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Opportunities and Challenges for Microinsurance in Ethiopia an Analysis of the Supply, Demand and Regulatory Environments

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Opportunities and Challenges for Microinsurance in Ethiopia an Analysis of the Supply, Demand and Regulatory Environments Opportunities and challenges for microinsurance in Ethiopia An analysis of the supply, demand and regulatory environments Authors Anja Smith Doubell Chamberlain Contains a summary of demand-side findings from: Oxfam America, 2009. Estimating the demand for micro-insurance in Ethiopia. A report commissioned by the International Labour Organization and United Nations Capital Development Fund. January. Oxfam America: Boston, MA. Date: 15 January 2010 Acknowledgements We would like to thank our client, Craig Churchill of the International Labour Organization (ILO), for his guidance and inputs, as well as the ILO Addis Ababa office for their cooperation. The contributions of our Ethiopian consultant team member, Ato Dagnew Gessese, in facilitating our in- country consultations and providing the necessary financial sector context have been essential. We would also like to thank Grieve Chelwa and Yumna Ebrahim for contributing to the document through data gathering and editing. Most importantly, we wish to thank all persons from various spheres who took the time to meet with us. Without the insights gained through consultations, this report would not have been possible. Any mistakes that remain are entirely that of the authors. The Centre for Financial Regulation and Inclusion USB Bellville Park Campus, Carl Cronje Drive, Bellville, 7530, South Africa +27 21 918 4390 www.cenfri.org ii Table of Contents Acknowledgements ............................................................................................................................. ii List of figures ....................................................................................................................................... v List of tables ........................................................................................................................................ v List of boxes ........................................................................................................................................ v List of abbreviations ........................................................................................................................... vi Executive Summary ........................................................................................................................... vii 1. Introduction .................................................................................................................................... 1 2. Country features ............................................................................................................................. 3 3. Country context .............................................................................................................................. 7 3.1. Financial sector (non-insurance) ............................................................................................. 7 3.1.1. Banking sector ................................................................................................................. 7 3.1.2. Microfinance sector ........................................................................................................ 9 3.1.3. Cooperative sector ........................................................................................................ 10 3.1.4. Remittance market ....................................................................................................... 12 3.2. Agricultural sector ................................................................................................................. 13 3.2.1. Grain (cereal) market .................................................................................................... 15 3.2.2. Livestock and cattle market .......................................................................................... 16 3.3. Health sector ......................................................................................................................... 18 4. The insurance regulatory framework in Ethiopia ......................................................................... 21 4.1. Licensing and Supervision of Insurance Business Proclamation, Proclamation No.86 of 1994 22 4.2. Banking Business Proclamation, Proclamation No. 592 of 2008 .......................................... 27 4.3. Proclamation to provide for the establishment of Cooperative Societies, Proclamation No. 147 of 1998 ....................................................................................................................................... 27 4.4. Proclamation to provide for the licensing and supervision of micro financing institutions, Proclamation No. 40 of 1996 ............................................................................................................ 29 5. The formal insurance market in Ethiopia ...................................................................................... 30 5.1. Insurance underwriting: players and market features ......................................................... 30 5.2. Insurance distribution ........................................................................................................... 35 5.3. Microinsurance products ...................................................................................................... 37 5.3.1. Weather-index insurance .............................................................................................. 37 5.3.2. Health insurance ........................................................................................................... 39 5.3.3. Credit life insurance ...................................................................................................... 40 6. The informal insurance market in Ethiopia ................................................................................... 40 7. The demand side for microinsurance in Ethiopia ......................................................................... 44 7.1. Methodology ......................................................................................................................... 44 7.2. Poverty in Ethiopia ................................................................................................................ 46 7.3. Risk experience of Ethiopian households ............................................................................. 46 7.4. Risk management or coping strategies ................................................................................. 50 7.4.1. Individual self-insurance ............................................................................................... 51 7.4.2. Community-based arrangements ................................................................................. 52 7.4.3. External assistance ........................................................................................................ 53 iii 7.5. Attitudes towards insurance ................................................................................................. 53 7.5.1. Perceptions on the value of insurance ......................................................................... 54 7.5.2. Appropriateness of insurance products ........................................................................ 55 7.5.3. Trust in insurance products and providers ................................................................... 56 7.5.4. Product preference ....................................................................................................... 56 7.5.5. Willingness to pay for insurance ................................................................................... 57 8. The potential market for microinsurance in Ethiopia ................................................................... 59 8.1. Quantifying the potential target market for microinsurance ............................................... 64 8.2. Scope for market development by category of insurance.................................................... 65 9. Opportunities and challenges for microinsurance in Ethiopia ..................................................... 67 10. Bibliography .............................................................................................................................. 72 11. Meeting list ............................................................................................................................... 79 Appendix A: Industry performance table for Ethiopian general insurance companies (FY07/08) ... 81 Appendix B: Field research methodology ......................................................................................... 82 iv List of figures Figure 1: The structure of employment in Ethiopia* .............................................................................. 5 Figure 2: Sources of health funding in Ethiopia .................................................................................... 19 Figure 3: Relative sizes of different categories of insurance ................................................................ 32 Figure 4: The access frontier ................................................................................................................. 60 Figure 5: Reconciling income distribution and a possible target market for microinsurance in Ethiopia (for the adult population) ..................................................................................................................... 61 Figure 6: Administrative regions of Ethiopia .......................................................................................
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