20 January 2013

Ethiopia: Insurance Companies to Collect All Debt in a Year's Time

Insurance Companies could have until December 31, 2013, to collect outstanding premiums, or set aside a 100pc provision for premium debts.

The National Bank of Ethiopia (NBE) has distributed a draft document to that effect, requiring insurance companies to give their feed back by January 25, 2013.

Entitled "Information Exchange Scheme on Outstanding Premium", the directive's main aim is to provide a way for insurance companies to share information on debtors, who then, should they have unsettled debts, will be denied insurance coverage elsewhere. An exception is made, however, for debtors who want to get coverage for third party insurance.

Since September 2012, all insurance companies have been prohibited from selling premium on credit, except for government institutions, through a new proclamation issued to govern the insurance sector.

The NBE then asked insurance companies to set a deadline and propose a clear plan for the collection of prior debts. There is currently around 1.7 billion Br in uncollected premium at all insurance companies, according to data from NBE.

Upon this request, insurance companies, through their association, proposed that they be enabled to share credit information with each other to help collect debts. They also asked for a two year period in which to settle debts, when making their proposal approximately one month ago.

Whilst a provision in the draft allows insurers to share credit information, through a template developed and agreed on by the Association of Ethiopia Insurers, insurance companies were not as lucky in their request for a two year time gap.

The one year deadline set in the draft has drawn varying reactions from insurers.

"We have asked for a two year time limit, starting from September, so I think they should add on another six months," a CEO at one private insurance company told Fortune. "The collection of these debts will also mean that the government will be able to collect tax on them, so more leeway on time should be given."

Other insurers, however, seem to think that the one year gap will be sufficient time to collect debts. Since debtors will face a prohibition from getting coverage at another insurance company, they will be pressured to pay up quick, they state.

Some of these debts are very old, and the deadline makes it easier to pass a final decision on them, according to the president of another private insurance company.

"Even if the timeline passes, the insurance company can take its case to court and have the money returned," the president told Fortune.

Insurers have decided to get together this week and forward their comments, in a unified voice, through their association. The Association represents 14 of the 16 insurance companies currently operating inEthiopia, and is on track to add one more member, newcomer Tsehay Insurance.

Aside from the deadline issue, the provision that makes the Association of Ethiopian insurers responsible for setting up a template for information exchange will also be a subject for discussion when the Insurers get together.

"We were hoping that the NBE will take on a role in setting up the credit information system," said the CEO at the private insurance company that Fortune talked to. "Setting up the credit information system by ourselves will be costly, and there will be too much data to process."

The Association itself was unavailable for comment, when Fortune tried to contact them last week.

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