The insurance industry in Ethiopia has been performing poorly and is making minimal contribution for national economy, according to sources. In such situation, they are likely to face tough competition if international insurers are allowed to operate in Ethiopia. But some of the local insurance companies express readiness for completion and welcome their admission to the country as an opportunity to work with modern and experienced partners.
Ethiopia’s insurance industry is still a very low contributor for GDP, which does not exceed 0.5 percent of the total, according to sources. Currently, 17 insurance companies are operating in the country, while one more company is under process to join the industry. With the 40 new branches they opened in 2017/18, they have raised the number of their branches to 532. National Bank’s report indicates that in the stated period, Insurance companies have collected 8.6 billion Birr premium. Compared with last year’s same period this is a 14.4 percent progress.
Of which, 95 percent or 8.1 billion Birr has obtained from general insurance business and the remaining 500,000 Birr was earned from long term insurance businesses, he added. 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 0.4 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, says Yared Molla, CEO of Nyala Insurance Company. According to Yared lack of dynamism and absence of strategic alliance among industry players tightened regulation and lack of skilled work force as 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 initiative, there is no doubt that Ethiopian insurers will thrive and grow to be internationally competitive companies,” he underlined. He also expressed his expectation that the government and the regulatory body will give due attention for the expedited change be happening to the industry. Indicating that the company has been making preparation to join and contend in the world market, National Bank has given every assistance for this end.
Applauding the economy is opened for international companies Yared noted that his company has been making preparation to work in collaboration with international insurers. “In so doing, we are ready to be an alternative.” Zafu Eyesuswork Zafu, Developmental Economist said that, indeed, the insurance sector is yet undeveloped. The very reason is that insurance companies are affiliated with a certain political party, religious institution or ethnic groups. In the near future, if the sector opens up for international market, international businesses would penetrate into 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 gain training and experience about the concept of competition. Thus, the door should first open for local companies. All insurance companies should be treated equally in order to compete with one another. Therefore, 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, they will bring positive impact not only for insurance companies but also 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.
The Ethiopian Herald May 23/2019
BY GIRMACHEW GASHAW
