Surfing Ethiopia’s Insurance Waves

Strong demand for insurance of vehicles, property, health and other insurances across Ethiopia in recent years have been driving the revenues of insurance companies in the country. Growing life expectancy, tax incentives on insurance products, favorable savings associated with insurance have been a further catalyst in encouraging the customers across insurance segments.
However, in the past couple of years, the waves of the insurance companies have been riding in turbulent waves owing to high tides that stem from conflict in the Northern part of the country. The economic downs have pegged the sector back and following the recent peace agreement and economic rejuvenation, the sector is slowly gliding to the former good old days.
Nonetheless, the reality on ground still remains that Ethiopia’s insurance industry is still facing stiff competition as the insurance companies not only compete with each other, but also compete with the risk retention groups, government, and self-insurance.
As economic growth, rising government spending, technological innovations and increased consumer awareness about insurance products continue to touch base in Ethiopia, the government’s policy of insuring the uninsured is said to play a huge part in the pathway to long term success of the sector.
In Ethiopia, the Africa Insurance Company is noted to be one of the crème de la crème of insurance companies in the country. The Africa Insurance Company for over a quarter of a century has engaged itself in all classes of general insurance. Its business dealings over the years have been tailored to meet the needs of its esteemed clients. Currently, the Company carries out transactions of all types of Insurance policies such as Motor, Fire, Marine, Hull and Cargo, Workmen’s Compensation, Personal and Group Accident, Money, Fidelity Guarantee, Burglary and House Breaking, Plate Glass, Liability, Domestic Package, Engineering, Computer All Risk and others.
Cognizant of the shaky recent years and the prospect of new competition from foreign investors, Capital’s Deputy Editor in Chief, Muluken Yewondwossen reached out to veteran insurer, Kiros Jirane, CEO of the Africa Insurance Company, for an insider’s digest of the insurance bubble. Excerpts;


Capital: Currently, how is the overall operation landscape of the Africa Insurance Company?

Kiros Jirane: For the last two years, we have been facing different challenges which majorly stem from the war in the northern region. Most of our customers have stopped paying their premium as they have been highly affected by the situation. Our branch in Mekele which used to be the best operating branch has become a shell of its former self and has since been closed.
Nevertheless, I believe the current peace agreement will improve the situation with regards to the business spectrum of things and I am confident that our customers will be able to buy insurance like the years prior. We are among the crème de la crème of insurance companies in the country, and we trust that our resilience will pave a way for us to stay at the top, despite the recent back-peddling that we have encountered.

Capital: Do you have plans of expanding your products and services that you are currently providing now?

Kiros Jirane: A company’s wide customer base is synonymous with the superlative products and services that it provides. As is the same for us since we have been in the market for a long time with great product and service offerings we have been able to attract a huge customer base relative to our competitors in the country. Similarly, we provide good services and products for our customers which are measurements of a successful insurer. We have more than 30 branches spread across the country.
When you are operating in the insurance sector, you ought always to be vigilant in terms of assessing the market and providing new services based on the growing demand and market size.
The insurance sector in our country is somewhat backward in that you see customers gravitating towards a particular insurance by virtue of who the owner is rather than paying primary attentions to the services and products that the company provides. I believe this will change through time and Ethiopia having a population of more than 120 million is a huge potential ground for the insurance market. That said, the coverage is at less than 5 percent which is very low for a country of its stature and this is because of low awareness both among the society and the providers.
So we have to always engage to improve our coverage specially by watching other countries’ experience and as Africa Insurance Company we are doing just that and we will continue to provide better upgrades to our products and services where appropriate.

Capital: What’s your overall assessment of the overall insurance sector in the country?

