History of insurance in Ethiopia

Modern Insurance Service in Ethiopia started in 1905. Before the commencement of Modern
Insurance Service in the country, there have been traditional practices by which people help each
other whenever they face either financial difficulties or needs assistance. “Edir” and “Ekub” are
Examples of such traditional practices and have some similarities with Modern Insurance.
In the case of “Edir” people form an association where by each member contributes a fixed
sum, normally monthly, to a common fund from which predetermined compensations are paid to
members upon occurrence of unforeseen events such as death of family members or relatives.
The compensation is meant to cover expenses that a member would incur as the result of the
incident. The “Edir” also owns physical assets like tents, household goods like plate and
drinking cups, chairs and the like used mainly during the periods of mourning.
The other insurance type of association is “Ekub”. “Ekub” members contribute a fixed sum of
money weekly, fortnightly, or monthly to a pool of fund and lots are cast where upon the winner
receives the money so collected and uses it for a project if he or she has owned or sell it to
another member at a premium. If something happens to a member, who had already taken the
money that would not enable him to continue contributing to the fund, his guarantor will have to
be held responsible.
Insurance, being one of commercial activity, its historical growth is associated with what a
human being now reached in the fields of Science, Technology, Law, Economy, Culture and
Politics.
Historical Development of Modern Insurance Service in Ethiopia can be categorized into three
distinct historical phases;
1. Pre Nationalization Phase (1905 – 1974)
2. Nationalization & Monopolization phase (1974 – 1994
3. liberalization phase (1994 to date )

1. Pre Nationalization Phase (1905 – 1974)

The initial phase started in 1905 when insurance business used to be transacted by an Egyptian
Bank which Served as agent of Foreign Insurance Company. The Covers given by the Bank
were Fire and Marine Risks.
The late 1930, that is during the five year Italian occupation, signifies the existence of a
number of Insurance Companies in the country. At that time only in Italian Insurance
Companies had been operating and other Non-Italian Companies were closed.
After liberation of Ethiopia from Italy in 1941, Seven Insurance Companies, most of them
British, were established. These were Phoenix, Caledonia, Royal, South British, London, Union
and Queensland.
The first motor insurance policy was issued in 1947 by the South British and all classes of
insurance cover, except life, were available by 1950.
Until the beginning of the 1950s, there was no locally incorporated insurance company in
Ethiopia.
In 1951, the first domestic insurance company, named Imperial, was formed.
In 1954 a study was conducted by the Ministry of Commerce & Industry to assess the existed
situations of the Insurance Industry in the country. The study noted, that there were 19 insurance
companies in the market out of which Imperial were the only local company. And, others
companies had been operating in the market as an agent of Foreign Companies.
In 1959 of the total number of vehicles in the country and the value of goods imported from
abroad only 50% and 14% were covered, respectively. During the same period 9 Insurance
companies were registered to give Life Insurance and total number of policy sold were 541.
A second study conducted by Ministry of Commerce and Industry in 1960 indicated that the
number of insurance companies reached to 33 and still Imperial Insurance company was the only
domestic companies.
Until 1960, there had not been any insurance law. But in 1960, two bodies of law were enacted
one of them was the Maritime Code of Ethiopia. In Title VII. Chapter 1-4, Articles 288-356,
marine insurance has been properly dealt with. The other was the Commercial Code of Ethiopia.
This law contained provision on the relevant points of insurance as a commercial activity,
especially for property, liability and the insurance of person. Title III, chapters 1-4, Articles 654
– 712 of the commercial code mainly the manner under which insurance contracts are entered
into the rights and duties of contracting parties.
A preliminary study was conducted by the Addis Ababa Chamber of Commerce in 1967 to
investigate complains arose by unfair trade practice among insurance company. The study shows
that there were 30 Foreign and 10 Local companies in the market. And it also pointed out two
major problems.
These were nonexistence of compulsory third party motor insurance law and detailed Insurance
law that regulated and control the activities of Insurance.
On the basis of the provisions of Article 656 of the commercial code, proclamation No.281/1970,
known as the Insurance proclamation (dealing specifically with insurance business), was issued
at October 8, 1970 to regulate the market.
Therefore, it should be noted that the Commercial and Maritime Code of 1960 served as the only
law that governed the insurance business in Ethiopia up to 1970.
When the first insurance proclamation came into existence there were already 21 companies in
the market.
The Proclamation Limited Insurance to Ethiopian nationals and banned foreign companies to
operate in the country either directly or through agent.
The minimum requirements like the ownership and capital structure, records to be kept and
returns required by the controller of insurance were all stated in the proclamation.
This proclamation assigned the task of controlling insurance activities to the Ministry of
Commerce and Industry.
Based on the provisions of the proclamation an Insurance Council was formed chaired by the
above ministry that included various government offices as a member. The main duties of the
council were formulating policies that encourage and control the activities of insurance,
Reinsurance, Investment and formation of new strong insurance companies in the market.

