Inflation is taking a toll on the insurance industry, particularly on motor insurance, which accounts for over 70% of the market.
The rising costs of auto spare parts are squeezing insurers’ growth, profitability, and customer satisfaction while the surge in both the number and value of claims has further exacerbated the issue, reported Addis Fortune.
Mr Yared Mola, president of the Association of Ethiopian Insurers, said that insurers are struggling with high claims due to the escalating costs of spare parts and medical treatment. He said that many are finding it difficult to remain profitable on premiums collected, raising concerns about the industry's overall health.
Some companies, desperate to retain clients, have even resorted to selling policies below the minimum premium rates set by the National Bank of Ethiopia (NBE). The NBE established these minimum rates last year to prevent price undercutting and maintain industry stability. However, regulatory oversight remains weak.
The recent flotation of Ethiopia’s exchange rate has further complicated matters. On 29 July, the central bank introduced a floating exchange rate regime, which led to a 30% drop in the value of the birr against the US dollar.
A senior insurance executive warned that the industry is on the brink of major losses, especially in motor insurance, as spare parts prices have surged by 50%. However, adjusting premiums in a highly competitive market is a difficult task. The executive noted that insurers must rethink their strategies to survive, suggesting a shift towards non-motor insurance products to ensure sustainability.
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