BY ABEBE WOLDEGIORGIS
The recently introduced regulation by the Council of Ministers to allow foreign banks to operate here did not comprise foreign insurance companies. As a result, the situation created some confusion on insurance provision professionals, the professionals’ association said.
Board of The association discussed the matter and took resolution in this regard. The association assumed that when the government gave green light to foreign banks to operate here, foreign insurance company too will be allowed to operate here however, when it is clear that the government directives do not comprise insurance companies creates some ambiguity.
The board also agreed to discuss the matter with the governor of the National Bank of Ethiopia to know whether the Ethiopian insurance market will be opened to the international competition similar to the banking industry or not.
According to Yared Molla, President of the Ethiopian Insurance Provision Association, until the decision of the Council of Ministers, regarding allowing foreign banks, was heard; he thought that the directive could include the insurance sector.
The question why the insurance sector is excluded in this regard has been amazing. The association is forced to discuss the matter with the pertinent government body because it is unable to find sufficient information in this regard. The association believed that the foreign insurance will be allowed to operate here but by now felt skepticism. He further said that, months ago the association forwarded questions to the government and positive response was obtained. It was also optimist that the foreign insurance companies would be allowed to work here.
When workshop took place in the recent past with regard to the financial institutions with government officials on the occasion, among the three major questions raised by the association was whether the Ethiopian insurance market is allowed to foreign insurance companies. During the meeting, the Minister of Finance Ahmed shide said that, the question will have acceptance.
However, the recently introduced directives which indicate that foreign banks are permitted to operate here forwarded by the council of ministers did not mention the fate of the insurance industry that is why the association is forwarded its plea to the governor of the National Bank of Ethiopia. According to the association’s explanation, the coming of foreign insurance companies here helps the Ethiopian insurance companies to be strong and competitive.
Therefore, the association called for the government policy makers that whenever they prepare policy with regard to the financial sector should pay attention to the insurance industry. On the other hand, though reform works are undergoing on many sectors at the moment, the insurance sector is intact from the reform yet. Therefore, the government should consider this. In fact the reform reached a little bit to the Bank industry but not to the insurance sector.
As to the members of the association, the insurance industry has its own character and philosophy. Hence, whenever measures are put in place to improve the sector, establishing insurance commission which has the mandate to administer and supervise the sector should be taken beforehand. The association also demands that, the commission must govern the sector independently from interference of the National Bank of Ethiopia. Such statement got approval by the Minister of Finance during the discussion held with stakeholders recently.
“We understand the value of insurance to the nation’s economy and we will give you response to the question concerning the insurance industry soon” Ahmed Shide said. Therefore, the government should pay attention to the plea of the sector and the association believes that the government does not neglect the sector. As to observers, here in Ethiopia currently, better enabling environment is created to attract foreign insurance companies than the foreign banks and the policy makers must recognize such a situation.
According to Yared, he does not believe the opening of the insurance market to foreign companies abruptly rather he suggests that their operation must be step by step reasoning out that discussing the issue is vital before the implementation of the directives. The policy with regard to allowing the foreign insurance companies should be prepared by identifying the sector behavior and examining other countries experience. The involvement of foreign insurance companies in Ethiopian insurance market should not harm the local companies and to that end studying the environment with the cooperation of pertinent stakeholders is essential.
As to Yared, the insurance sector has international character and the existing legal frame work of the insurance business connects the local insurance companies with that of the international insurance companies with high competitive capacity through reinsuring system. Therefore, when thinking of inviting foreign financial companies to operate here, it is vital to prioritize the foreign insurance companies.
For example, 95 percent insurance of the Abay Dam is covered by foreign reinsurer companies. The share of the local insurance companies is only 5 percent. It should be also recognized that the insurance coverage of the Ethiopian airlines and other mega projects is mostly comes from foreign reinsuring companies.
House or vehicles supplied for sell here in Addis Ababa obtain insurance coverage similar to houses and vehicles sold in London or New York and this indicates that the insurance law has international character. The insurance coverage task is not simply left to a given company rather it transfers the responsibility to the transnational companies which are foreign by their nature.
The involvement of foreign insurance companies is fundamental because on top of playing key role in transferring knowledge and sharing experience, they can stimulate life insurance business which is not boosted to date. Till now in Ethiopia, life insurance coverage remains in its infancy level and local insurance companies are unable to promote the sector. Hence, if foreign insurance companies are involved in the business, they will upgrade the life insurance status.
Moreover, they can reach the ordinary section of the society by their services and play pivotal role in promoting saving culture. As to Yared, a country’s economy will be meaningful if the life insurance business is flourished. Therefore, the current gap witnessed in the sector can be bridged by foreign companies because Ethiopia can’t stay intact isolated from the foreign financial institutions. If foreign companies start business here, they may not request collateral for the loan they provide but to invest money, they may request place and property guarantee.
Therefore, they need insurance which goes in line with their service provision and forward such request. Hence, the government must give green light to both foreign banks and insurance companies to operate here. In Ethiopia, there are about 18 insurance companies and in 2014 budget year they could collect 16.74 billion Birr premiums.
As it is known, Ethiopia is an inhabitant of 100+ million population and its economy is characterized by agrarian and underdevelopment. Currently, though the financial sector is growing from time to time as compared to the population number, there is huge gap between supply and demand of financial service. Still very few segment of the society is reached by the financial sector.
In fact, in the last 20 years, the expansion of microfinance institutions in the rural part of the country could enable to reach the poor segment of the society. However, the banking and the insurance service still play insignificant role in the rural part of Ethiopia. Therefore, boosting the sector is essential. In the last three decades the opening of the financial sector to the local private sector enabled to boost the economy.
However, to create viable economy which can be competent in the international level, inviting foreign financial companies such as banks and insurance companies is essential. The incoming of foreign banks can shore up shortage of foreign currency, technology and knowledge transfer is also realized. Hence, similar to the bank sector, it is hoped that the government soon will open the insurance market to foreign companies.
The Ethiopian Herald September 30/2022
