Insurance reform: Opening a new market

As Ethiopia prepares to overhaul its insurance framework, the sector faces a potentially far-reaching shift in ownership, regulation, licensing and competition. A draft Insurance Proclamation would establish an autonomous insurance regulator, introduce a Policyholders’ Protection Fund, open defined routes for foreign investment and replace composite licences with specialised categories for general, long-term, micro-insurance, inclusive insurance and Takaful operations. The proposal remains a draft, but industry players are already assessing how it could reshape a market long characterised by low penetration, limited investment options and slow technological adoption.

In this interview with Capital, insurance consultant Asseged G/medhin discusses the implications of the proposed reforms for insurers, policyholders and investors. Drawing on more than 17 years of experience in the sector—from junior insurance operations to deputy chief executive roles at three insurers—he argues that local companies must embrace partnerships, stronger risk management, digital transformation and specialised insurance models if they are to compete in a more open market. Excerpts;

Capital: Since insurance companies hold a large share of their liquid assets and reserves in bank deposits, what impact could potential liquidity shortages or crises in the banking industry have on the insurance sector?

Asseged: Because insurers are required by the National Bank of Ethiopia (NBE) to invest in approved assets, they predominantly place their funds in fixed-term bank deposits. Commercial banks then mobilise these deposits to provide loans to borrowers.

In this regard, banks face credit risk—the risk that loans will not be repaid—rather than an immediate liquidity risk arising from insurers’ deposits.

However, insurers are severely restricted in where they can invest their capital. The NBE’s underlying rationale is that insurance funds are public funds—policyholders’ money—and therefore require strict regulatory oversight.

Consequently, while banks may avoid liquidity risks associated with these deposits, insurers suffer because their returns are heavily eroded by inflation.

Capital: Credit risk is also associated with delayed claim payments and reinsurance receivables. What strategies are domestic insurance companies using to monitor these receivables and shorten collection periods?

Asseged: Domestic insurers benefit significantly from the NBE’s “no premium, no cover” directive, which was introduced to reduce default risk on primary insurance policies. However, credit risk on the reinsurance side remains largely unregulated, creating financing and liquidity challenges.

There needs to be a more rational approach to underwriting capacity and claim recoveries. Reinsurance facilities provide essential capacity to primary insurers. However, delays in recovering funds from reinsurers can create serious cash-flow…