The Insurance sector in 2024
The insurance sector in Ethiopia was little known. Not only do individuals disregard this business, but the authorities entrusted with overseeing it also do the same. The National Bank of Ethiopia (NBE) is where it all begins. Industry participants often accuse government representatives of being blind to the issues they confront and the changes that must be implemented to increase their reach across the nation. It is also often excluded from conversations about the financial sector.
The most recent change in government policy saw the same outcome. Executives in the insurance business had first believed that their sector would be covered by the new Council of Ministers policy that permits foreign investment in the financial sector. Nevertheless, many industry insiders found it disheartening that the policy did not apply to insurance firms after the facts came to light.
Nigus Anteneh, the CEO of Nile Insurance, which has been in the business for more than 20 years and had a gross written premium of 700 million birr at the end of the previous year, said, “It looks like we are being ignored again.”
Despite being in existence for more than 50 years, Ethiopia’s insurance sector is still relatively young. More than sixteen insurance companies have entered the market since the government, headed by the now-defunct EPRDF, introduced the mixed economic system thirty years ago.
Together, the private insurance companies were able to reduce the market share of the state-owned Ethiopian Insurance Corporation (EIC), the main player in the market, to less than 50% as recently as last year.
They made up over 57% of the 15.6 billion birr gross industry premium in the previous year.
However, it is just a percentage, and the extent to which insurers in Kenya, a neighbour, have progressed in this area is negligible. The selling of insurance policies generates about USD two billion for Kenyan insurers yearly, five times more than Ethiopian enterprises write in the same period.
Insurance industry executives think this is the result of poor technical advancement, a lack of cash, and a paucity of competent labour.
Chief Executive Officer of Lucy Insurance Adefris Wesene remarked, “I think foreign expertise and more capital inflow could have helped the insurance industry show great progress,” calling on authorities to liberalise the sector in the same way that they deregulated the banking sector.
The maximum number of shares that a multinational lender may purchase is 10 percentage points fewer under the new policy that the Council of Ministers authorised, allowing foreign banks to purchase up to a 40 percent interest in local banks. Other options include establishing a representative office, which was previously allowed prior to the new regulation going into effect, or a subsidiary, branch, or both. The insurance market is one that the firms want to see undergo similar change.
Because we closely collaborate with international reinsurance companies who also want to invest in local businesses, we have previously gained expertise dealing with foreign corporations. Thus, Meseret Bezabih, a long-serving CEO of United Insurance and one of the industry leaders with a gross written premium of about one billion birr up until the end of last year, said that liberalising the insurance business would have resulted in a significant turnaround in the sector.
- The insurance sector in 2024 predictions
- global insurance industry
- upcoming insurance companies
- future of the life insurance industry
If international companies are permitted to enter the market, industry participants anticipate more portfolio diversity.
Presently, automobile insurance accounts for more than one-third of the industry’s premium; this percentage increased dramatically when the government mandated the purchase of a third-party insurance policy. However, this has made the business vulnerable to massive claims and stopped insurers from expanding.
Price is the primary differentiator between insurers in their fierce struggle for new business. If foreign competition is allowed into the insurance market, executives of insurance companies expect to buck this trend.
One factor impeding the sector’s growth is the absence of product diversification. And that requires additional money, which international investors may provide if they are permitted to participate, according to Nigus.
He does not, however, support total liberalisation of the industry.
“It should be gradual,” Nigus said, expressing concern that if complete liberalisation occurs, local businesses would be absorbed.
A finance specialist named Getachew Beshahwured agrees.
Local businesses aren’t prepared for international rivalry. Opening up the industry will render current businesses paralysed, he said.
Authorities have not said why the insurance sector was left out of the recent financial sector liberalisation, but it seems like they want to prepare the sector for the future opening up.
The minimum capital threshold to launch an insurance business was changed last week. According to the modification, a licence for both general and life insurance lines of business now requires half a billion birr in paid-up capital, which is a significant increase from the previous minimum requirement of 75 million birr that was in place for more than ten years. In the financial sector, a similar action was taken a year before. The paid-up capital requirement for starting a bank was raised one year prior to the most recent regulatory shift in the industry, from 500 million to five billion birr.
It remains to be seen whether the insurance business is changing for the same reason as the banking sector—that is, to open its doors to multinational corporations—despite the fact that the changes seem to be preparing the companies for any kind of competition.