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.
Insurers look for answers to vehicle claims, unfair competition
World Bank team to help make stock market a reality
The World Bank Group announced that a team of experts would arrive next month to assist Ethiopia in the actualization of a capital market.
The World Bank already is providing technical support for a committee established under the Ministry of Finance to properly implement partial privatization of government enterprises.
In a summary of last year’s economic report and a prediction of the current one, economists stated that Ethiopia’s economy is expected to grow at 8 percent with stable economic conditions. One of the major reasons for this belief is the government’s decision not incur commercial debt which should improve the external debt payment. The economy is also expected to stabilize because new industrial parks have begun operating, inflation has gone down over the past three months and foreign currency reserve has increased.
The World Bank has given its first direct budgetary support since the 2005 election at the request of the government, where half of the 1.2 billion USD funding was given as a concessional debt and the rest as direct aid.
The pillars of the support includes: maximizing the government’s potential, investment and financial institutions simplifying doing business and supporting legal framework developments and accountability and transparency enhancement programs.
Carolyn (Carrie) Turk the Country Director for Ethiopia, Sudan, and South Sudan pointed to positive steps Ethiopia has taken in these three areas, such as opening the economy in Public-private partnerships, energy, telecom and logistics, computational law and investment law and working work with civil societies, and public enterprises.
“The support is given by the unanimous vote of our board members who supported the efforts Ethiopia is making to bring the fundamental policy, economic and social changes it embarked on,” said Carrie.
The country director stressed that there are fundamental reforms in the policy decisions which the WB is grateful to support. Some short-term reforms include, making the logistics sector more efficient to improve the foreign exchange reserve; and opening up the telecom, energy and airline sectors to privatization.
Long-term structural actions involve improving exports which should occur when the logistics sector is improved.
Debub Special
Another bank has come along with special banking service for its premium costumers. Debub Global Bank one of the youngest in the financial industry has announced the opening of its first premium branch for those who desire special service.
The first premium branch for Debub opened at Bole Medhanialem Branch at a ceremony held Thursday November 15.
Reconciliation Commission comes out the birth canal
The Council of Ministers reacted to the formation of the National Reconciliation Commission which has been advocated for by several politicians and civic society groups recently.
The council met on Wednesday November 14 and approved the draft proclamation to form a reconciliation commission and send it to the parliament for ratification.
Since the coming of EPRDF after the fall of the Derg regime in 1991 several political activists and individuals who have followed the country’s political system have said the EPRDF led government should come up with a reconciliation and national consensus to halt public grievances and establish a smooth and democratic political platform in the country. Even though political elites asked for reconciliation, the ruling party refused it, claiming that there were no grievances in the country.
The sector actors have also claimed that ignoring the reconciliation issue has accelerated the grievances and increased political instability in the country.
The current response of the council is an answer to close to three decades of requests from opposition parties and other political elites.
The reconciliation commission may facilitate the platform to stabilize the peace process in the country and accelerate the reform introduced since the coming of PM Abiy Ahmed (PhD).
The commission will come up with solutions to political, social and economic differences.
In its latest meeting the council also approved the draft proclamation for the formation of an identity and administrational border commission. Since the country was divided by an ethnic based federation of the constitution drafted and ratified by the EPRDF led council, identity based conflict and inter border disagreement has been observed. For instance the identity claim in SNNP, Amhara and the border claim in Somali, Oromia, Gambella and Benshangul Gumuz has occurred over the past 30 years.
The identity commission is expected to come up with independent and scientific based solutions, according to statement of the Council of Ministers. The proclamation is expected to be ratified by the parliament.
Besides the two proclamations the council has also evaluated draft regulations for the formation of different federal offices in relation to the current restructure of ministry offices. Some of the new offices include: a water development commission, irrigation commission, drainage development authority, technology and innovation authority, geo spatial information institute.
In an unrelated development the Office of the Prime Minister has announced that the current campaign against corruption and human right abuse crackdown will continue. In the statement the PM described individuals who engage in illegal activity as a cancer to the country. It said that these individuals are not representative of any group or ethnicity.
