The insurance business in Ethiopia is not a recent phenomenon, it accounts over a century started
from the establishment of the first insurance company in the country in 1905. But the growth of
the sector is still underdeveloped. Ethiopian insurance market is under developed. This can be
explained by low level of penetration and density in the market and its low level contribution to
the GDP. It contributes only 0.2% of the GDP which much lower than the performance of the
insurance industry in other African countries.
The Ethiopian insurance market is characterized by having a very small life insurance and higher
percentage of general insurance unlike developed countries. The majority of insurance business
in Ethiopia is targeted at corporate market and focused on general insurance business. The
contribution of life insurance for the total amount of premium generated by the industry is less
than 5% (Smith & Chamberline, 2009).
According to Fortune (2013), the insurance sector in Ethiopia has an aggregate capital of 1.8
billion birr- an increase of 600 million birr from the previous year. In paid-up capital too, there
has been a welcome change in the sector. Although previously a paid-up capital of only seven
million birr (four million for general insurance and three million birr for life insurance) was
required, this has been raised to 75 million birr (60 million birr for general insurance and 15
million for life insurance).
5.2 Recommendations
The researcher recommends the following points to be taken by the insurance companies to
overcome the current challenges and to exploit the existing opportunities of the insurance market
in Ethiopia.
- The insurance companies should avoid the existing price war and unfair completion
among them. As long as the existing competition with premium causes decline in their
revenues and puts pressure on them while there are many claims, they should avoid
competing with price. It will also has a total negative impact on the insurance industry by
reducing the share of the industry in the national market
- The existing insurance companies should take appropriate actions to make their current
staff more professional and qualified in the field of insurance business. The insurance
companies should create relations with higher education institutes to get specialized
insurance courses from those higher education institutes.
- Insurance companies should provide better customer services to avoid the current
problems of customer turnover. The insurance companies should revise their services
according to their customers needs and they should be customer focused.
- Insurance companies in Ethiopia should make more on creating public awareness about
the current high number of traffic accidents around the country. In addition to giving
efficient claim services the insurance companies should focus on preventive mechanisms
to minimize the current level of car accidents by working on creating public awareness
about the problem.
- Insurance companies should increase their effort on modernizing their insurance services
according to international standards to be internationally competitive.
- Insurance companies should change their current operations which are done manually to
automated systems to minimize their operating costs and to deliver efficient and
satisfactory services to their customers.
- Insurance companies in Ethiopia should change their target from corporate business
insurance to micro insurance services as long as the country’s population is more of
agrarian society.
Insurance companies also should expand their branch coverage around the country to
make themselves accessible to the majority of the population.
- The insurance companies should increase their financial and professional capacity to be
able to provide dependable insurance covers the currents mega projects of the country.
- The insurance companies should also give attention to product developments to exploit
the current customers’ demands.
**Future Trends of Ethiopia's Insurance Industry Post-2023 Insurance Proclamation**
Ethiopia’s insurance sector is poised for transformative growth driven by regulatory reforms under the
**2023 Insurance Proclamation** (Proclamation No. 1286/2023). Key trends include:
1. **Digital Transformation**:
The proclamation encourages digital innovation, pushing insurers to adopt mobile platforms, AI-driven
underwriting, and blockchain for claims management. Insurtech partnerships will expand access in rural
areas through mobile-based microinsurance products.
2. **Market Liberalization**:
Partial opening to foreign investment (up to 49% ownership) will attract global expertise, fostering
competition, product diversification, and improved service standards.
3. **Risk-Based Capital Requirements**:
Stricter solvency norms will drive consolidation among smaller insurers, while prompting mergers and
acquisitions to meet capital thresholds (e.g., ETB 500 million for general insurers).
4. **Product Innovation**:
Insurers will focus on tailored solutions like agricultural index-based insurance (aligned with Ethiopia’s
agrarian economy), health microinsurance, and climate-risk products to address emerging
vulnerabilities.
5. **Enhanced Consumer Protection**:
Mandatory transparency in policy terms, faster claims processing, and grievance mechanisms will
boost public trust, critical in a market with low penetration (~1% of GDP).
6. **Sustainability Integration**:
ESG (environmental, social, governance) frameworks will shape underwriting practices, with green
insurance products (e.g., renewable energy project coverage) gaining traction.
**Challenges**: Compliance costs for smaller firms, limited public awareness, and infrastructure gaps
(e.g., digital connectivity) may slow progress. However, the proclamation’s focus on public-private
partnerships and capacity building (e.g., training for actuaries) will mitigate risks.
**Outlook**: Ethiopia’s insurance sector is set to modernize rapidly, driven by regulatory clarity,
technology, and foreign capital, positioning it as a key enabler of economic resilience.
*(Word count: 250)*
