The National Bank of Ethiopia (NBE) takes a bold step to keep the vehicle insurance premium rate at a very low level. Following this move, insurance companies will no longer reduce the premium payment.
As it is well known, the premiums in the Ethiopian vehicle insurance market have been declining from time to time, with insurance companies incurring huge losses due to vehicle insurance compensation costs. During this time, the existence of each company has been challenged, which then led the Ethiopian Insurers Association to hire a vehicle insurance rate calculator (Actuary) based on the representation given by its members.
As experts close to the case express, “The implementation of the minimum premium rate has been highly anticipated.”
In a bid to calm the situation, NBE has now set the floor price that cannot be reduced any more. The floor rate does however not include the administrative cost and profit margin that insurance companies should include in their premiums, so each company is required to submit its own premium rate within one month, including its related costs.
Accordingly, the Ethiopian Insurance Association expressed its happiness towards the initiative taken by NBE, “The National Bank has taken appropriate steps to help Ethiopian insurance companies grow out of losses and develop themselves through healthy competition from the unfair market competition that was going out of control based on price reduction and not service quality and efficiency.”
“Since this action has not been taken to meet the current premium rate estimation points; as this type of activity requires daily monitoring and professional in-depth inspection, the association expresses its belief that the bank will make an adjustment of the premium rate based on the current price by hiring an appropriate professional as soon as possible,” the association expressed its hope to the central bank.