MEKDELA AMBA UNIVIRSITIY

MEKDELA AMBA UNIVERSITY

SCHOOL OF LAW
LAW OF BANKING, NEGOTIABLE
INSTRUMENTS AND INSURANCE

PREPARED BY; - GIZACHEW ADANE

(ID No 1403485)
Submitted to; - Instructor TESFA ABATE

Submission date November 2017 e.c

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1. What is insurance, and how is it defined under

Ethiopian law? Discuss the fundamental principles
that underpin insurance contracts.
o In Ethiopia, insurance is defined as a contract where an
insurer agrees to pay a beneficiary a sum of money if a
specified risk occurs:
 Definition
o The Ethiopian Commercial Code defines an insurance policy
as a contract between an insurer and a beneficiary. The
insurer agrees to pay the beneficiary money if a specified
risk occurs, in exchange for premiums paid by the
beneficiary.
 Purpose
 Insurance is a financial safety net that helps people recover after
something bad happens, such as a fire, theft, lawsuit, or car
accident.
 Fundamental principles
o Some fundamental principles of insurance contracts include:
 Non-disclosure: Non-disclosure, concealment, innocent
misrepresentation, and fraud may lead to the cancellation or
avoidance of the insurance contract by one of the parties.
 Beneficiary: If the beneficiary intentionally kills the insurer and is
convicted, the beneficiary loses their benefit.
o The insurance sector in Ethiopia plays an important role in
economic development by providing insurance coverage
against risks and as an alternative means for savings. It
defines insurance as a risk transfer mechanism established
by a contract between an insurer and insured. Key points
covered include: - The main principles of insurance contracts

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including insurable interest, utmost good faith, proximate

cause, indemnity, subrogation and contribution.
2. Identify and describe the different types of
insurance available in Ethiopia (e.g., life insurance,
property insurance, health insurance). What are the
key characteristics of each type?

o Ethiopia offers several types of insurance, including life

insurance, property insurance, health insurance and so on:
o life insurance
 Life insurance
 is a contract between an insurance company and a policy
owner in which the insurer guarantees to pay a sum of
money to one or more named beneficiaries when the
insured person dies.
 life insurance Provides financial security for loved ones after the
insured's death. The insured pays premiums while alive, and the
beneficiaries receive a payment after the insured dies. The
Ethiopian Insurance Corporation offers life insurance products
that cover death, disability, and critical illness.
 characteristics of life insurance:
 Contract
 A life insurance policy is a contract between the policyholder and
the insurer.
 Premium
 The policyholder pays a premium to the insurer, either as a lump
sum or regularly.
 Death benefit
 The insurer pays the beneficiary a sum of money upon the death
of the insured.

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 Other events
 Depending on the policy, the insurer may also pay out in the
event of terminal illness or critical illness.
 Other expenses
 The policy may cover other expenses, such as funeral costs.
 Health insurance
 The Ethiopian Health Insurance Agency was established as an
autonomous federal government organ through Regulation No.
191/2010 with the objective of implementing health insurance
system in the country. The Agency has established 24 branch
offices to implement the health insurance system all over the
country.
 The Agency is working on implementation of two types of health
insurance systems in the country. The first type of health
insurance system is Community Based Health Insurance (CBHI),
which comprises the community engaged in the informal sectors
of the economy.
 The second type of health insurance system is Social Health
Insurance (SHI), which comprises the population engaged in the
formal sectors of the economy. SHI has been widely implemented
in many European, Asian and African countries for years, and now
preparatory activities are being finalized to commence
implementation of SHI in Ethiopia too.
What is Health Insurance?
 Health insurance is a system where individuals or households pay
small contributions or prepayments to get health services at the
time of illness and to protect them from catastrophic health
expenditures. In other words, health insurance is a prepayment
system where small contributions are pooled together to insure
citizens’ access to health services by avoiding financial barrier.
 Charactestics of health insurance:
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o When choosing health insurance, you can consider things

like:
 Coverage: The range of medical expenses covered, such as
hospital stays, surgeries, diagnostic tests, doctor's fees, and pre-
and post-hospitalization care
 Waiting periods: Some plans have waiting periods before pre-
existing conditions are covered. Waiting periods help insurers
reduce fraud and ensure they have enough money to pay
legitimate claims.
 Network hospitals: The list of hospitals that are associated with
the insurance plan.
 Daycare procedures: Some plans cover daycare treatments, which
can help with expensive medical procedures that don't require a
long hospital stay.
 Prescription drugs: The Affordable Care Act requires health
insurance plans to cover at least one drug in every class and
category in the U.S. Pharmacopeia.
 Maternity coverage: This can be an important feature for families
planning to have children.
 Premiums: Compare the premiums across different policies to
assess the value they offer.
 Sub-limits and co-payment: Carefully review these clauses in the
health plan.
 property insurance
 Property insurance protects you and your belongings, such as
your home or car, from damage or theft. It can help cover the
costs of repairs or replacements.
 Property insurance is often bundled with casualty insurance,
which provides liability coverage. This means that if you're legally
responsible for an accident that injures someone or damages
their property, your policy can help protect you.

