Motor insurers oppose minimum rates

Rating factors gains high recommendation for the motor insurance class of business as opposed to application of flat rate and minimum rates that have been adopted by insurance companies uniformly.
To navigate the best way forward, a brainstorming event was recently held by insurers to upgrade services and products on the insurance business in collaboration with At Insurance Broker and Consultant and Dawit Begashaw Insurance Consultancy, an insurance consultancy based in Canada.
Asseged Gebremedhin, the sector guru and Head of At Insurance Brokerage Consultancy, said that such kinds of events would create alternative to know the level of the sector in Ethiopia and to share lessons from others for the benefit of the sector growth.

(Photo: Anteneh Aklilu)

Dawit Begashaw, Head of Dawit Begashaw Insurance Consultancy, at the event shared the insurance business experiences in Canada, as well as his vast experience on the sector in Ethiopia prior to doing business in North American.
He underlined that for the insurance sector to be at par with the international standards, brain storming and experience sharing events are crucial in mapping what needs to be done to shift Ethiopia’s insurance business sector.
According to Dawit, with regards to motor class of business or auto insurance as referred to in Canada, is highly backed by technology. On the car underwriting history of driver or the client in connection with driving experience, his claim and insurance practice and experience is built up on the central data base, called ‘auto-plus’, which is a shared service that shall be accessed by all insurers, which helps to rate the premium for a given car insurance client.
Motor vehicle report (MVR) is the other input for the motor insurance that shows conviction report in the recent years including moving violations like speed, traffic light or failing to stop on the scene of an accident.
MVR is a major risk indicator for the insurance company since the driver is at potential risk even though the company may not face a claim.
MVR also has a role for traffic safety since conviction is one of the points for premium rating.
Participants in the meeting expressed that the experience of Canada in relation to motor class of business was the best route to follow by the Ethiopian insurance sector against the new initiative being used.
Further criticism of the latest decision taken by insurance companies on the set minimum premium rate on motor insurance was heavily relayed by the sector participants at the event.
Most of the participants claimed that the government through the regulatory body, National Bank of Ethiopia (NBE), is also drafting a directive that will impose minimum premium on the motor insurance.
They expressed their concern that the new minimum rate whether the one applied by insurance companies uniformly as of November 1, 2022 or that will be applied by NBE in near future, will damage the motive of insurance business in general.
They argued that the newly applied flat rate has generalized clients. They said that rate factors on premium that consider the production date, driving experience and other factors ought to be applied as opposed to generalizing customers at minimum rate.
Such kind of directives that set minimum rate on the motor insurance is not fruitful on

(Photo: Anteneh Aklilu)

other countries, experts argued. They claimed that the study conducted by the actuarial company, which was assigned by the Association of Ethiopian Insurers, did not cover the required parameters like vehicle type, fleet discount, and a no-claim discount (NCD).
“Now NBE has drafted a minimum rate directive without any study,” they expressed their concern over the perceived challenges to come.
Regarding the regulation in Canada, Dawit showed that the Office of the Superintendent of Financial Institutions is the insurance regulating institution, while there are lower bodies like the Insurance Council that is comprised of insurers and regulation and, Brokers Association, who have roles on the sector operation.
As Dawit cited, the various institutions work in tandem to keep the health of the sector in check, while the federal government regulation body plays a big role on the same. He said that since the sector was established separately in Ethiopia, its mandate should be clear owing to the sensitivity and impact of the sector.
“Besides the independent regulatory body that is governed by the central government, there would be other regulatory bodies like different councils like professional association or brokers association with a clear mandate,” Dawit added.
One of the participants in the capacity building event emphasized that a balanced regulation scheme should be formed as per the experience in the developed market.
According to the expert who now operates in North American insurance business, any agents or advisor that faces customers directly must bear a license, while a back underwriter does not need to be licensed. He also explained that an agent or advisor that is regulated by the independent insurance council have delegated authority from insurance companies to underwrite.
“The broker association is also very strong and has a role to play on the regulation part,” the expert remarked.
Brokers are a big deal and their responsibility is highly esteemed in the sector. Operating with such kind of brokerage schemes has big value for the economy since insurance companies do not expect to open redundant branches like in Ethiopia which incurs unnecessary cost in terms of time and transaction cost.
Brokers have to have underwriting quality and they would also be rated by insurance companies so they have to be prudent regarding loss ratio to be preferred by insurers in order to stay competitive in business.

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