‘Breathing Life into Life’

“We as Kenyans take a leap of faith in all that we do”

I attended the East African Finance Summit, and I believe it’d be beneficial to share some valuable points raised, especially in regards to the Insurance Sector, and more specifically the Life Insurance, at the end, which was my topic of interest.

The Summit attracted amazing attendees, be it from nearly all the local finance sector, including National Bank of Ethiopia , Ethiopian Capital Market Authority and other African stakeholders like of Nairobi Securities Exchange , African Union , Safaricom PLC . I believe it truly showed East Africa’s potential towards financial integration for the better.

"25 years of unlocking value"

Genesis Analytics , a Global African firm with a wide expertise scope and experience, had their Director Richard Ketley give an amazing presentation.

?Well prepared and articulated about the current Ethiopia’s state of economy below are a few points from he raised

A)?The cut throat competition of the banking sector is good, which will lead to mergers, and consolidation, which will again lead to increased capital. Although increased capital is good, he fears that it may lead to decrease in the quality of credit unless careful.

B)?He noted our tech infrastructure has improved significantly since his 2016 visit, but had to visit 4 ATM’s to get a functional one to use. So, the investment on the right technology infrastructure in the rapidly evolving global market is essential.

C)?He asked to discover ourselves, asking critical questions for our business such as, What our winning inspiration is? Where will we play? And How will we win?

D) He noted our forex policy and our?regulations will hinder development, unless global?best practices are put into place. Our forex policy was raised various times during the panel, and most panelists from East African countries noted how their liberalization process in the 1990's were essential to the growth and FDI that was possible thereafter. I say, let's wait and see how Nigeria's economy reacts to the recent liberalization learn from their mistakes if any, and liberalize?

Richard Ketley Is one of those panelists, you wish that never stopped speaking

“We as Kenyans take a leap of faith in all that we do”

The charismatic CEO of Nairobi Securities Exchange , Geoffrey Odundo believes latecomer advantage is a great tool for success. He believes we should openly ask for the failures of partners in Exchange Markets, as they have done as well in prior, to avoid repeating the mistakes, reducing the learning curve.

He raised a great example of disruption in Kenya, where people that purchased government issued bonds, increased from 80,000 people to 500,000 when M-PESA Africa and Government of Kenya launched a digital Bond purchasing mechanism.??

???? - is the Amharic equivalence of ‘Premium’!

????? ???? being Insurance Premium.?

? National Bank of Ethiopia 's Vice Governor Solomon Desta, started out the summit by informing the audience that National Bank of Ethiopia is working on Liberalizing the insurance sector, forming the long awaited independent Insurance Regulatory Authority and opening up the sector for foreign players.

CEO of Nyala Insurance S.C. Yared Mola , who's also the President of Association of Ethiopian Insurers , stood firm in insisting that insurance companies and banks shouldn’t be treated as one.?He informed the audience that Insurance companies, due to the nature of their work, already have a global outlook and are likely to adapt very well to the international players joining the market, contrary to the popular belief that foreign finance institutions will make the playing ground much more difficult.

Although, the title for the insurance panel was, Insurance and InsurTech “Innovation, Inclusion and Access to Insurance”, the panel was mostly based on the question that bothers all of us in the ecosystem; “Why is Life Insurance penetration Low”.

Why is it? The Representative of Ethiopian Life Insurance Professionals, prepared just this study in partnership with the 13 of 18 insurance companies that currently provide life insurance.

They started the presentation with the motto ‘Breathing Life into Life’

Starting with the History of Life Insurance in Ethiopia, which dates back to 1958, when it was formed as a department during the then Imperial Insurance Company.

They continued to bring amazing historical information, including the fact that there were 3 Life Insurance dedicated insurers that operated in Ethiopia, till the rise of the Socialist Derg Regime, which ended up merging and nationalizing all the insurers, into one umbrella, the current Ethiopian Insurance Corporation. It’s amazing that Ethiopia had 3 Life Insurance dedicated Insurers 50 years ago,?compared to now, which is 0!?

The Life Insurance market share was 15% in 1967, higher than the current Life Insurance market share of 8%, which is much lower than the Global 44%, the African average 66% and much much lower than South Africa’s Life Insurance dominated?market share of?81.7% .

The study continued showcasing how Ethiopia, in all the KPIs that insurance can have, was the lowest, even to the African coverage.

Our Premium Per Capita is 0.25 USD and a laughing stock when compared to South Africa’s 698 USD.

I loved the study because it did not stop by just pointing out the root mishaps in our Life Insurance sector, but went beyond and showcased the way forward

Insurers

Please invest in health insurance education, in schools, radio and all available media streams. Although Life Insurance Policy is actuary based, there’s a new pattern evolving where unjustifiable discounts are being made towards the premium values!

?They begged the current insurers to go out of the current cut throat competition, and focus on improving our 0.3% Insurance penetration rate, the lowest in Africa.

The panelist also reminded the insurers to innovate new distributive channels using technology, leaning towards insurtech as a revolutionary tool.

Government

?There are major government regulatory hurdles, including a 60% capital deposit in treasury bonds, levied on insurance companies, that makes it difficult for the insurers to invest in related sectors of hospitals, schools...etc.

There also lies the elephant in the room. Pension Funds, where it’s traditionally managed by insurance companies, but not here in Ethiopia. Although the Ethiopian economy is now creating major lenders, including MFI lead loans, Credit Life is not obligatory, which sometimes leads to breaking families in times of the unexpected.

