Insurers look for answers to vehicle claims, unfair competition

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The Association of Ethiopian Insurers is going to assign another actuarial firm to find solutions to improve the insurance industry, primarily by suggesting ways to lessen the blow caused by the high amount of motor vehicle accident claims. They are negotiating with a new company after a Kenyan company failed to come up with a satisfactory result.
The Association of Ethiopian Insurers had assigned an actuarial firm to undertake a detailed study after the financial regulatory body National Bank of Ethiopia (NBE) advised insurance firms to find solutions to the problem.
Ethiopian insurers have frequently complained that motor insurance has slashed their profits due to unfair competition.
Car insurance has been a common problem for the profession. Insurers say the premiums they charge are small when compared with the damage. From the total claims insurers settle every year motor vehicles make up the largest proportion. In their annual report they expressed concern about the growing risk of auto insurance.
Meanwhile insurance firms say that low premiums promote unfair competition and negatively affect their business.
Experts said that the current competition between insurance companies is not based on the service that they provide instead they are pulling the rug from out each other in a race to the bottom by trying to offer the lowest premium payments. Experts said that even though they expressed their concern and agreed to increase premiums during their meeting, nothing happened. “It backfired and this affects them,” an expert explained.
Since NBE made the recommendation in early 2017 insurers have come with concrete solutions via their association. Then they assigned Kenyan based Actuarial Services (East Africa) Limited (ACTSERV) to undertake a detailed study and come up with possible solutions.
However, the Kenyan company assigned to undertake the study did not come up with a satisfactory preliminary result, according to Hadush Hintsay, secretary general of the Association.
He claimed that the actuarial firm did not meet the expectations of the association. “It is new for us and at the same time their output did not match what we expected from their profile,” Hadush told Capital.
The Kenyan company was expected to finish the study within a few months but the preliminary study took over a year.
“Initially we were not ready to provide organized information from some of the insurers which delayed the operation,” he said. The study needs to evaluate the activity of every insurance firm including the premium estimate, income, and expense and management experience of the financial firms.
The secretary general said that they never paid a penny to the Kenyan firm.
According to Hadush, currently the association is in negotiations with another foreign actuarial firm to undertake the study.
“Based on our experience before during the previous actuarial study we were not prepared to provide sufficient information for the company to finish the study within a few periods,” he said.
“So far our current negotiations are positive but we don’t want to mention the name of the firm since we have not concluded the negotiation,” he said. It is a foreign company, he added, because there is not this kind of consultancy firm in Ethiopia.
The study is expected to show ways of alleviating the problem. Experts said that it one possibility is setting a minimum premium rate for different products.
Hadush said that even though the document will be submitted to NBE, who is responsible for ratifying laws for insurance companies, the study will also help Ethiopian insurance companies because the current insurance business in Ethiopia has not been studied by an actuary.
“The study will be a scientific justification for the insurance business,” he added. The actuarial study will also include other general insurance topics.
A year ago the sector leader told Capital that the experience of others is related to the minimum premium rate. “For instance in Kenya the minimum insurance premium amount for motor vehicle insurance is set to three percent of the value of the vehicles but the actual premium amount has grown to 5 percent since the car compensation has risen,” the expert said.
In Ethiopia the premium percentage in the motor sector has been declining due to unfair competition reaching less than one percent of the value.
But the amount insurers compensate has grown significantly every year. Sometimes the motor claim is covered by the premium collected from other policies, according to experts.
Besides the fatalities and other human damage traffic accidents are bleeding the country’s economy and escalating the shortage of hard currency.
Traffic accidents along the Djibouti corridor damage imported products, while maintenance for vehicles requires spare parts imported with foreign currency.
“On the other hand the higher compensation from insurance companies has affected the revenue not only of shareholders but the general public as a whole,” an expert added.
Since the minimum premium was set insurance companies will have better revenue so they can invest more in saving expenses from vehicle accidents as issuers do in other countries.
“In other countries insurers take part in road designs, and even the production of vehicles which reduces traffic accidents,” one industry insider said. “We can engage in such kind of involvement to tackle the problem,” they added.
Besides the motor sector the insurance premiums for project insurance decreased in the past few years, according to experts, for example a few years ago project premiums were about 0.4 to 0.5 percent but now they are less than 0.1 percent.