Addis Abeba — Following years of speculation, the National Bank of Ethiopia (NBE) announced their intention of allowing foreign insurers to operate in the country after the creation of an independent body to regulate the sector is materialized, according to Solomon Desta, Deputy Governor of the NBE, who made the announcement during the two-day annual East African Finance Summit held in Addis Ababa starting on 15 June 15, 2023.
Efforts to form an independent organization began five years ago, after the World Bank released a study outlining the benefits of separating insurance regulation from the NBE. In partnership with the World Bank, a committee was formed last year and is currently studying the feasibility of establishing an independent entity to regulate the insurance industry.
"As soon as the studies are completed and an independent body is established, the government will go on to the next step, which is working on opening the insurance industry for foreign firms," said Solomon.
In light of the reforms that are already being implemented and the fierce competition that lies ahead of them, the deputy governor urged insurance firms to be prepared for consolidation, an upgrade in technology and capital, and a review of their strategies.
In early May, the central bank offered to issue five banking licenses to foreign investors in the next five years, as part of the plan to open up the financial services sector to foreign competition.
Industry players emphasize that the development of the insurance industry has been constrained by the lack of support, incentives and proper oversight. Chaired by Mulualem Berhane (PhD), the Board of Directors of United Insurance reflected similar sentiment during shareholders' assembly held a couple months ago. "The insurance industry is not given as much emphasis by the government as those of the banking sector," reads the statement issued during the assembly, adding that "the insurance industry is literally overlooked by the government".
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
Due to NBE's primary focus on overseeing banks, the insurance industry remains sidelined deprived of sufficient attention, incentives, and support. This is demonstrated by the fact that the banking sector is expanding at an exponential rate while the insurance sector is barely hanging on. Currently, the sector is overseen by the Insurance Supervision Directorate of the NBE.
According to the most recent data obtained from NBE, there are 18 active insurance firms in the county, 17 of which are private and one was state-owned. Last year, the total capital of insurance companies increased by 21% to 14.4 billion birr, of which private insurance companies accounted for 75.3%.
In contrast, the number of banks in Ethiopia reached 30, of which 28 were private and two state owned. The banking sector's capital also continued to increase reaching 221.1 billion birr by the end of December 2022.
For the past three years, the insurance industry has experienced double-digit growth. A preliminary report released by the NBE indicates that the premium generated by the industry currently stood 16.7 billion birr.
The premium increased by 20% over the past year, rising from 13.6 billion birr. However, the Ethiopian insurance market remains in its infancy as insurers struggle to sell policies by cutting premiums. As a result, its contribution to the country's GDP is still insignificant. AS
