Addis Fortune (Addis Ababa)
Elleni Araya
25 December 2011
A new draft insurance proclamation that completely rewrites the existing proclamation has been submitted to the Council of Ministers.
Some of the major changes in the new draft include a restriction of individual and family shareholding to only five per cent and an end to the credit policy of selling to non-state clients. There are similarities between the existing proclamation and the draft, but, still, the draft, if ratified, will not be an amendment of the existing but an abrogation.
If ratified, the proclamation would change many things about the industry, repealing the licensing and supervision of the Insurance Proclamation of 1994.
The new proclamation has been many years in the making. They were asked for input on the draft as early as 2008, officials from insurance companies say.
“I have heard about the new insurance proclamation for almost four years now, but it is nowhere in sight,” an underwriter at Nice Insurance told Fortune.
“Insurance policies issued on a partial or full credit basis shall be null and void,” states the new draft.
This article has been a source of pleasure for at least the legal experts at three insurance firms who talked to Fortune sharing the same voice, as well as to United Insurance. Professionals in the sector were referring to the proclamation as the “no premium, no cover” proclamation.
“The risk of covering insurance on credit is too great both for the insurance and National Bank of Ethiopia (NBE),” said Meseret Bezabih, general manager of United Insurance, speaking of the credit sale. “The resources we spend on collection are truly a headache. We have to hire collectors, spend money on phone bills, and knock on doors in order to get our money.”
The draft, which allows credit sales to state clients, also includes a provision for more inclusions by a directive that NBE will produce after the ratification of the draft.
However, Meseret is not happy about the exemptions made for policies of federal and regional governments and their agents, because most of these are supplied by the government’s own insurance company, creating an uneven playing field.
There are 14 insurance companies currently operating, out of which only one, Ethiopian Insurance Corporation (EIC), is government owned. EIC has the largest market share in the sector. The 13 other insurance companies share 48pc of the premium production in the country, according to data from NBE.
“If the insurance sector is to grow, then rules have to apply to everybody; the exemption effectively gives the government-owned insurance company a clear advantage,” she argued.
The insurance industry will resemble the banking industry in some respects, if the new draft becomes a law. While, the existing proclamation restricted a shareholder, a spouse, and children under 21 to a maximum share of 20pc, the new draft brings that down to five per cent. A shareholder with a two per cent share is also considered an influential shareholder, just as in banks, and is not allowed to have any shares in any other insurance company.
“The insurance sector is a long-term investment. It does not attract as many shareholders as the banking sector, so, initially, it is very few shareholders that come up with the money to establish an insurance company,” said an expert in the legal department of a private insurance company, opposing the five per cent restriction.
Eyesuswork Zafu, former president of United Insurance and the largest shareholder, whose share acquisition would surpass the limit set by the draft proclamation, thinks that five per cent is a low number for insurance companies.
“I was in the insurance sector for a long time, and know it very well, which is why I have invested a lot in the company,” he said. “If the proclamation comes out, I can easily transfer my shares, but I think that 10pc would be a fairer limit in order to control one person from dominating the sector.”
It is true that United may not have problems selling shares. The company had decided, on October 28, 2011, to raise its paid-up capital to 100 million from 60,000 Br. It sold out 40,000 shares worth 1,000 Br each during the first week of December, bringing the number of shareholders up from 280 to 312, according to Meseret. Out of the total amount sold, 78pc was paid in cash, while the rest was subscribed.
Shareholders will find the time to transfer or relinquish shares if they are given the same amount of time that banks were given, presidents of other private insurance companies in the market have said.
The paid-up capital of insurance companies is also likely to be changed if the draft proclamation is ratified. The 1994 proclamation included within it a provision that requires insurance companies to have three million Br in paid-up capital for general insurance, four million Br for long-term insurance, and seven million Br for both kinds of insurance combined.
The draft proclamation does not set the paid-up capital but stipulates that a directive will be issued in the future that will set the amount. However, several insurance companies have reported being approached by NBE to fill out forms suggesting an amount for setting paid-up capital.
“We have suggested 60 million Br, because we need to be competitive in the market,” Meseret told Fortune. “If Ethiopia is going to join the World Trade Organisation (WTO), we might have to compete with foreign insurance companies. Raising the amount would further strengthen the insurance sector.”
Penetration of the insurance sector is poor in Ethiopia. The insurance business only contributes to 0.041pc of the country’s gross domestic product (GDP). In 2010, the gross written premium of life assurance was 103 million Br and the gross written premium for general insurance was 1.8 billion Br, according to publications from NBE.
The NBE has declined to comment about the draft proclamation.
AllAfrica – All the Time