A draft amendment to the Insurance Business Proclamation proposes to end the provision of general and long-term insurance services under one license. The draft also promises to address long-standing calls for autonomous regulation from insurers by establishing the Ethiopian Insurance Regulatory Authority, and marks the industry as next for liberalization as part of ongoing economic reforms.
If ratified by Parliament, the proclamation would bar an insurer holding a standard insurance business license from engaging in business as a reinsurance provider. Similarly, an insurer would require a separate license to offer Takaful insurance services.
Under the terms of the draft, these licenses would be granted by the Ethiopian Insurance Regulatory Authority, which is slated to take over as industry regulator from the National Bank of Ethiopia (NBE).
The NBE has regulated the nascent insurance industry for three decades, alongside banks, microfinance institutions, reinsurance, and lease financing. Insurers have long argued the NBE’s focus on banking growth has stifled their own.
The authority proposed in the amendment will be led by a seven-member board, which will include representatives from the NBE and Ethiopian Capital Market Authority, and will be responsible for issuing licenses and enforcing compliance.
The draft also proposes to open the insurance industry to foreign investment, following up on liberalization under the Banking Business Proclamation of early 2025. If approved, foreign insurers will be able to establish a partially or fully owned subsidiary in Ethiopia, as well as acquire shares in existing Ethiopian insurers.
The draft limits “strategic” foreign investors to 40 percent of an insurer’s subscribed shares, while “non-strategic” foreign nationals can own up to 10 percent of shares.
Foreign nationals and foreign-owned Ethiopian organizations fully owned by foreign nationals shall invest in an insurer only through foreign direct investment in foreign currency.
The Authority may, on the application of a foreign reinsurer, grant a license for the establishment by the foreign reinsurer of a representative office in Ethiopia, according to the draft.
It also features several provisions related to mergers and acquisitions in the insurance industry, including one granting the Authority the power to step in and enforce a statutory merger to “rescue problem insurers and/or to create a more viable and stronger insurer.”
Abdulmenan Mohamed (PhD), a seasoned financial analyst and keen observer of the Ethiopian financial sector, observes the draft has several shortcomings.
“The separation of the insurance licensing categories could attract more investors to the industry. But since the Ethiopian insurance industry is nascent and small, it is not clear on what logical basis the establishment of a new regulatory authority is necessitated. The new bill is vast and incorporates a lot of provisions from around the world. Establishing such a huge regulatory institution might be too much for such a small industry,” said Abdulmenan.
He questions the financial implications involved in setting up the new regulator.
“Where will the funding come from to finance the authority’s huge responsibilities? It needs new offices, new officers, vehicles, and operational capital. Licensing fees and other revenue streams will be insufficient to cover the expenditures,” said the analyst.
He urges regulators at the NBE to focus on developing more efficient regulatory mechanisms rather than attempting to set up an outsized regulatory institution.
“The bill has too many provisions. Existing insurers will need to acquire new licenses under new categories. This will be difficult for them,” said Abdulmenan.
On the other hand, Ethiopian insurers have long been calling for an autonomous regulator. Many in the industry believe that an independent regulator would allow it to receive the attention and support it needs for growth, help attract international investment, and advocate more actively on its behalf.
“An independent regulatory agency that will focus on insurance is vital. So far, our operations, activities, and concerns are relegated to second place because the NBE appears to prioritize the banking sector,” Hibret Insurance CEO Meseret Bezabih told The Reporter last year.
