Premium production across the insurance industry has risen at its strongest rate in three years to 7.4 billion Br during the just-ended fiscal year amid price war among insurers.
The latest reports of the insurance industry reveal that all insurers have seen good improvements in collecting gross written premium (GWP) from general and life insurance businesses. The latter has gone up by 6.6pc to 366.4 million Br whereas the former grew by 17pc to seven million Br.
The premium has shown growth despite the intense competition within the insurance industry driving the insurers to employ strategies aiming at raising their share to the market, where insurers gear up for a cut throat competition rather than competing with products.
“It is unstoppable, and the effect is everywhere,” said Tadesse Roba, director of the Business Development & Research Directorate at Awash Insurance Company (AIC). “None of the industry players is benefiting from this as it is a zero sum game.”
While many industry insiders including Abdulmenan Mohammed, a financial expert with 15 years of experience, suggest competition is healthy for the industry, the ongoing price war among the insurers is hurting profit earnings of the firms, reaching 311 million Br up until the third quarter of the past fiscal year – 11pc down relative to the same period in the 2015/16 fiscal year.
“The industry has faced stiff competition, which has driven premiums down,” Abdulmenan said. “Unless serious actions are taken, the reductions in premiums will undermine the industry.”
The effects of the price cutting, however, have been insignificant in the performance of the Ethiopian Insurance Corporation (EIC) in the past fiscal year as it managed to raise its profit to 698 million Br from 486.1 million Br in 2014/15, accounting for half of the profit generated by all insurers in the country.
Netsanet Lemma, chief executive officer (CEO) of EIC, relates this with the portfolio structure and pricing strategy of the Firm.
“Unlike private insurers, motor policy accounts for 39pc of our premium portfolio,” he said. “And, we charge a higher price for risky customers such as motor insurance.”
A look at the premium production of private insurers reveals that over 50pc of premiums come from motor policy, thereby contributing over 60pc of claims in the industry.
EIC is the major player in the industry, collecting 2.6 billion Br and 104 million Br from general and life insurance business in the just-ended fiscal year, respectively. This has helped the Firm to slightly raise its market share to 36.4pc from 35.9pc in 2015/16.
Meanwhile, private insurance companies have collected GWP of 4.5 billion Br from non-life insurance and 262.4 million Br from life insurance business.
Almost all insurance companies have increased premium production in general insurance lines of business. Awash is the leading private insurer by having 7.6pc of non-life and 15.01pc of life insurance business.
Also, newcomers to the industry such as Tsehay Insurance are making considerable strides during the current fiscal year, with the former managing to raise its premium from general insurance business by 47pc.
Nevertheless, the year has brought disappointment for some industry players such as Global Insurance, whose premium has only increased by a meagre one percent to 81 million Br. Despite a long-time presence in the industry, Global is the smallest insurance company with a market share of 1.1pc.
“How can we raise our market share in an industry where unfair competition exists,” said Yahya Ahmed, CEO of Global. “We lost many customers due to our rigid pricing strategy.”
On the other hand, the total premium leveraged from life insurance business has remained stagnant over the past few years, accounting for five percent of the total GWPs. This, according to analysts, reveals that this line of business is contributing to the industry’s revenue by a small fraction.
“Considering the enormous potential arising from economic expansion and population growth, the industry players need to work hard to increase their revenue from this untapped market,” said Abdulmenan.
Except for Ethio Life & General Insurance S.C. and Oromia Insurance, all insurers have improved their lifelines of business.
The highest performer is AIC with an increase of 22pc while Ethio Life is the lowest performer with a decrease of 43pc.
“This is a serious reduction,” said Abdulmenan. “The management of Ethio Life should consider strategies to reverse this decline.”
Currently, out of 16 private insurance companies, nine provide life insurance service.
Source : Fortune