ABEX ASSIGNMENT

CHAPTER 8
INSURANCE BUSINESS IN ETHIOPIA
Objectives
 At the end of /after studying this chapter, we should be able to:

 Discuss the historical development of insurance industry in Ethiopia

 Explain the general theoretical supervision and regulation of insurances companies.

 Identify and explain the Licensing and Supervision of Insurance Business and Major roles of
insurance in Ethiopia.

 List the numbers of insurance in Ethiopia and give some points regards to them

8.1.Introduction
In this chapter, we will primarily deal with insurance policies in Ethiopia. A short discussion on the historical
development of insurance business is made in the first section. And the second section focuses on the
theoretical aspects of regulation and supervision in general.

In Ethiopia, the insurance industry is regulated and supervised by the National Bank of Ethiopia (NBE)
under the authority provided in the Insurance Business Proclamation No. 746/2012. The NBE is
responsible for ensuring the soundness, stability, and proper functioning of the insurance sector.

The regulations of insurance in Ethiopia, major roles of insurance in Ethiopia, list the numbers of insurance in
Ethiopia and give some points regards to them and Premium determination of Ethiopian insurance are
elaborated under this paper. Insurance business in its modern sense in Ethiopia started in 1905 when the then
Bank of Abyssinia got underwriting authority in the form of Agency for Fire and Marine Insurance business.

8.2. Historical Development of Insurance in Ethiopia

Traditional protection of risks in Ethiopia can be found in the form of Edir and Equib were people get in some
financial contribution to save themselves and losses of properties from unexpected troubles in the future.
According to some researches year 1951, marked the beginning of a new chapter in the history of Insurance
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industry in Ethiopia in that it witnessed the launching for the first time entirely owned by Ethiopians called
“Imperial Insurance Company” formed by the initiatives taken by some enlighten Ethiopians and the
expatriates

 The development of the insurance industry in Ethiopia has been a gradual and evolving process over the
years. Here are key stages and factors that have contributed to the development of insurance in Ethiopia:

1. Early Establishment: The insurance industry in Ethiopia traces its roots back to the early 20th century.
The Ethiopian Insurance Corporation (EIC) was established in 1976 as a state-owned company and
served as the sole provider of insurance services in the country until the market was liberalized in
1994.

2. Legislative Framework: The Insurance Business Proclamation No. 746/2012 outlined the legal
framework for the regulation and supervision of the insurance sector in Ethiopia. This proclamation
established the National Bank of Ethiopia (NBE) as the regulatory authority responsible for
overseeing insurance companies.

3. Market Liberalization: In 1994, the Ethiopian government introduced market liberalization policies,
opening up the insurance market to private players

4. Regulatory Reforms: The NBE has taken measures to enhance the regulatory framework and
strengthen the supervision of insurance companies.

5. Product Diversification: Ethiopian insurers have been expanding their product offerings to cater to the
diverse needs of individuals, businesses, and industries

6. Technological Advancements: The advent of digital technology has played a significant role in the
development of insurance in Ethiopia.

7. Increasing Insurance Awareness: Efforts to raise insurance awareness and financial literacy have been
a priority for the Ethiopian government and the insurance sector

8. Collaboration and International Engagement: Ethiopian insurance companies have been actively
seeking collaborations and partnerships with international reinsurers, insurers, and service providers.

9. Growing Role of Insurance Intermediaries: Insurance brokers and agents are gaining prominence in
Ethiopia as they facilitate the distribution of insurance products and provide professional advice to
customers

Insurance business in its modern sense in Ethiopia started in 1905 when the then Bank of Abyssinia got
underwriting authority in the form of Agency for Fire and Marine Insurance business. The first local insurance
company was formed in 1951. Later on the number of insurance companies reached 15 of which two withdrew
from business in 1972.

As a result of nationalization of these companies in 1975, Proclamation No. 68/1975 was declared to form the
Ethiopian Insurance Corporation with a capital of Birr 11 million. Since nationalization, its premium
production on the average has continuously grown at the rate of 26.5% in 1976 to Birr 300 million in 1994/95.
While its claims increased from 20 million in 1976 to Birr 160 million in 1991/92.