Lastly, Life Insurance requires immediate benefits, such as Life Insurance Tax Holidays, where you will not be taxed upon the amount of Life Insurance premium you pay each month.

The report is timely and much appreciated by all in the audience.

?

Some uncomfortable questions were raised. But they were questions that had to be raised, if we were to speak about Life Insurance failure in Ethiopia!

?Why did the first Life Insurance dedicated insurer, Ethio Life and General Insurance S.C. fail?and had to diversify into General Insurance?

Ethio Life and General Insurance S.C. CEO Shimeles G/Giorgis says it was one of the biggest regrets in his life, that Ethio Life and General Insurance S.C. became a composite insurance, providing both General and Life Insurance

He says at the time, "?? ???? ???? ? ???? ???? ??? ??? ??? ??? ???" meaning it’d have succeeded if they had decreased the shareholders and increased the capital, and perhaps the question we're discussing on this panel, wouldn't have existed at all.

Why? It’s known that for the first three years or so, Life insurance doesn’t pick up, thus shareholders are frustrated by the ROI and decide to put pressure to change the course and direction of the company. It’s like bamboo, where it doesn’t grow for the first three years and shoots 1.5 inches/hr at the end.

Panelist, CEO of NIB Insurance , ZUFAN ABEBE ALEMU came forward to explain how big our market actually is. In a population of 120,000,000 if each insurer divides in equal numbers and works on that, and perhaps manages to get 1% from the 6,000,000 each has, that’s 60,000 customers. If each person pays a premium of 100 ETB /month, that’s 6,000,000 ETB a month. Imagining changing that 1% towards 2%. So, she believes the market is big enough for everyone as long as the target is the beneficiary. NIB Insurance is actually not being overly optimistic when mentioning these numbers. Through the partnership with Jamii.one , a Denmark, Ethiopia and Kenyan based Insurtech, NIB Insurance sold 50,000 Life Policies, by working with local Eders, a traditional risk pooling mechanism that has been in practice for a long time in various Ethiopian communities.

Overall, it was exciting that the conversation was picking up regarding Life Insurance in Ethiopia, but during the whole conversation, various stakeholders were mentioned, but, although the conversation was about Life Insurance, and a significant portion of Life Insurance bases on Medical and Health Insurance, no one mentioned our stake in the industry. Thus, below is my two cents, that can perhaps give an insight as well and will try my best not to mention the points already raised in the panel

Medical and Health insurance is not picking up in Ethiopia because

To the Insurers

1.?Healthcare Service Providers overcharge and insurers don't pay on time, as the insurance is on one side, the insurer on the other, both working to maximize profit. The healthcare provider benefits when the premium holder is sick and the health insurance ecosystem in Ethiopia hasn't started any preventive medical practices, which reduces significant claims. Insurers should create innovative products, rather than putting significant amount of premiums into timed deposit accounts, affecting claim disbursement period.

2.?Claim Fraud: Insurers coverage worldwide has significant claim fraud and it’s worse in Ethiopia. How is it worse? Insurance Coverage has been nicknamed of “??? ???” which roughly translates to "Cost of a Sheep" where premium holders get a bogus fiscal receipt, files for claim and is paid, to purchase sheep. The current economic condition is going to exacerbate this in ways we can’t even imagine, thus a quick risk mitigation, such as credit agreements only instead of reimbursable policies might help.?

3.?Awareness Level: People assume, if you have medical insurance coverage, you're entitled to spending it, especially on checkups. Most policies clearly stipulate that the cover is to be used during sickness and not checkups. This can easily be synonymous with buying a car insurance and expecting the insurer to pay for your oil change.

Either the mindset?needs to be changed or the policy has to consider?adding mandatory general checkups during the valid policy period, which can be hugely beneficial towards the insurer as well in decreasing future claims. An easy example is a regularly followed patient with Diabetes will have less claim amounts, than an uncontrolled Diabetes coming into the emergency room with DKA, racking up the bills in an instant.?

Government Policy?

1.?CBHI and SHI: The @Ethiopian Health Insurance Agency,?a state run agency which manages the Community Based Health Insurance and the soon to be?activated Social Health Insurance. This year, they collected 6 Billion Birr in premiums, higher than all insurance companies, with all the premium covers General and Life combined. But, it is heavily mismanaged. Recent reports are indicating that money collected for CBHI is being used for other matters and accountability is at an all time low, which can cause huge chaos. It’s also unfair that the CBHI, although it collects this huge amount, isn’t regulated by any of the regulations set by the National Bank of Ethiopia , like the other insurers. The SHI, which is set to be mandatory, was to manage an?additional 10 Billion Birr from the formal sector,?mainly government employees, with a shared 6% from monthly salaries. I believe, although it should be mandatory, the government should give the chance for its employees to choose whether it be government or private insurance.

Way Forward

Various interesting stakeholders are gearing up to join the Life Insurance market and I've got a chance to interact with a few of them. That includes a consortium, we’re currently working with, led by giants in healthcare, management, investment and tech industry to provide hospital - owned health insurance plans.

We plan to join the likes of Kaiser Permanente , ManipalCigna Health Insurance Company Ltd. or Apollo Munich Health Insurance Company Ltd. , to create affordable, standardized and high quality tertiary care for Ethiopians.

The market is big for everyone to create a positive impact in Ethiopian healthcare, which we have to believe is not a luxury, but a necessity!

Thank you The i-Capital Africa Institute and Gemechu Waktola for this amazing summit! Looking forward for follow up discussions on the insurance sector as well!?