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 said their association.
The association board 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 association board also agreed to discuss the matter to the governor of the national bank of Ethiopia to know whether the Ethiopian insurance market is opened to the international competition similar to the banking industry.
According to the Ethiopian Insurance Provision Association President Yared Molla, until the Council of Ministers decision is heard, he did not think that the directive did not include the insurance industry.
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 was took place in the recent past with regard to the financial institutions with government officials on the occasion question were raised by participants. Whether the Ethiopian insurance market is allowed to foreign insurance companies was one of it. During the meeting the Minister of Finance Ahmed Shide told that, the question will have acceptance.
However, the recently introduced directives which indicates that foreign banks are permitted to operate here forwarded by the council of ministers did not mentioned 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 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 currently reform measures are undergoing on many sectors still the insurance sector is intact from the reform 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 beforehand establishing insurance commission which has the mandate to administer and supervise the sector is vital. The association also demands that, the commission must be independently govern the sector from the National Bank of Ethiopia. Such statement was got approval by the Minister of Finance when recently discussion was took place with stake holders.
“We understand the value of insurance to the nation economy and we will give you response to the question concerning the insurance industry soon” said Ahmed. Therefore, the government should pay attention to the plea of the sector and the association believed 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 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 because before the implementation of the directives discussing the issue is vital. 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 stake holders 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 re insuring system. Therefore, when thinking of inviting foreign financial companies to operate here, it is vital to comprise foreign insurance companies.
For example, 95% of the Great Ethiopian Renaissance Dam insurance is covered by foreign reinsurer companies. The share of the local insurance companies is only five percent. It should be also recognized that the insurance coverage of the Ethiopian airline 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 indicate 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 in addition to playing key role in transferring knowledge and sharing experience, they can stimulate life insurance business which is not fostered 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, involving foreign insurance companies in the business here will upgrade the life insurance status. Moreover, they can reach the ordinary segment of the society by their services and play pivotal role in promoting saving culture.
As to Yared, one country’s economy will be meaningful, if the life insurance business is flourished therefore, the current gap witnessed in the sector can be closed by foreign companies because Ethiopia can’t be intact to the foreign financial institutions. If foreign companies start business here, they may not request collateral for what they provide loan but to invest money, they may request place and property guarantee.
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 for 100+ million 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 get financial sector. In fact in the last 20 years the expansion of microfinance institution 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 the bank and insurance are 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 April 4/2023
