A draft bill to amend the 2008 proclamation that sets the scheme for vehicle insurance against third party risks has proposed to increase the extent of liability coverage for emergency medical treatment to 2,000 Br and for bodily injury to 40,000 Br.
If ratified, this change will necessitate an increase in the fixed premium vehicle owners have to pay to get compulsory third party insurance coverage, according to Issac Abera, director general of the Insurance Fund Office (IFO), the executive body set up to oversee the implementation of third party insurance.
It has now been a year since vehicle owners started being required to get third party insurance policies, which provides them with coverage for vehicular accidents they may cause to any person or property other than themselves, members of their family, the driver or any person employed in their vehicle.
After the deadline to get the insurance ended in January 2011, any vehicle that did not display the necessary windshield sticker and insurance certificate as proof of coverage, while driving on the street, would be stopped by traffic police and pay a fine.
This was in accordance with a 2008 proclamation the parliament enacted, prompted by the increasing number of vehicle accidents in the country.
The extent of liability coverage for third party insurance under this law was limited to 1,000 Br for emergency medical treatment, 15,000 Br for bodily injury, 40,000 Br for death and 100,000 Br for property damages.
A victim suing for damages higher than the amounts stated would have to settle the case at a court of law.
"The liability for medical treatment and bodily injury was found to be too low," Issac announced at a press conference called last week to report on the performance and future plans of the Office.
This was noted by insurance companies when the proclamation was being implemented. When third party insurance was not mandatory, most insurance companies provided coverage of 30,000 Br for bodily injury, an amount double than what is offered in the proclamation.
In addition, the 1,000 Br coverage for emergency medical treatment caused complaints from the Common Market for Eastern & Southern Africa (COMESA) last year. Vehicle owners from member states who buy a yellow card, are covered for motor insurance in other member countries in accordance with the liability coverage laws of the specific country.
When compared to member states, the liability coverage amount in Ethiopia is very low, according to Debebe Tamene, manager of third party insurance at the Ethiopian Insurance Corporation (EIC), which issues the COMESA yellow card for Ethiopia. For instance, the coverage for emergency medical treatment in Djibouti is unlimited.
The Office itself felt that the article for liability coverage and other elements of the proclamation needed adjustments, and made a proposal to its board a year ago, which was rejected.
"There were some gaps in the proclamation which we suggested to be amended to our board," Tewabe Shimeles, head of the legal department at the IFO told Fortune. "However we were told to implement the original scheme and see it in practice for some time before moving on to an amendment."
The Office has now been working on the intended amendment for about a year. It has now referred it to the legal department of the Ministry of Transport (MoT) for consultation.
After the bill is approved by the MoT and the board of the IFO, it will then be tabled to the council of ministers.
"We are pushing for ratification this year," Issac told Fortune.
Once the bill comes into law, the premium rates which the office has set will have to be revised, he stated. The premium rates at all insurance companies are standardized.
The IFO is responsible for setting premium rates; a task it had outsourced to Sab Management & Development Plc. Currently, the minimum standard premium is 404 Br for a privately owned vehicle which has less than 1,600cc capacity.
The highest is 3,514 Br for large dry cargo vehicles. An additional charge of 20 Br to 40 Br for seating capacity is added to the premium rates.
Before the implementation of compulsory third party insurance, the 14 insurance companies in Ethiopia would normally set different premium rates for customers based on risk. For instance, most insurance companies would either quote a high price or refuse to altogether cover minibus taxis for public transportation because they were categorized as high risk.
"It burdens us with a huge responsibility, especially since motor insurance is the one that gets the most claim," one insurance executive told Fortune.
But as third party insurance coverage is mandatory, insurance companies cannot turndown customers.
In the past year, seven of the 14 insurance companies had paid 988,983 Br for emergency medical treatment, 16.5 million Br for death and bodily injuries and 2.05 million Br for property damage, according to data presented by the IFO.
In addition, these companies have claims worth two million Br for emergency medical treatments, 30 million Br for bodily injury and death and 2.6 million Br for property damages that they are investigating. This number is bound to get higher when data from all insurance companies is reported, according to Issac.
Some vehicle owners on the other hand, like those owning Isuzu NPR vehicles had complained about the amount of premium they were required to pay stating that they should not be grouped together with larger vehicles that paid the same amount.
"We must balance the interests of insurance companies who want to charge premium rates as they like and vehicle owners who want to pay a low rate, in order to insure that everybody is covered at a fair amount," Issac told Fortune. ,
Insurance companies are supposed to divert 10pc of all the premiums collected to a closed account under the IFO.
Since the scheme started, a total of 33.9 million Br had been deposited into the IFO account, according to Issac. This was collected from the 398, 971 policy certificates sold by insurance companies covering 98.8pc of the vehicle population, he reported at the press conference.
The office will now be able to take on more responsibilities that it had outsourced to the EIC the previous year, including distributing insurance stickers and certificates, and payment of claims from untraced and unidentified vehicles for vehicles in Addis Abeba.
In the past year, the office has so far paid 50,000 Br for an accident which has caused two deaths, and 15,000 Br in an accident that had caused bodily injury, through the EIC. It is also in the process of investigating seven claims in accidents caused by untraced vehicles.