Authored By: Abel Tulu
Addis Ababa University
Abstract
This paper critically examines the current state of competition in Ethiopia’s insurance sector and evaluates the effectiveness of existing regulatory frameworks, particularly those enforced by the National Bank of Ethiopia (NBE) and the Trade Competition and Consumer Protection Proclamation (TCCPP). Despite a century-long presence, Ethiopia’s insurance industry suffers from limited market penetration, product homogeneity, and an unhealthy dependence on price-based competition. Through an analysis of price and non-price competition dynamics, the study finds that insurers often engage in a “price war” at the expense of service quality and financial sustainability. Non-price competition, including innovation and technological integration, remains underdeveloped. The NBE’s failure to implement minimum premium standards and the TCCPP’s lack of detailed guidelines on horizontal cooperation further exacerbate market inefficiencies. An expert interview with a senior NBE official highlights structural and regulatory bottlenecks, such as regional concentration, capital barriers, and low digital adoption. The paper concludes with policy recommendations to strengthen competition, enhance regulatory clarity, and promote inclusive growth in Ethiopia’s insurance sector.
Introduction
Ethiopia’s insurance sector has undergone significant evolution, shifting from traditional risk-sharing systems like edir and equb to a formalized industry starting in 1905. The introduction of the Licensing and Supervision of Insurance Business Proclamation 86/1994 in 1994 marked the liberalization of the industry, allowing private investors to own shares in insurance companies. Despite this progress, competition within the sector remains under-researched, with limited competition, low market penetration, and an urban-centered focus. These challenges highlight the need for greater inclusivity and competitiveness.
Increased competition drives the development of diverse, customer-focused insurance products, enhances service quality, and boosts operational efficiency. This paper seeks to assess the state of competition in Ethiopia’s insurance sector, identify regulatory and structural barriers, and evaluate the effectiveness of the National Bank of Ethiopia’s (NBE) regulatory frameworks
Research Methodology
Research Design
This study adopts a doctrinal legal research approach, supplemented by qualitative empirical insights. The doctrinal method was used to analyze primary and secondary legal sources, while qualitative data from expert interviews provided a practical understanding of the Ethiopian insurance market’s competitive dynamics. The study combines descriptive and analytical designs, aiming both to explain the current legal and market framework and to evaluate its adequacy in regulating competition in the insurance sector.
Sources of Data
The research relies on both primary and secondary sources. The primary Sources include Ethiopian legislation such as Insurance Business Proclamation No. 746/2012, Trade Competition and Consumer Protection Proclamation No. 813/2013, Regulatory directives and policy documents issued by the National Bank of Ethiopia (NBE). Secondary Sources include Academic books, peer-reviewed journal articles, and theses, including works by Demarso & Abba (2020), Abebe Adane (2021), and Robert W. Klein (2005).
Data Collection Methods
The study employed two key methods for gathering information. The first one is Document Review which includes examination of relevant proclamations, directives, reports, and scholarly literature to understand the legal framework and theoretical underpinnings of competition in the insurance sector. The second one is Key Informant Interview which is done through a semi-structured interview conducted with Ato Tesfa Bizuayehu, Principal Insurance Examiner at the National Bank of Ethiopia, to gather expert insights on the practical application of competition law and regulatory practices in the insurance industry.
Data Analysis
The analysis combined legal interpretation of statutory provisions with comparative assessment of best practices in other jurisdictions. Provisions under the NBE regulatory framework and the TCCPP were critically examined to assess their adequacy in addressing issues such as price wars, market concentration, and innovation. Furthermore, empirical observations from the interview were triangulated with the doctrinal findings to provide a comprehensive picture of the sector.
Scope and Limitations
The study focuses exclusively on horizontal competition within Ethiopia’s insurance sector, with emphasis on the interplay between price and non-price competition. Moreover, it does not provide a detailed examination of vertical relationships in the insurance value chain or of reinsurance markets. Additionally, while the interview with the NBE provided valuable practical insights, the limited time of the interview may constrain the extent of empirical findings.
