Ethiopia’s insurance industry is still at the lowest stage in terms of its contribution to GDP, which is not exceeding 0.5 percent. Currently, 17 insurance companies are operating in the industry and they have opened 40 new branches by the year 2017/18, making the total number of insurance companies’ branches 532. One company is also finalizing preparation to join the sector.
According to the National Bank, in the reported period, it was collected 8.6 billion premiums showing a 14.4 percent progress. Some 95 percent or 8.1 billion Birr of the premiums was obtained from general insurance business and the remaining 500,000 Birr was earned from long term insurance businesses.
Accordingly, the total asset of the industry has reached 16 billion Birr. And of the total premium, 51 percent is gained from motor insurance. In general, the industry has already paid 3.7 billion Birr for its customers. By now, the sector has a total capital of 5.5 billion Birr.
The overall performance of insurance in Ethiopia is still substantially low. Insurance penetration (total premium as percentage of GDP) is O.4 in Ethiopia while it is 2.6 in Kenya; premium per capita (insurance density) is 2.9 USD in Ethiopia while it has reached 40 USD in Kenya, according to Yared Molla, CEO of Nyala Insurance Company.
The insurance industry which has low performance and minimal contribution for national economy should prepare itself to work and compete with international companies.
According to Yared, lack of dynamism, absence of strategic alliance among industry players tightened regulation and lack of skilled manpower are among the critical challenges faced by the industry. “We have now a growing middle income class in the country which is an ideal platform for the development of insurance, especially life insurance. When the industry is deeply touched by the government’s new reform initiatives, there is no doubt that Ethiopian insurers will thrive and grow to be internationally competitive,” he said.
He also expressed his expectation that the incumbent and the regulatory body will give due attention for the expedited change happening in the industry. While the company has been making preparation to join and contend in the world market, he said, the National Bank has also been providing it with assistance.
Applauding the economy is now open for international companies, the company has been making preparation to work in collaboration with international companies. “In so doing, we are ready to be an option.”
Eyesuswork Zafu, a corporate leader with global experience in the insurance business on his part said that, indeed, the insurance sector has yet developed and the very reason is that insurance companies are affiliated with a certain political party, religious institution or ethnic groups.
In the near future, when the sector is opened for international market, international business would show a tendency to penetrate in the market through buying a share from local companies. In this case, international businesses will not consider the aforesaid points rather they simply look into the modernity of the organization.
For this to happen, local insurance companies should give priority to the concept of competition that anything else. Thus, the door should first open for local companies. All insurance companies should be treated equally in order to compete with one another. So, the companies need to liberalize and exercise competition among themselves. This is very critical issue that should be considered to enhance the sector.
If the door is open for international businesses, it would bring positive impact not only for insurance companies but also for other businesses. Indicating that Ethiopia has signed continental free trade agreement recently, the agreement enables the country to open doors for financial businesses. In this regard, the government needs to create enabling environment via shaking National Bank to liberalize the sector.
Herald December 13/2018
BY GIRMACHEW GASHAW