2. Nationalization & Monopolization phase (1974 – 1994)

By 1974, the revolution of Ethiopian People was followed by nationwide revolutionary uplift.
And, one of the first actions taken by the Provisional Military Government in laying the
foundation of command Economy was to nationalize the private companies. Therefore, the
existence & development of private companies became impossible.
In effect, 13 private Insurance Companies that had been operating in the market, during the
period, were nationalized. The nationalized companies were:
1. Imperial Insurance Company
2. Ethiopian American Life Insurance Company
 3. National Insurance Company
4. Afro-Continental Company
5. Blue Nile Insurance Company
6. Afro Solidarity Insurance Company
7. Lion Insurance Company
8. Ethiopia Life Insurance Company
9. General Insurance Company
10. Pan African Insurance Company
11. International Insurance Company
12. Union Insurance Company
13. Rasai Ethiopian Insurance Company
On the 1st January 1976 thirteen nationalized insurance companies merged under one
corporation. That is, the establishment of Ethiopian insurance Corporation.
/EIC/ by proclamation No. 68/1975, by taking over the assets and liabilities of the nationalized
companies with a paid up capital of 11 million Ethiopian birr, as a sole insurer in the country
with the following objectives.

 To engaged in all classes of insurance business

 To ensure that insurance service reach the broad mass of Ethiopia and
 To promote efficient utilization of resource.
The proclamation empowers the Corporation to manage, administer, supervise and direct all
insurance business transaction at national level and also negotiate, arrange, underwrite and
contract reinsurance treaties and policies with foreign reinsurers.
The first action taken by the Corporation was to consolidate small branches of the ex-companies
into bigger units and the following six regional main branches were structured.
1. The Northern Main Branches including Asmara and Massawa.
2. The Life Main Branch
3. The western Main Branch
4. The Southern Main Branch
5. The Eastern Main Branch
6. The North Eastern Main Branch
At the early stages, the Corporation was also pre-occupied with internal consolidation. Training
stood as a priority for taking over the duties and responsibilities of the nationalized companies
from expatriates, company managers and foreign advisors.
An early task in 1980 of the corporation was branch expansion to popularized insurance service
to the whole country. As a result, the following 11 new branches were opened in different cities
of Ethiopia.
- Combolcha & Mekele in the North Eastern part
- Bahirdar and Gondar in the North Western Part
- Arbaminch, Assela, Awassa , Robe & Zeway in the South Part
- Nekemet & Jimma in the western Part
The expansion was accompanied by the construction of a standard two storey building consisting
of office blocks and fully furnished staff residence quarters.
The Corporation also opened a new branch in Djibouti in 1980. During the same period, the
Ethiopian Insurance Corporation was underwriting reinsurance business mainly from other
African Countries.
Along with the opening of new branches life and Non-Life insurance agents were trained
assigned in a number of places throughout the country.
Ethiopian Insurance Corporation gave insurance service as a sole insurer for 19 years (1976-
1994).
Despite the corporation monopolize the market for 19 years Gross Premium Income of the
industry increases year after year, that is at the end of 1976 total premium income was
50,530,000 Ethiopian Birr this amount increases to 253, 968,000 Ethiopia Birr in 1994, which
is 406.6% growth.

3. Liberalization phase (after 1994)

Following the 1991 change in Political and Economic Environment in the country, by 1992 the
Provisional Government of Ethiopia enacted a new investment proclamation No. 15/1992 to
encourage investment in the country.
Among the provisions of this proclamation chapter two Article (4) Sub Article (1) (e), stipulates
that Insurance, Banking and large scale financial institutions are areas reserved for the
Government to invest. However, Sub-Article (3) further states “the conditions under which
investment in banking and insurance business may be open to private domestic investors shall be
studied and decided by the Government”.

