By Muluken Yewondwossen

In an effort to close the gap in the insurance sector, the National Bank of Ethiopia (NBE) is searching for the establishment of actuarial capability domestically. Upgrading the industry has been advised by starting domestic capacity.

As of right now, Ethiopia does not have any qualified actuaries working for the country; instead, foreign and international actuarial consultants support this function, which involves gathering and analyzing data in order to compute insurance risks and premiums and ultimately determine insurance coverage. Actuaries, according to experts, are one of the areas within the insurance sector that create products, gather and analyze data, and set insurance product prices.

Actuaries, according to Assegid Gebremedhin, CEO of At Insurance Broker and Consultant, quantify the likelihood and order of loss frequency projection. “NBE requires actuarial consultation before approving products.”

According to Belay Tulu, Director of NBE’s Insurance Supervision Directorate, the regulatory body needs to keep up with the development of the sector.

Although it could not be stated as absolutely necessary for the development of the insurance business, he stated that actuarial science is an important profession for the sector.

“In contrast to other businesses, insurance is data- and information-based, meaning that a specialist in data analysis, technical assistance, and product creation is required. As a country, we don’t have this kind of knowledge in Ethiopia—in fact, there aren’t many of them worldwide,” he continued.

“Obtaining the greatest qualification may take some time, but at the very least, we need specialists who can do actuarial analysis in the preliminary stages. We require these professionals to assess data and information that is submitted to the regulatory body, including for external auditors and insurers,” he added.

With more than 120 million people, the requirement for actuarial capability on a national level has become essential given the expansion of the insurance industry.

UNDP stated that it is collaborating with higher institutions to offer actuarial training as part of its program, the Insurance and Risk Financing Facility (IRFF), which was inaugurated on Monday, March 4. Belay stated, “We will participate in the initiative and work with insurance companies or their association to build the capacity to get qualified actuaries.”

According to Assegid, insurance companies in the country use foreign actuaries through reinsurers, but the emergence of the capital market and the opening of the financial sector to foreign participation have compelled Ethiopia to develop its own actuary.

He contended that although there would be knowledge locally, local specialists would not arrive very soon because of practice-related limitations. One suggestion made to assist Ethiopia in developing inclusive insurance and funding for catastrophe risk is to create an action plan and actuarial capability for microinsurance.

Despite the fact that microinsurance has been available in Ethiopia for almost 20 years, the industry is still in its infancy, and as no official data are gathered, “it is unknown what the outreach in terms of policies or lives covered is.”

“The UNDP-Milliman Global Actuarial Initiative (GAIN) roadmap activities for enhancing the actuarial profession should be supported, including by establishing an actuarial working group as a preliminary actuarial society,” the UNDP documents said.

It said that an actuarial student exchange program with a foreign university should be implemented by the Association of Ethiopian Insurers and Addis Ababa University (AAU).

The MSc in Actuarial Statistics program that AAU designed was initially made available in 2021/2022, but relatively few people took advantage of it.

There are plans to either update the current M.Sc. in Actuarial Statistics course or introduce a new course in actuarial science. Former AAU Head of the Statistics Department Bedilu Alamirie claimed that the department created a program to teach actuarial science professionals in cooperation with experts who operate in the field abroad after realizing there was a shortage in the field.

He continued, saying, “We also have short term training in the field.” Former department employees who are now employed in the field at international higher education institutions have volunteered to help the program by providing the training.

Bedilu emphasized that although there are many advantages to actuary, there are no training facilities in the field. An actuary is essential for risk assessment and management, financial planning, and regulatory compliance.

One of the issues is that not enough people in the nation are aware of the field, which prevents us from having an acceptable number of trainees.

Even if it wouldn’t be finished right now, it was eventually meant to be begun, he informed Capital.

According to him, insurers are now paying for the service in foreign currencies. Rather than AAU, the UNDP facility collaborates closely with Milliman, a global supplier of actuarial and associated goods and services with headquarters in the US.

He continued, “The short term training is also not enabling to get professional actuaries that need minimal requirements. In any case, the target is to provide short term training rather than develop homegrown expertise, and I mentioned my concern on different occasions.”

According to Assegid, “it is not difficult to study the profession but needs actual practice. So in the coming years, foreign firms shall operate here and in the process those who practice with these companies shall create local firms.” It takes time to obtain local actuaries with the necessary standards. The IRFF will contribute to the creation of innovative, easily accessible, and reasonably priced insurance solutions that will enable farmers and companies to weather both climatic and sociopolitical shocks with greater resilience.

In order to guarantee development in the range and quantity of microinsurance products, the IRFF might assist in filling in gaps and enhancing capacity. Concerns regarding the limited effectiveness of pilot programs pertaining to relief, rehabilitation, and reconstruction, as well as the idea that “vulnerable communities remain almost as vulnerable,” were also raised by the research.

The launch will be followed by training to increase local capacity to handle risks financially and create insurance products that are easily accessible for Ethiopia, according to UNDP Ethiopia’s Resident Representative, Samuel Doe.

The facility aims to establish an environment that will allow the government to promote climate risk finance, which will be backed by policy. As a third area of focus, market growth will be matched with knowledge capacity building as the second area of intervention.

“We will facilitate operational directives for disaster risk finance as the regulatory body. We will endeavor to enact or change laws to implement the suggested areas in this respect,” stated Belay.

The Ministry of Finance and the Ministry of Agriculture are two other government agencies that are involved in the initiative.

Knowledge-based support is essential since, in general, agricultural insurance is new and lacks pertinent data, according to the Director.

“The new initiative will create such capacity. It is not only for the agricultural sector; the climate risk does not have organized data that should be developed to address the upcoming goal,” he said, recalling that actuarial capacity is important in regulators.

In Ethiopia, the insurance market has a penetration rate of around 0.3 percent, but throughout Sub-Saharan Africa, the coverage is approximately 3 percent.