Ethiopia: Capital Markets Revolutionise the Insurance Industry

Jan 03, 2019 | Addis Fortune; All Africa

One of the reasons for Ethiopia's lack of a dynamic and competitive economy is its weak insurance sector. This can change with the introduction of capital markets that allow enough distribution of risk it to thin out, writes Asseged G. Medhin, Deputy CEO of Operations at the National Insurance Company of Ethiopia (NICE).

If capital markets can indeed be realised, and there is enough rhetoric to believe that it is a matter of time, then the definition of insurance in Ethiopia would change. At its most basic, it is the spreading of the risk of loss associated with a particular event among as many participants as possible.
The practical business of insurance has often meant marrying the skill set - such as actuaries, underwriters and distributors - necessary to manage that risk with the capital necessary to support it. If this can be done successfully, then the basis for a modern insurance industry will have been laid.
Recent changes may have opened that traditional business model to disruptive innovation. An observer looking for a niche vulnerable to disruption could do worse than focusing on both insurers and the reinsurance sector. There is a great deal of opportunity in the sector given the increased appetite for security.
But the major challenges cannot be disregarded either. From shareholders that demand better returns and demanding customers to a challenging regulatory framework on capital adequacy, solvency and margins of safety, there is enough to dissuade the light-hearted from thinking of investing in the sector. The challenges though are not as significant in light of the growing economy.
Change is inevitable in the sector. With technology rapidly increasing both the information available to non-traditional market participants and the ability to manage, analyse and utilise it, there appears to be clear potential for reducing friction. Read more from All Africa.
Source: All Africa