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The major problems of the existing insurance companies in Ethiopia today are listed below in the order of
importance:

I. Lack of adequate public awareness

II. Shortage of skilled manpower

III. Price cutting

IV. Lack of professional ethics

V. Unfavorable policies

VI. Lack of proper data to conduct business

8.3. Regulations of insurance companies in Ethiopia

In Ethiopia, the insurance industry is regulated and supervised by the National Bank of Ethiopia (NBE) under
the authority provided in the Insurance Business Proclamation No. 746/2012. The NBE is responsible for
ensuring the soundness, stability, and proper functioning of the insurance sector.

Here are some key regulations related to insurance in Ethiopia:

1. Licensing and Registration: Insurance companies must obtain a license from the NBE to operate
in Ethiopia. The licensing process involves meeting specific requirements related to capital,
management expertise, insurance products, and financial soundness.

2. Solvency and Capital Requirements: Insurance companies must maintain adequate capital to
ensure their solvency and ability to meet policyholder obligations. The NBE sets minimum
capital requirements based on the type of insurance activities undertaken by companies.

3. Underwriting and Pricing: Insurance companies must adhere to underwriting standards to assess
risks, determine coverage terms, and set premium rates.

4. Investment Regulations: The NBE sets guidelines on the types of investments insurance
companies can make to safeguard policyholders' funds. These regulations aim to ensure that
investments are prudently managed, diversified, and aligned with the overall risk management
strategy of the company.

5. Claims Settlement and Policyholder Protection: Insurance companies are required to promptly
settle claims in accordance with the terms and conditions of the insurance policies. The NBE
monitors the claims settlement process to ensure fair treatment of policyholders and adherence
to contractual obligations.

6. Financial Reporting and Disclosure: Insurance companies are obligated to prepare and submit
regular financial statements, including balance sheets, profit and loss statements, and cash flow
statements.
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 7. Compliance and Supervision: The NBE carries out regular inspections and on-site examinations
to assess compliance with regulations and prudential standards.

It's worth noting that the specific regulations and requirements may vary based on the type of insurance
activity or the specific insurance product being offered. The NBE continuously monitors and updates the
regulatory framework to ensure the stability and growth of the insurance industry while safeguarding the
interests of policyholders and promoting fair competition.

8.4.Major roles of insurance in Ethiopia

Insurance plays several significant roles in Ethiopia, providing individuals, businesses, and the economy with
various benefits and protections.

Here are some major roles of insurance in Ethiopia:

1. Risk Transfer and Protection: Insurance serves as a risk transfer mechanism by providing
financial protection against potential uncertain events. In Ethiopia, insurance helps
individuals and businesses mitigate risks associated with life, health, property, liability, and
other areas.

2. Financial Security and Stability: Insurance promotes financial security and stability by
offering compensation or coverage in the event of unexpected losses or damages.

3. Investment and Savings: Life insurance policies often serve as long-term investment and
savings vehicles for individuals. These investments contribute to economic growth and
development in Ethiopia, providing capital for various sectors while offering individuals a
means of saving for their future.

4. Risk Management and Loss Control: Insurance companies in Ethiopia play a vital role in risk
management and loss control. They help policyholders identify potential risks, implement risk
prevention strategies, and develop risk management plans.

5. Business and Economic Development: Insurance acts as a catalyst for business and economic
development by providing protection against potential losses, which encourages
entrepreneurship, investment, and trade. Insurance coverage helps businesses manage risks;
giving them the confidence to undertake new ventures and expands operations.

6. Social Welfare and Security: In Ethiopia, insurance policies, such as life insurance and health
insurance, contribute to social welfare and security. Life insurance ensures financial support
for families in the event of the policyholder's death, providing a safety net and protection for
dependents. Health insurance helps individual’s access quality healthcare services without
incurring significant financial burdens.

7. Employment and Economic Integration: Insurance companies create jobs for insurance
professionals, underwriters, agents, claims handlers, and other supporting staff.