Kiros Jirane: One thing we need to note is that there is huge potential and market which we can improve our operation as a sector. If we assess the revenue of insurance companies, we may think that it is increasing, however in comparison to other larger markets in the region, we are lagging behind.
Government has a pivotal role to play in propelling our sector through preparing policies that can support the sector and also in awareness creation including by providing incentives such as making premium for life insurance free of tax and so on; of course now the market is gearing up to be opened to foreign investors.
In relation to the coming of foreign investors, as a sector we are at a potential of a losing battle in terms of competitiveness because the big companies will come with huge amounts of invested capital in contrast to our local small capital.
In our line of business, it is vital to have longer years in order to have a root base to expand the business. However, most of our companies now choose to work and sustain only for today rather than having a long term plan.
The association needs to work on building a common market and we have to create awareness together to expand our covarage. There are a lot of things we can do together but we cannot say that we are successful in working together. The sector is still under the supervision of national bank after a long time of compliance and we are now just preparing to establish an independent supervision body which is a promising move for the growth of the sector.

Capital: Do you think the sector will improve and develop when the promised policies hit the ground?

Kiros Jirane: There are different kinds of insurance products we are giving such as health, education, endowment, house (home) insurance and the so called General Insurance including the famous motor insurance. Of course currently it is not developing as per expectations but in the near future it is more than evident that it will as long as we work on awareness.
We have waited for the establishment of the independent supervision body for a long while now and it is our greatest expectation that when the policies touch base, the insurance sector will hit the ground running.

Capital: What’s your evaluation of Ethiopia’s insurance sector vis-à-vis other African countries?

Kiros Jirane: There are notable amounts of differences. If you take Sudan or Kenya for example which are our neighbors, their population is literally less than half of ours yet they have more insurance companies than we do. In Kenya there are not less than 35 insurance companies and 8 re-insurance companies. This is because their market is of a better understanding and awareness in contrast to ours which only has one re-insurance company, and two contact offices.
Insurance companies in the world are the biggest investors. In Africa, most of the South African insurance companies are said to be on the successful trajectory having taken 60 percent coverage in the continent followed by the northerners. In our context, the bigger investment insurance companies have may be their head office building or branch. We don’t have the capacity to expand our investment.

Capital: How can the insurance sector in Ethiopia best get prepared to go toe to toe the in-coming foreign companies’ competition once the sector is opened?

Kiros Jirane: Insurance companies in Ethiopia may need to increase their capital in order to meet regulatory requirements set forth by the National Bank of Ethiopia which is currently at 500 million birr. This still is not enough when going toe to toe with the coming foreign firms.
The National Bank of Ethiopia sets these minimum capital requirements that insurance companies must meet in order to operate in the country. These requirements are meant to ensure that insurance companies can fulfill their obligations to policy holders and remain financially stable in the event of unexpected losses. Increasing capital can also improve an insurance company’s financial strength, credit rating, and ability to attract investors, which can increase their overall competitiveness in the market.
Our external share holders in Africa Insurance are not more than 50 and the rest is employees of the company. Our plan is to expand our share holder base in the coming five years as part of our plan to make our company the biggest.

Capital: What are your views on the mutual engagement of the operators in the sector in terms of working on common grounds such as the case with motor insurance, where there is a bit of unhealthy excess competition between various operators?

Kiros Jirane: In Ethiopia, the number of vehicles is lower than the population proportion which poses a higher risk of accidents in comparison to other countries. However, since the market is better than other products and services there is an unnecessary competition among insurance companies, which result in lower rates. Furthermore, there is also lack of awareness as majority of the people in Ethiopia may not be aware of the importance of motor insurance, resulting in a lower demand for insurance policies.
Moreover, in Ethiopia, the cost of repairing a vehicle is higher than the cost of the vehicle itself. This can lead to higher insurance premiums to cover any potential repairs. And insurance companies’ rates to premium rates are lower than the cost they pay.
This is not something that could benefit the company in the long haul and its mainly short term planning. It will affect our financial stand and may bankrupt us and hurt our cover plans for others. In Ethiopia, there is a lack of streamlined insurers’ cooperation and we have to work aggressively on that to pave the way forward for our sector, and I hope the new regulatory body will have a tight grip on this.

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