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 Some examples of property and casualty insurance policies

include:
 Homeowners insurance, Car insurance, Condo insurance, Renters
insurance, Power sports insurance, and Landlord insurance.
 Property insurance is a type of insurance that provides financial
protection for physical assets, such as homes, businesses, and
personal belongings, against various risks. These risks can include
damage from natural disasters like fires, floods, or earthquakes,
as well as theft, vandalism, or accidents.
 Property insurance has several characteristics, including:
 Protects personal property
 Property insurance protects your personal belongings from
damage or loss.
 Covers different types of losses
o Property insurance covers losses caused by theft, fire,
natural disasters, and other perils.
 Covers additional living expenses
 Property insurance may cover additional living
expenses if you need to move out while your home is
being repaired.
 Premiums are affected by property characteristics
 the age, condition, and materials used to build a property can
affect your insurance premiums. For example, older properties
and those built with wo od may have higher premiums.
 Coverage
 Property insurance policies can cover different types of property,
such as homes, commercial properties, and personal possessions.
 Protection
 Property insurance can protect against a variety of risks, including
theft, vandalism, natural disasters, and unexpected damage.
 Replacement cost
 Property insurance premiums are based on the estimated cost to
replace or repair a property to its original condition.
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 Market value
 The market value of a property is a key factor in determining
insurance premiums.
 Policy riders
 Policy providers may offer riders to increase coverage for specific
events or properties. These riders come at an additional
premium.

3. What are the primary laws and regulations governing

insurance in Ethiopia? Discuss the role of the Insurance
Business Proclamation and any relevant regulations.
 The primary laws and regulations governing insurance in Ethiopia
include:
 Proclamation No. 86/1994: Sets out the terms and conditions for
insurance businesses
 National Bank of Ethiopia (NBE): The supervisory authority that
issues directives to ensure the safe and sound operation of
insurance companies
 SIB/48/2019: A directive on insurance corporate governance
 Here are some other things to know about insurance in Ethiopia:
 To operate an insurance business, a person must obtain a license
for the class or classes of insurance they want to do.
 The application for a license must include a memorandum, articles
of association, insurance policy forms, and other details as
prescribed by the NBE.
o Motor third-party liability insurance and professional
indemnity insurance for insurance intermediaries are
mandatory classes of insurance.
 The Ethiopian Health Insurance Agency was established to
implement a health insurance system in the country.
 State legislatures: Establish broad policy for insurance regulation
through legislation that grants regulatory authority to regulators.

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 State insurance departments: Oversee insurance companies

licensed to operate in their state. They monitor financial health
through annual financial statements and onsite examinations.
 Insurance solvency regulation: Limits risk taking and leverage
with policyholders' premiums.
 Rate regulation systems: Ensure rates are adequate, not
excessive, and not unfairly discriminatory.
 Policy wordings and disclosures: Contractual documentation that
outlines the terms, conditions, and intricacies of insurance
coverage.
Other organizations that play a role in insurance
regulation include:
 International Association of Insurance Supervisors (IAIS): Develops
standards for insurance, publishes guidance papers, and provides
training and support.
 The Insurance Business Proclamation and relevant regulations in
Ethiopia, such as the Licensing and Supervision of Insurance
Business Proclamation No. 86/1994, govern the insurance industry
and ensure the safe and sound operation of insurance companies:
 Licensing
 The National Bank of Ethiopia (NBE) issues licenses to act as an
insurance agent, broker, assessor, surveyor, or actuary. Applicants
must pay a fee and submit an application.
 Directives
 The NBE issues directives to ensure the safe and sound operation
of insurance companies. For example, the NBE requires insurers to
submit quarterly reports to the bank.
 Prohibited actions
 Insurers are prohibited from appointing unlicensed or expired
actuary or insurance agents, or paying brokerage to unlicensed or
expired persons.

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 General requirements
 Insurers cannot carry out transactions that are contrary to their
policies, the NBE's regulatory requirements, or other applicable
laws.
 Microinsurance
 The NBE issues directives to promote the development of
microinsurance, including licensing, license renewal, and product
approval.
 The insurance sector plays an important role in Ethiopia's financial
sector and economy. The NBE regulates the insurance industry
and is responsible for ensuring the safe and sound operation of
insurance companies.
 The Insurance Business Proclamation 746/2012 in Ethiopia
regulates the insurance industry by:
Licensing
 Only licensed parties can act as insurance auxiliaries, agents,
brokers, assessors, surveyors, or actuaries. The National Bank of
Ethiopia (NBE) grants licenses after receiving an application and a
set fee.
Prohibiting unlicensed parties
 Insurers cannot appoint unlicensed or expired insurance agents,
actuaries, or assessors. Insurers also cannot pay brokerage to
unlicensed or expired parties.
 The Insurance Business Proclamation No. 86/1994 in Ethiopia
governs the terms and conditions for conducting insurance
business in the country:
 Authorizes the National Bank of Ethiopia (NBE)
 The NBE is the supervisory authority and is empowered to issue
directives to ensure the safe and sound operation of insurance
companies.
Sets conditions for insurers

