Ethiopia: familiarize low-income community with insurance to reduce vulnerability

09/22/2020 Business, Ethiopia



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Microinsurance is a type of insurance used to protect low-income people from disasters. This type of insurance has been neglected in Ethiopia. But now efforts are being made to revive the insurance industry. The National Bank of Ethiopia (NBE) recently held discussions with representatives of financial institutions about the new rules for microinsurance and mortgage loans.

A discussion paper was presented on what is microinsurance, who needs microinsurance, how to start a microinsurance business; what the challenges are and what sets it apart from primary insurance.

According to Belay Tulu, Director of Insurance Supervision of the National Bank of Ethiopia, who presented the discussion paper, microinsurance is insurance that poor or low-income people need. The beneficiaries of microinsurance are small farmers, small-scale livestock keepers and small-scale urban dwellers. Therefore, microinsurance is different from primary insurance.

Small-scale farmers, small-scale pastoralists and small-scale urban dwellers are vulnerable to various hazards, he said. These people need microinsurance. They can lose property due to fires, floods, wild and domestic diseases associated with climate change. That is why he said that insurance is very important for these groups.

According to Belay, in addition to losing assets to these low-income groups, when a close relative or relative falls ill, they are forced to spend time and money to care for their relative. In addition to illness, death can occur. The death of a particular head of household can have a devastating effect on family life.

Belay said that a family or individual does not get into financial trouble buying insurance. But the whole family is in danger when family problems arise from not buying insurance. The whole family is in trouble, especially when heads of households are separated by death or exposed to various problems, he said.

Microinsurance helps small and low-income communities in urban and rural areas survive, even in the face of adversity. He explained that it is very important to keep family life simple.

But so far there is no insurance in Ethiopia that involves low-income groups. As a result, the low-income community faces a number of challenges. But this situation should not continue. He stated that efforts are being made to launch microinsurance.

According to Belay, not only is there a lack of microinsurance in Ethiopia, but the insurance market as a whole is at a lower level. In a country of approximately 110 million people, it is difficult to find people who have life insurance. There are very few insurance companies and they focused on industrial owners and were mainly concentrated in cities.

Currently, 54 percent of the country’s insurance industry is located in Addis Ababa. 14.6 percent are in Oromia, 11.6 percent in Amhara, 9 percent in the Regional State of Nations, Nationalities and Peoples of the South and 5.2 percent in Tigray. The rest of the states in the country, except for the four states listed above and one city administration, have the lowest insurance industry. Even in the states, the majority of insurance users are residents of regional cities and have better incomes, he noted.

Belay Tulu also explained that there are several problems that have prevented the country’s insurance sector from growing as required. He added that because the concept and terminology of insurance originated abroad, it is complicated and difficult to understand not only for the low-income rural community but also for regular insurers.

According to the director’s explanation, in order to sustainably transform the country and benefit the low-income population, it is imperative to develop low-cost, community-oriented low-income insurance policies that solve problems. However, since coverage of the sector is so low, it excludes a large part of the population.

As for him, various activities have been carried out to solve the sector’s problems and bring low-income rural and urban inhabitants closer to the insurance sector. The necessary legal procedures have been established, improvements have been made to existing directives and new regulations have been issued.

He said that the microinsurance industry is a business venture of people interested in the sector, who have new ideas and it is not a business run in the traditional business system. Rather, a business run by people who believe they will be profitable in the industry.

Therefore, existing insurance companies will also be able to launch microinsurance companies to allow new microinsurance companies to come into operation. In addition to developing and improving legal systems, extensive capacity building work has been carried out.

Capacity building work has been done on what kinds of problem solving techniques should be implemented to fill in the gaps of what are the needs of low-income groups in urban and rural areas. What dangers do they face? How do they approach the problems they encounter? And what gaps are there?

It may not be effective to participate in the business without knowing the wishes of low-income people. Almost 3,000 households in urban and rural areas were surveyed to prevent such gaps. Based on this sample, and based on the problems faced by low-income groups, it was noted that five priority types of insurance should be developed, priced, and identified.

According to Belay, it is not possible to reach low-income groups in the traditional way, so it is important to develop user-friendly insurance policies that don’t waste time and money. In particular, agricultural and household insurance require specialized knowledge, infrastructure, and public-private partnerships. As a result, those interested in participating in the field are encouraged to do so.

Various insurance policies were designed and priced, distribution lines were developed and supplied to interested companies, but they did not go as planned. There is a great market opportunity in the country. It is not possible to satisfy that market with existing regular insurance alone. You need to focus on microfinance. He said this requires motivation to get involved in the sector.

He said efforts to promote microinsurance have been fraught with challenges, especially fraud. Motivation is needed to overcome these challenges and achieve success. Many countries have also gone through the same process and have achieved success in the sector. You are also likely to learn from the successes of other countries.

Enabling efforts have been made to prevent such problems and efforts have been made to strengthen the National Bank’s commitment to the Ministry of Agriculture, the Agricultural Transformation Agency, and others.

According to Belay, existing insurance companies can provide microinsurance services. It’s easy to provide microservice for these companies. They just need commitment. Therefore, they should start providing microservices.

He said the directive will allow microfinance institutions to participate in microinsurance in addition to insurance companies. She added that if they are assured that they are capable of providing insurance services, they will be made to start providing services. Microfinance institutions should establish a microinsurance department. They need capital and a manager.

Belay further explained that there are established requirements for new microinsurance companies operating in the microinsurance sector. Microinsurers should be established and put into operation. One of the requirements to be met is to inform the amount of capital and form a meeting, he stressed.

To achieve the desired results in the sector, as in Belay, public and private partnerships are essential. State governments should increase the capacity of microfinance institutions and provide microinsurance services that can be used by microfinance institutions. The National Bank provides other assistance.

Microinsurance should not be left alone, according to Belay, and it is important to link it with microfinance to alleviate poverty. Microinsurance should be seen as one of the solutions for the agricultural sector. It is difficult to develop the sector to the desired level unless it is seen as a solution for poverty reduction and a remedy for the problems of the agricultural sector.