The minimum rate for the amount insurance companies charge customers to provide motor insurance coverage will be set by the central bank when a draft directive prepared by the central bank sees the light of day.

According to the draft, regulators aim to protect the interests of policyholders by stopping unwarranted premium undercutting. The draft proposed minimum premium rates for private and commercial motors. The rate for private vehicles is set at 1.02pc while the commercial motor category is set ranges from 0.58pc for agricultural vehicles to 2.86pc for 16-seat vehicles.

Ebsa Mohammed, an insurance expert and general manager of Alpha Consultancy believes the draft is long overdue but the rate does not consider the rising price of spare parts and vehicles.

He observes insurers stuck in price cutting and complicated management of claims. However, the long-term solution according to Ebsa is to branch out the regulatory body dedicated to the sector.

Representing 18 insurance companies, the Ethiopian Insurers Association hired the Kenyan-based Zamara, a financial services firm that primarily offers actuarial consulting and insurance brokerage services for 54,000 dollars to study the policies and suggest a minimum rate.

The insurance companies submitted the study to the National Bank of Ethiopia to set a minimum premium rate a year ago with the actuaries presenting the findings. A month ago, the similarity between the premium rates following the study was noticed by regulators at the central bank that called each company executive to justify.

Insurers are apprehensive about the new cap as the minimum rate is lower by half than what was suggested by Zamara. They have a month to hold a discussion with the regulators on what basis the rate is set for motor policy.

"We have time to give feedback," said Yared Molla, president of the Association.