Price and Non-Price Competition in the Insurance Sector
In the insurance sector, companies compete with each other in different ways. The two main types of competition are price competition and non-price competition. Price competition involves offering lower premiums to attract customers, while non-price competition focuses on things like better customer service, brand reputation, and product features
Price Competition
Price competition is a practice where issuance companies compete with each other by offering lower prices for their insurance services. It is in simple terms cutting premiums to win customers. The prices of insurance premiums are set taking into consideration the following factors; market conditions, regulation, de-tariffication, data collection, and standard setting.
De-tariffication in insurance means removing government-imposed or regulator-imposed fixed rates (tariffs) for premiums, so that insurance companies are free to set their own prices based on market forces and risk assessment. For instance In India, before 2007, general insurance premium rates for motor, health, and other non-life products were fixed by the Tariff Advisory Committee. After de-tariffication in January 2007, insurers could set their own rates, leading to price competition and more innovative products[1].
The current situation in Ethiopia’s insurance sector is characterized by competition predominantly dependent on the premium price. Lowering insurance premiums is seen as a primary strategy to attract and retain customers, especially because insurers provide similar products. This leads to stiff price competition and an aggressive pricing policy resulting in an unhealthy spiral of premium cutting, sometimes described as a “price war”. Such aggressive, price-based competition is considered dangerous as it is allegedly uneconomical, meaning it may not even enable insurers to cover their costs and expenses, thereby threatening their solvency and potentially leading to failure. Competition based on other factors, such as innovation of new insurance products or quality of customer services, is not significant, leaving price as the main area of rivalry among insurers.[2]
Non-Price Competition
The Ethiopian insurance sector lacks strong competition beyond price, mainly focusing on lowering premiums rather than differentiating through better strategies or services. Competition through product variety is notably weak, with most insurers offering homogenous and traditional services that fail to cater adequately to diverse market needs, particularly in rural areas or for specialized risks like climate vulnerability. Newly introduced products like crop or condominium insurance remain limited in scope and accessibility. Similarly, competition via innovation and the use of modern technology is underdeveloped, described as being in its “infant stage.” Essential digital tools for online sales, claims processing, customer relationship management (CRM), and e-insurance are largely absent across the industry, save for isolated and basic implementations by a few companies
Regulatory Framework of Ethiopia’s Insurance Sector: NBE and TCCPP
The National Bank of Ethiopia (NBE) along with Trade Competition and Consumer Protection Proclamation (TCCPP) are the two main regulatory institution and legal framework that guide the insurance industry in Ethiopia respectively. The NBE ensures financial stability and can control premium pricing, even though it hasn’t yet set minimum rates despite ongoing price wars. The TCCPP governs market competition and allows insurers to cooperate if it brings benefits like efficiency or innovation. It also allows exemptions for sectors important to economic growth, including insurance. However, no specific rules have been issued to guide such exemptions. This creates uncertainty in regulating collaboration among insurers. The law does not require all pro-competitive conditions to be met, which may weaken consumer protection. The absence of clear guidelines on cooperation adds to the challenge. This makes regulatory enforcement in insurance both complex and inconsistent.
The Role of National Bank of Ethiopia (NBE) in regulating the insurance sector
How NBE Supervises the Insurance Sector and Sets Minimum Premiums?
The National Bank of Ethiopia (NBE) plays a central supervisory role over the insurance sector, including licensing insurers, ensuring solvency, and overseeing fair practices. A major issue in the sector is the ongoing price war, where insurers aggressively cut premiums below actuarial recommendations to attract customers. This undermines insurer stability, service quality, and consumer protection. The premium is defined as “the amount of money an insurer charges to provide the coverage described in an insurance policy,” per the most recent Ethiopian insurance business proclamation.[3]
Legally, the NBE has the authority under Article 2(58) of the Insurance Business (Amendment) Proclamation to set a minimum (floor) premium through a directive. This measure could help prevent destructive competition and promote sustainable pricing. In the insurance business, a premium is set by market demand while accounting for the insurer’s earnings, administrative costs, and the likely loss the insurer will incur.[4] However, despite calls from industry stakeholders, no such directive has been issued. The NBE’s regulatory efforts are further challenged by limited resources and a lack of sector-specific competition enforcement tools, which are also missing from the broader competition legal framework. To address the problem effectively, the NBE must consider exercising its power to set floor premiums, improve regulatory capacity, and coordinate with the Competition and Consumers Protection Authority.