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8.5. List the numbers of insurance in Ethiopia
As of the latest available data, there are approximately 17 insurance companies operating in Ethiopia. These
companies offer a range of insurance products including life, health, property, and casualty insurance.

Some key points regarding the insurance industry in Ethiopia include:

1. Ethiopian Insurance Corporation - This is the oldest and largest insurance company in Ethiopia,
providing a wide range of insurance products and services to individuals and businesses.
2. Nile Insurance Company S.C. - Nile Insurance is one of the leading insurance companies in
Ethiopia, offering various types of insurance coverage including life, health, and property
insurance.
3. United Insurance Company S.C. - United Insurance is known for its innovative insurance products
and excellent customer service, serving a large customer base across the country.
4. Awash Insurance Company S.C. - Awash Insurance is a well-established insurance company in
Ethiopia, offering a diverse portfolio of insurance solutions to meet the needs of its clients.
5. Nib Insurance Company (S.C.) - Nib Insurance is a reputable insurance provider in Ethiopia,
known for its strong financial performance and commitment to customer satisfaction.
6. Oromia Insurance Company S.C. - Oromia Insurance is a leading insurance company in the
Oromia region, providing comprehensive insurance coverage to individuals and businesses.
7. Africa Insurance Company S.C. - Africa Insurance is a prominent insurance company in Ethiopia,
offering a wide range of insurance products and services tailored to the needs of its customers.
8. Lion Insurance Company S.C. - Lion Insurance is known for its strong risk management
capabilities and efficient claims processing, making it a preferred choice for many customers.
9. Berhan Insurance S.C. - Berhan Insurance is a reliable insurance provider in Ethiopia, offering
personalized insurance solutions and exceptional customer support.
10. Nyala Insurance S.C. - Nyala Insurance is a well-established insurance company with a strong
presence in the market, providing reliable insurance coverage to individuals and businesses.

8.6. Premium determination of Ethiopian insurance

The premium for insurance in Ethiopia is determined based on various factors. Those are as follows:

a) Type of insurance coverage,

b) The insured's risk profile,

c) The value of the insured property or assets, and

d) The insurer's underwriting criteria.

 Factors such as the insured's age, health status, and claims history may also be taken into
consideration for certain types of insurance, such as life and health insurance.

In addition, the insurer will assess the level of risk associated with providing coverage to the insured and may
adjust the premium accordingly. This assessment may include factors such as the likelihood of a claim being
made, the potential severity of the claim, and any risk mitigation measures implemented by the insured.

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Furthermore, regulatory requirements and market conditions may also influence premium determination in the
Ethiopian insurance industry. Insurers must comply with government regulations and ensure that premiums are
set at a level that allows for the financial stability of the company while remaining competitive in the market.

Summary
The insurance business in Ethiopia is expanding and evolving, offering various insurance products to
meet the needs of individuals and businesses. The sector is regulated by the NBE, which ensures
compliance with regulations and promotes stability within the industry. With efforts to increase insurance
penetration and address challenges, the Ethiopian insurance market holds substantial potential for growth
and development. The NBE continuously monitors and updates the regulatory framework to ensure the
stability and growth of the insurance industry while safeguarding the interests of policyholders and promoting
fair competition.

In Ethiopia, the insurance industry is regulated and supervised by the National Bank of Ethiopia (NBE)
under the authority provided in the Insurance Business Proclamation No. 746/2012. The NBE is
responsible for ensuring the soundness, stability, and proper functioning of the insurance sector.

Insurance plays a crucial role in Ethiopia by providing risk transfer, financial security, investment
opportunities, risk management support, and contributing to business and economic development.
Insurance also promotes social welfare, employment, and economic integration, enhancing the overall
resilience and stability of individuals, businesses, and the Ethiopian economy.

The listed numbers of companies have a proven track record and have established trust within the
insurance industry in Ethiopia. When choosing an insurance company, it's crucial to consider factors such
as their financial strength, reputation, customer service, coverage options, and claim settlement process.

Premium determination in Ethiopian insurance involves a thorough evaluation of various risk factors and
considerations to establish a fair and sustainable pricing structure for insurance coverage.