The National Bank of Ethiopia (NBE) is drafting a directive to regulate and provide a policy framework for micro-insurance in Ethiopia.
Micro-insurance - insurance offered to low income individuals without access to regular insurance services - is still in its infantile stages in Ethiopia.
Through funding from international organisations, such as; the International Labour Organisation (ILO) and Milliman Consulting, a few insurance companies had started providing the service back in 2011. Their focus was centred on crop, livestock and life insurance.
"There is a high level of risk involved in micro-insurance and it requires some external funding, or at least a reinsurer," said Tesfaye Desta, manager of Oromia Insurance, which provides micro-insurance to around 3,000 rural residents in Ethiopia.
The few insurance companies, like Oromia, that provide micro-insurance, however, provide it as part of either general or life insurance, not as a separate element.
This is because a policy or framework that regulate the sector did not exist until now. Two weeks ago, the central bank and the World Bank (WB) organised a two week workshop to discuss what the draft directive should include.
The WB was there to provide technical assistance and funding through the Financial IRST (FIRST) initiative trust fund, which is a multi-donor trust fund, managed by the WB, to assist low and middle income countries in strengthening their financial sector.
The draft directive sets out to identify who the providers of micro-insurance are and what their role would be in the delivery mechanism. It was agreed at the workshop that insurance companies, micro-finance institutions and agents, like farmers cooperatives, would be the individuals benefitting most from the introduction of micro-insurance.
Ethiopia's insurance market premiums, for life and general insurance, contributed 0.2pc to the gross domestic product (GDP) in the 2010/11 fiscal year, with 105 million dollars, according to the NBE's annual report.