a lack of insurance cover that has made governments introduce new policies with the aim of encouraging its people to get insurance cover not only for their property but also for their lives. Conventional policies have been used even though they are not necessary because the crisis in the Ghanaian insurance industry is not as acute as in some African countries. This has made a majority of the people in this city to participate in large scale asset purchasing and other business ventures with the aim of achieving stabilization in their lives and creation of employment (Buatsi, 2002). It has encouraged these individuals to turn towards the acquisition of insurance policies because of the risks involved in the diverse number of businesses that they are involved in despite the fact that the government policies that have been employed have created significant amounts of uncertainty with regards to their effectiveness hence proving the fact that its policies are not farsighted (Chalfin, 2008). One important channel that has come to affect the insurance policies is the currency value and much evidence shows that the depreciation of the currency value over the history of the country has tended to discourage individuals from subscribing for different insurance policies. The insurance policies in Ghana have been made in a manner that is relatively predictable and in asystematic way, the methods of advertising to the public by insurance companies has provided the latter with the necessary knowledge to know what type of policies to select for themselves. The key factors in these policies were aimed at being short term interest rates, and exchange rates together with monetary aggregates that could undergo adjustments in a free manner. One reason why many individuals choose to take insurance policies in this city is not necessarily to secure themselves against any potential losses but as a form of investment where they tend to put their spare money into what they consider to be worthwhile investments (Anim-Odame, 2012). Market expectations may also be considered to be a reason why individuals choose to purchase insurance policies because they believe that if anything happens to the property which they have insured, then they will be able to recover it in a short time span from the insurance company. When normal rigidities in the insurance sector occur, changes in normal returns have an effect on the number of people who are interested in insuring themselves and this has over time been reflected in the economic decisions that were real which included investments and consumptions, as individuals opt to undertake lesser risks rather than purchase insurance policies. This has been observed to have an effect on the insurance sector as insurance companies compete to ensure that they attract a larger clientele than their rivals through the offering of insurance packages which are likely to encourage unlikely insurance policy purchasers to do so. While this has been the case in Accra, one of the biggest effects in the market was the global financial crisis which in the past few years has come to challenge the insurance industry of Ghana in three different ways. These have come to include financial disruptions that are wide spread, broke arbitrage conditions which hinders policy transmission on the yield curve; there is the presence of heightened vulnerability that leads to freezing of the markets, this is because there is the presence of self-fulfilling equillibria that is badly coordinated, and lastly there is severe recession that pushes the optimal policy rate to go below zero lower bond even when the interest rates are normal (Nimoh, Baah & Tham-Agyekum, 2011). All the challenges that have impacted on the insurance sector have made it respond by creating unconventional tools which were thought would be favourable for addressing two objectives. The objectives were restoring of proper functioning of the intermediation and new markets, and providing further coverage to accommodate those individuals who would otherwise not think of purchasing any of their products (Agyapong, Agyapong & Darfor, 2011). These two objectives were conceptually distinct and closely related to each other, hence their main aim was to try and support microeconomic stability by diminishing tail risks in various phases of the economic functioning of Ghana. There have been schemes that have been established by the government to try and reduce the risks which individuals have to face through the encouragement of such individuals to purchase insurance policies to secure themselves against any losses that they may end up having and these schemes have tended to be aimed at the private sector of the country which faces the most risk (Kwon, 2010). While it is a fact that the government policies tend to encourage individuals to insure themselves, it is often extremely difficult to get individuals to do so because of the general public belief that investments are ironclad and that there is no risk in making an investment and that they will always be successful. This has created a situation where the insurance sector has tended to fail to attain its growth targets; the targets are overshot and the insurance companies have tended to frequently revise their midstream targets and have ended up altogether abandoning the set targets (Moyeret al, 2009). The insurance policies that have been adopted by many individuals in Ghana have had a tendency of either being mandatory, such as vehicle insurance, or those which are required as a condition of attaining various services both in the public and private sectors and these have ensured that most people in Accra only have the most essential insurance cover. This has come to be regarded as highly risky because of the fact that individuals do not consider the fact that there are certain unforeseen risks against which it would be wise to cover themselves because not to do so might end up being disastrous for them (Atuahene, 2008; Quartey & Puplampu, 2012). Among these has been health insurance which many Ghanaians did not have until the government chose to take a direct hand in it and institute universal healthcare coverage and as a result, a number of health financing reforms have been implemented with the aim of increasing overall assets to the health sector and safeguardingreasonableprovision. The recent of which is the NHISwhose aim has been the enhancement of social health protection (Gobah & Liang, 2011) since before the creation of this scheme, this country had implemented most of the known healthcare financing mechanisms which included general tax and donor funding, individual payments, as well as health insurance schemes which were created by individual communities (Carbone, 2011). While this has been the case, the approaches that have been adopted by the government have not been successful in improving access to quality healthcare and reducing individual expenditure on healthcare. Many low income households in Accra before the introduction of universal health coverage, however, tended to postpone medical treatment, or chose to undertake self-treatment (Debrah, 2013). Accra has many establishments that seek to improve the wellbeing of the community through the provision of microfinance packages, and these include traditional banks and informal lenders. At the informal level, it has been found that moneylenders in the city also pre-finance many economic to social issues like funerals, but while this is the case, it has to be noted that it is easier for individuals to obtain loans from banks to organize funerals than for farming activities due to lack of collateral because of the fact that the expected contributions from those attending the funerals provide a form of security to those who lend the money (Ferrara, 2003). It has been reported that informal insurance mechanisms such as funerals and naming ceremonies are very important in Ghana, and because of this, many individuals in Accra tend to subscribe to the use of these insurance schemes rather than the more formalised ones. Over the past decade, the Ghanaian insurance sector has gone through many shifts and these have come about mainly through the financial sector structural alteration agenda as part of the economic development programme. In addition to this, various economic activities such as globalisation, the merger and acquisition taking place in various sectors as well as the development of new technologies have contributed significantly to the tough competition and pressures on productivity (Kwadzo, Kuwornu & Amadu, 2013). In such a competitive marketing environment, the task of bringing in customers who can create a profit has become a priority for those who manage insurance institutions in the country because there has developed the realisation that such institutions must provide acceptable returns to shareholders or go out of business. But while this is the case, it has been realised that in order for these institutions, most of them based in Accra, Ghana, to continue working effectively in this environment, and in order to maximise their profits, they have to adopt appropriate risk management strategies (Loh, Ugarte-Gil & Darko, 2013). This has meant that many financial institutions have had to take prudent measures so that they can better be able to apply sound lending practices to assess the credit risk of the borrowers. This has created a situation where these institutions in the country have had to ensure that they are insured against any losses in case of there being any defaults by their customers. References Agyapong, D., Agyapong, G.K.Q. & Darfor, K.N. 2011, "Criteria for Assessing Small and Medium Enterprises' Borrowers in Ghana", International Business Research, vol. 4, no. 4, pp. 132-138. Anim-Odame, W. 2012, "International Articles: THE NASCENT RESIDENTIAL INVESTMENT MARKET IN GHANA", Journal of Real Estate Literature, vol. 20, no. 2, pp. 289-303. Atuahene, F. 2008, "The challenge of financing higher education and the role of student loans scheme: an analysis of the student loan trust fund (SLTF) in Ghana", Higher Education, vol. 56, no. 4, pp. 407-421. 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