Trade Competition and Consumer Protection Proclamation (herein after TCCPP)’s Role
Although they are not specifically specified, the TCCPP recognizes the rule of reason and the rule per se standards of review. According to the wording of Article 7, competitors in a horizontal trade chain relationship may cooperate or collaborate as long as they can provide the competition authority with adequate proof that the “technological, efficiency, or other pro-competitive gains” derived from their agreement (coordination) outweigh the anti-competitive effect[5]. This indicates that our competition law recognizes the rule of reason standard of review. Furthermore, the general term “other-procompetitive gains” found in article 7 (1) (a) of the TCCPP can be used to encompass additional pertinent requirements that strike a balance between the interests of the insurer and customers[6]. However, our competition legislation does not need cumulative requirements for those associated prerequisites for horizontal coordination. It is implied that meeting one of the requirements would be enough to qualify for an exemption.
Key Challenges in Horizontal Competition in Ethiopia’s Insurance Sector: Insights from Research and Practice
The insurance sector in Ethiopia faces several challenges that hinder horizontal competition, despite its long history. These issues limit market growth and innovation, affecting both insurers and consumers. Below are the key challenges:
Despite its century-old history, the industry is plagued by limited market penetration (below 0.5% of GDP), a lack of innovation, and unhealthy competition practices primarily centred around price wars[7]. The reliance on unhealthy price-based competition is evident in the widespread practice of undercutting premiums to attract clients, leading to a “price war” scenario where insurers engage in unsustainable pricing strategies rather than genuine competitive differentiation[8]. This practice is exacerbated by the absence of a floor premium regulation by the National Bank of Ethiopia (NBE), leaving the market vulnerable to predatory pricing and risk dilution. Furthermore Innovation remains strikingly low. Apart from isolated initiatives such as Awash Insurance’s online claims service or Nyala Insurance’s exploration of blockchain most insurers offer uniform, traditional products and lack digital service delivery platforms[9]. This stagnation is compounded by weak investment in actuarial science and technology, which impedes the sector’s ability to innovate.
Another major challenge is the low market penetration rate and geographic concentration of services. As of 2020, over 54% of insurance branches were concentrated in Addis Ababa, with minimal outreach to rural and underserved areas[10]. This imbalance is tied to an overdependence on corporate clients and bank referrals, especially for life and health insurance, which hampers efforts to cultivate diverse consumer bases and inclusive insurance coverage.
Legally, the Trade Competition and Consumer Protection Proclamation (Proclamation No. 813/2013) apply to the insurance sector and prohibit anti-competitive practices such as price-fixing and abuse of dominance (Art. 5–7)[11]. However, Ethiopia lacks a specific horizontal cooperation guideline for insurers. Article 7(1)(a) of the Proclamation uses a “rule of reason” approach that conditionally permits coordination if pro-competitive gains (like technological advancement or efficiency) outweigh anti-competitive risks[12]. Yet, enforcement remains weak, and the Council of Ministers has not issued directives to clarify the scope of permitted horizontal cooperation or to exempt strategic alliances, as provided under Article 4(2) of the Proclamation[13].
Interview with Ato Tesfa Bizuayehu, Principal Insurance Examiner at National bank of Ethiopia
To gain a better understanding of the current competitive practices in Ethiopia’s insurance sector, we visited the National Bank of Ethiopia (NBE) and interviewed Ato Tesfa Bizuayehu, the Principal Insurance Examiner. According to him, price cutting is the main strategy used by the country’s 18 insurance companies, especially in motor insurance to attract customers. There is little focus on service quality or innovation. To control this harmful price-based competition, the NBE introduced minimum (floor) premium rates, mainly for motor insurance, to prevent financial instability in the sector[14]. He also explained that service-based competition has declined. Most insurers now offer similar, standardized products, and customers often face delays in claims processing. While technology could improve services, its use across the sector is still limited[15].
