What the Insurance Sector Can’t Do Without

Apr 20 , 2019
By Asseged G. Medhin

Asseged G. Medhin is the deputy CEO of operations at the National Insurance Company of Ethiopia (NICE). He can be reached at kolass799728@yahoo.com.

There is currently a debate among politicians and economists about how much government regulation is necessary for a fast-growing economy such as Ethiopia's, and which of the sectors in the economy should be deregulated firmly and why.

Those who want less regulation argue that if one removes government restrictions, the free market will force businesses to protect consumers, provide superior products or services and create affordable prices for everyone. They believe that the government is inefficient and creates nothing but a bureaucracy that increases the cost of doing business for everyone.

Those who argue that government regulations are necessary to protect consumers, the environment and the general public claim that corporations are not looking out for the public's interest and that it is precisely for this reason regulations are required.

This is a debate that can directly apply to the financial sector, which is currently saddled with thin profitability, incompetence and fear of competition in the international arena. The insurance industry is the most infant in this sector and is currently trying to juggle between unethical practices in one hand and lack of technology, proper competition and dynamism on the other.

Players in the industry - regulatory bodies, insurers’ associations and experts - want to see both their endeavour and the industry itself become internationalised. Nonetheless, a deaf ear has been turned to the challenges of the sector within the last decades. It now remains in the doldrums of unethical competition, which would have been addressed had it been for fair, transparent and an orderly market place that benefits existing and potential customers.

An operator of a market generally can be expected to satisfy its obligation to do all things necessary, to the extent that it is reasonably practicable to do as such. But this can only be if the rules governing the operator of the market are clearly set out.

Recent examples of these, pushing the industry into not playing by the rules, are the introduction of different customs laws that demand insurers pick up the cost of time-barred debts. Most insurers also have strategic alliances with companies they are currently invested in or vice versa.

If investors processing loans are urged to buy insurance from the insurance companies the lender is in a financial relationship with, it will lead to unethical practices, problems that could be addressed through a strong association and an independent supervisory body for the insurance industry.

Insurance companies, especially through the association, are expected to challenge these and other emerging political, legal and governmental regulatory risks through their formal conventions, intensive debates and contribute advisory services to regulatory bodies and policyholders.

They should raise funds to defend professionalism and the right of the insured to the extent of his or her pursuit of freedom to use insurance services without being affected by the unethical urges of financial institutions.

Supporting and enhancing the free market economy creates a space for policyholders to choose insurers and bolsters bargaining power. This was what the initial opening up of the sector was expected to accomplish, but it did not despite the growth in the number of insurers.

There is currently no dynamic approach in terms of product development, technology, fundamental changes in business processes and healthy competition that does not collude with the interests of banks that are invested in the firms. In the last two decades, there should have been a diversification of the industry, especially in the introduction of financial holding companies, fintech and advanced securities and stock exchange markets.

Insurance companies should stand together in realising a regulatory shift toward financial convergence and mapping out blurred boundaries to defend ethical business and professionalism. Financial supervision has revealed weaknesses in dealing with financial convergence, and the autonomy of regulatory bodies remains inefficient so long as it is chained to political ideologies.

Insurance companies should urge the formation of an independent regulatory body from the National Bank of Ethiopia, which can focus solely on insurance and the need for them to focus on supporting the economy. An independent insurance supervisory board, constituting relevant stakeholders dedicated to professionalism, business ethics, growth and innovative service, can as well go a long way.

We have reached an age where customers challenge the capability of business companies to store their transactions in the “cloud,” let alone on quality service to take more money from their account.

They need a sophisticated service and more benefits at a low price. When they ask for insurance policies, they need a wider cover, few deductions, exceptions and exclusions and more benefits. Insurers can at the same time reduce their claims and marketing costs and better their profits to distribute higher dividends to shareholders and a better benefits package for employees to attract competent professionals.

They need to defend strategic marketing plans that will allow them to increase their market share year after year. This requires business leaders to shift their strategy year to year and should be more ethical and professional than indulging in unethical business decisions.

The Ethiopian insurance sector and every participant should change their focus to dynamism. It is at this juncture we need to seek a different set up at the regulatory and the insurers' association to defend the interest of policyholders and address unethical practices.

PUBLISHED ON Apr 20,2019 [ VOL 20 , NO 990]

Asseged Gebremedhin, an insurance professional with over a decade of experience in finance.

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