In 1994 the Licensing and Supervision of insurance business proclamation No. 86/1994 and the
Re-establishment of Ethiopia Insurance Corporation by council of ministers Regulation No.
201/1994 came into force.
The Licensing and Supervision proclamation allowed Domestic Private Insurance Companies to
flourish in the market.
This proclamation also vested the authority to control, licensing and formulating policies
regarding the insurance business to the National Bank of Ethiopia.
As of 19 September 1994 the Ethiopian Insurance Corporation was Re-established with a paid up
capital of 61 million Ethiopian Birr by council of Ministers Regulation No. 201/1994 with the
following objectives.
To engage in the business of rendering insurance services and
To engage in any other related activities conductive to the attainment of its purpose.
Currently, operating Insurance companies in Ethiopia are:Ethiopian insurance corporation,
United Insurance Company, African Insurance Company, National Insurance Company, Awash
Insurance Company, Nile Insurance Company, Global Insurance Company, Nyala Insurance
Company, Nib Insurance Company, Oromia Insurance Company, Abay Insurance Company,
Lucy Insurance Company, Tsehay Insurance Company, Birhan Insurance Company, Lion
Insurance Company, Ethio-Life Insurance Company, and Nice Insurance Company

Definition of non- life Insurance

Non- Life insurance is sometimes called general insurance and usually contains all kind of
insurance products except life insurance products.

Types of Non- Life insurance/discuss briefly all of them/

Common types of non-life insurance are:

Non-life/property (or casualty/or general) insurance sells insurance to protect property. It

includes insurance to cover
(i) Property Insurance: Property losses (i.e. damage to or destruction of homes,
automobiles, business, aircraft, etc.);
(ii) Liability insurance: liability losses (i.e. payments due to professional
negligence),product defects, of negligent automobile operation, etc.); and
(iii) Accident insurance (perso0nal and collective accident including compulsory accident
insurance and workmen’s compensation
(iv) Health insurance (private personal and collective health) ND
(v) Other insurance products like aviation travel insurance, etc…

Challenges of insurance industry in Ethiopia

Insurance industry is faced with various problems some of them are listed below:

 Absence of nationwide standard market parameter to position and rank insurance companies
 Impact of other legislations currently enacted in insurance business performance
 Absence of national reinsurance company
 Absence of early warning system in the surveillance of margin of solvency of insurance
companies
 Directives to be issued in tune with the current business requirements

Chapter 2

 Take one non- life insurance policy/example fire/ and discuss the experience of one
insurance company on the following issues;
 Underwriting non life insurance

Underwriting essentially involves selecting of risks for insurance and determining what terms to
assign, and premiums to charge.

Premium determination

Use of rating guides, which contain pricing tables, general underwriting and rating rules, policy
wordings, endorsements, warranties, questionnaires.

The rates provided are for minimum rates, which should be viable and economical and are for
well run businesses or risks.
Special discounts on premium may be allowed on the basis of:-

Large portfolio, good loss history, good housekeeping, Proximity of town fire brigade.

Underwriting expense

Expenses incurred in getting policies on to the books including commission and certain sales
expenses
Other sales expenses which are incurred irrespective of whether the policy gets on to the books,
including the cost of sending out renewals, quoting for new business, conducting surveys
Maintenance expenditure while the policy is on the books including the cost of endorsements

Claim settlement procedures and challenges

Claims Handling Procedures

The office will usually employ specialist loss adjusters to advice on the claim. Loss adjusters are
members of the Chartered Institute of Loss Adjusters, entry to which is by examination together
with an experience qualification.
The loss adjuster is nominally independent of the insurer and tries for a settlement that is fair to
both sides, but as his fee is paid by the office he cannot really be independent. Because of this
some claimants employ specialist loss assessors to negotiate on their behalf. The loss assessor's
fee is paid by the claimant and is not recoverable under the insurance.
The loss adjuster is briefed by the office on details of cover and any warranties. From his
examination of the aftermath of the fire he will give an opinion as to whether the claim is valid.
As investigations and negotiations proceed he will also advise the office on the appropriate
reserve.
To help him advice on liability and quantum, the loss adjuster may call on other professionals. If
there is any suspicion of arson (perhaps evidence of accelerants) he will bring in forensic experts.
Consulting engineers will advise on the extent to which property is damaged and whether it can
be repaired.
The loss adjuster will also take such steps as are necessary to minimize losses. For example he
will arrange for buildings to be
Shored up, machines to be greased to minimize water damage, and for the disposal of salvage.
There are specialist firms who deal in dehydration, rehabilitation of furnishings affected by
smoke, etc, and the loss adjuster will use them as necessary.
Claim settlement procedures
 Notification to Police for malicious damage
 Action to prevent further damage
 Full information and details to insurer within 30days
 Forfeiture of Benefit of Policy if claim is fraudulent
 Reinstatement - At the option of reinsurer
 Insurers’ rights following a claim
 Contribution and average
 Subrogation
 Arbitration