Horizontal competition is also restricted by strict rules, such as a 500 million ETB capital requirement and governance standards like board oversight and qualified management. These regulations, while ensuring stability, also make it difficult for new players to enter the market. Market development is uneven, with 70–80% of insurance premiums coming from Addis Ababa. Rural areas remain largely underserved. To address this, the NBE created a Consumer Protection and Financial Inclusion Unit and aims to digitize the sector by 2026.Finally, insurance coverage is still very lowlife insurance accounts for just 7% of the market. Many people still see insurance as a luxury. To improve regulation and support long-term growth, the NBE plans to establish a dedicated Insurance Supervision Department within the next 2 to 2.5 years.[16]
Conclusion
Based on the research I reviewed and the interview I conducted, it’s clear that Ethiopia’s insurance sector still has a long way to go. Most insurance companies mainly try to compete by lowering their prices, which affects the quality of service and threatens the stability of the industry. There needs to be a shift towards other forms of competitionlike improving customer service, using new technologies, and offering a wider variety of products that actually meet people’s needs.Regulatory policies, like the National Bank of Ethiopia’s (NBE) motor insurance floor premium directive, are intended to avert ruinous pricing but are beset by weak enforcement and lack of coordination among supervisory bodies.The legal framework governing the sector, especially the Trade Competition and Consumer Protection Proclamation (TCCPP), is unclear when it comes to horizontal cooperation between insurers. This lack of clarity holds back innovation and efficiency. To fix this, the government should issue clear guidelines that outline how insurance companies can collaborate on things like technology sharing or joint research, without crossing the line into anti-competitive behavior. Building NBE capacity and bringing policy into line with international best practice will also be essential to guarantee stability, inclusiveness, and long-term development in this important economic sector.
Bibliography
Books, Theses and Reports
- Insurance Institute of India, Tariff Free Regime of General Insurance Market (Insurance Institute of India Journal, Jan–Jun 2007) https://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal-2007/tariff%20free.pdf
- Abebe Adane, ‘The Legal Framework Governing Insurance Business in Ethiopia’ (LLM thesis, Addis Ababa University 2021)
- Robert W Klein, A Regulator’s Introduction to the Insurance Industry (National Association of Insurance Commissioners 2005)
Journal Articles
- Yared Kefyalew Demarso and Bogale Anja Abba, ‘Trade Competition among Insurers in Ethiopia: A Critical Analysis’ (2020) 11 Beijing Law Review 444 https://www.scirp.org/journal/blr accessed 1 May 2025
Legislation (Ethiopian Proclamations)
- Insurance Business Proclamation No 746/2012
- Trade Competition and Consumers Protection Proclamation No 813/2013
[1] Tariff Free Regime of General Insurance Market (Insurance Institute of India Journal, Jan–Jun 2007) pdf 15–16 (interpreting IRDA’s roadmap toward de-tariffication, including the move allowing insurers to individually price general insurance premiums from 1 January 2007) https://www.insuranceinstituteofindia.com/downloads/Forms/III/Journal-2007/tariff%20free.pdf
[2] Yared Kefyalew Demarso and Bogale Anja Abba, ‘Trade Competition among Insurers in Ethiopia: A Critical Analysis’ (2020) 11 Beijing Law Review 444 https://www.scirp.org/journal/blr.
[3]Insurance Business Proclamation No 746/2012, art 2(45)
[4]Robert W Klein, A Regulator’s Introduction to the Insurance Industry (PhD, National Association of Insurance Commissioners 2005) 19.
[5] Trade Competition and Consumers Protection Proclamation No 813/2013, art 7
[6] Ibid art 7(1) (a)
[7] Yared Kefyalew Demarso and Bogale Anja Abba, ‘Trade Competition among Insurers in Ethiopia: A Critical Analysis’ (2020) 11 Beijing Law Review 444 https://www.scirp.org/journal/blr.
[8] Abebe Adane, ‘The Legal Framework Governing Insurance Business in Ethiopia’ (LLM thesis, Addis Ababa University 2021) 47.
[9] Ibid pp. 54-55
[10] Ibid p.4
[11] Trade Competition and Consumers Protection Proclamation No 813/2013, art 5-7
[12] Ibid att 7(1) (a)
[13] Ibid art 4(2)
[14] Interview with Ato Tesfa Bizuayehu, Principal Insurance Examiner, National Bank of Ethiopia (Addis Ababa, 11 August 2025).
[15] Ibid
[16] Ibid
