Although predictable Yonas Zerihun's job in the ride-hailing service is not immune to accidents. For two years, his insurance company had reliably covered his claims, but a recent visit to the insurer left him disillusioned. After damage to his rear-view mirror and right window shield, Yonas was offered a 5,000 Br insurance claim payout— only half of the estimated repair cost.

"I was frustrated," he said.

At that moment, Yonas, 32, claims to have lost hope in the insurance altogether. He was left with the rest of the cost, after failed attempts to negotiate the settlement price. His frustration deepened as months went by before his claim was finally approved.  The inadequate payout forced Yonas to face the soaring prices of spare parts, where the cost of a rear-view mirror alone exceeded his insurance compensation.

"It was more than what I could afford," he told Fortune.

Inflation has taken a toll on the insurance industry, particularly on motor insurance, which covers over 70pc of the market. They argue that rising costs on spare parts are squeezing their growth, profitability, and customer satisfaction while the surge in both the number and value of claims has further exacerbated the issue.

Yared Mola, president of the Association of Ethiopian Insurers, noted that companies are struggling with high claims due to the escalating costs of spare parts and medical treatments. He said that many are finding it difficult to remain profitable on premiums collected, raising concerns about the industry's overall health.

"Some companies are facing losses," Yared said.

Yared described a troubling scenario where policyholders are making larger claims, but retention rates are falling. He said this imbalance is creating difficulties for insurers, who are trying to keep up with the increasing claims without losing customers.

The intense competition within the insurance industry has left companies with little room to manoeuvre. Despite the pressure to adjust rates, insurers are reluctant, fearing they will lose customers. 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.

One of the 18 insurance companies, Africa Insurance S.C. is particularly affected. Motor insurance constitutes 90pc of its policies. According to Amanuel Kumsa, a sales agent at Africa Insurance, the spare part prices are inflating claims and putting pressure on insurers.

"We are torn between losing customers or incurring losses," Amanuel told Fortune.

Africa Insurance, which was incorporated in 1994 and had a paid-up capital of 276.3 million Br as of last year, has seen its recent profit growth driven by increases in investment income and the life insurance business, with net written premiums rising by 604.5 million Br. However, the company’s reliance on motor insurance remains a vulnerability.

To mitigate risks, Amanuel revealed that the insurer has implemented rate adjustments based on customer claims history. Careful drivers who avoid accidents can receive discounts of up to 50pc, while those with frequent claims face higher annual rates.

"It'll ensure prudence while driving," he said.

In 2021, insurance companies collected 855 million Br in motor insurance premiums, with nearly 20pc of that underwritten by the state-owned Ethiopian Insurance Corporation (EIC). The insurance sector’s contribution to GDP is about one percent, with a penetration rate of just 0.7pc. Most revenues come from compulsory insurance segments, with third-party motor insurance playing a dominant role.

Asteway Kassu, a former branch manager and sales agent at Zemen Insurance, has seen the impact of inflation on the industry firsthand. The cost of spare parts has skyrocketed, particularly in the motor vehicle subsector, making it difficult for insurers to maintain profitability. Zemen Insurance, for example, saw its net claims jump to 68.2 million Br last year from 15.4 million Br.