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 The proclamation outlines conditions that must be met to operate

in the insurance industry, including:
 The business must be a company with a separate legal personality
from its owners.
 The minimum share capital requirement is much higher than the
commercial code of Ethiopia's minimum.
 The capital requirement varies depending on the type of
insurance being carried out.
 Sets directives for the NBE
 The NBE must respond to applicants within 30 calendar days, and
applicants must pay a fee of 300 Birr.
 Sets reporting requirements
 Insurers must submit quarterly reports to the NBE.
 The insurance sector in Ethiopia is an important part of the
country's financial sector and economy. It plays a key role in
helping Ethiopia achieve its macroeconomic stability and growth
objectives.
4. Explain the process of forming an insurance contract in
Ethiopia. What essential elements must be present for a
valid contract?
 The process of forming an insurance contract in Ethiopia includes
the following steps:
 Offer and acceptance
 The offer is usually made on a written application for insurance,
and the acceptance is made by the insurer. The effective date of
the policy is the date the insurer accepts the offer.
 Meeting of minds
 The offer and acceptance must meet the requirement of meeting
of minds.
Capacity to contract

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 The individual obtaining insurance must be legally competent and

of a minimum age.
 Payment or consideration
 The payment or consideration is made up of the premiums and
the promise to adhere to all conditions stated in the contract.
 To form an insurance contract in Ethiopia, the following elements
must be present:
Agreement
 The contract is formed by an agreement between the insurer and
the insured.
Legal requirements
 The contract must meet legal requirements, such as having a legal
purpose, competent parties, and evidence of a meeting of minds.
Written
 The contract must be in writing.
 Insurable interest
 The insured must have an actual financial interest in the subject
matter of the contract.
 The policy's effective date is the day the insurer accepts the
applicant's offer.
 The Ethiopian Commercial Code states that an insurance contract
is a compensation contract, and the compensation cannot exceed
the value of the insured object on the day of the occurrence.
 For an insurance contract to be valid in Ethiopia, it must meet the
following essential elements:
Offer and acceptance: One party must make an offer to the other,
who must then accept the offer.
Consideration: The insured agrees to pay premiums, and the insurer
agrees to provide a certain level of coverage.
Competent parties: Both parties must be of sound mind and body and
have the legal capacity to contract.

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Legal purpose: The contract must comply with the laws of the country.
 Other elements that may be important to an insurance contract
include:
Free consent: Both parties must voluntarily agree to the contract.
Insurable interest: The insured must receive some financial benefit from
the insured person or item.
Utmost good faith: Both parties must act honestly and without making
false statements.
5. Define insurable interest and explain its significance in
insurance contracts under Ethiopian law. How does it
affect the validity of an insurance policy?
 Insurable interest is a legal principle that states that the insured
must have a financial stake in the subject matter of their insurance
contract. This means that the insured must stand to lose money if
the subject matter of the insurance is damaged, destroyed, stolen,
or lost.
 In Ethiopian law, insurable interest is significant because an
insurance contract without insurable interest is considered a
wagering agreement and is void and unenforceable.
 Insurable interest can apply to a variety of subjects, including:
Property: If you own a car, television, or computer, you have an
insurable interest in it because you would lose money if it were
damaged or stolen.
 Life: In life insurance, the policyholder must have a legitimate
financial interest in the life of the insured. This means that the
policyholder would suffer a financial loss if the insured person
died.
Legal liability: The insured may have an insurable interest in legal
liability.
 In Ethiopian law, insurable interest is the financial or other stake
that a person has in the subject matter of an insurance contract. It

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is a fundamental principle of insurance that requires the insured

to have a legal relationship with the subject matter of the
insurance.
 Insurable interest is significant in insurance contracts because it:
 Distinguishes insurance from wagering
 Insurable interest is a characteristic that distinguishes insurance
contracts from wagering contracts.
 Reduces moral hazard
 Insurable interest reduces the moral hazard of the insured taking
advantage of the insurance. For example, if the insured could
profit from a loss, they might deliberately cause losses to collect
the insurance.
 Prevents agreements without insurable interest
 An agreement without insurable interest is invalid because the
insured might be tempted to cause the destruction of the insured
property or the death of the insured person.
 The insured has the burden of proving that an insurable interest
exists. Some examples of insurable interest include: Ownership or
other rights in property, Contract rights, Potential legal liability to
others, and A financial interest in the life of another.
 Insurable interest is a legal doctrine in Ethiopian insurance law
that requires a person to have a relationship with the subject of
the insurance contract. It is significant in Ethiopian law because it
prevents gambling and moral hazard, and it measures the amount
of the insured's loss:
 Prevents gambling
 Without insurable interest, an insurance contract would be a
gambling contract, which is against the public interest. For
example, someone could insure another person's property and
hope for it to be lost early.
 Reduces moral hazard

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 Without insurable interest, a dishonest person could cause a loss

to receive insurance claims. However, if the insured person would
stand to lose financially, there is no benefit to causing the loss.
 Measures the amount of the insured's loss
 In property insurance, the amount of recovery is based on the
insured's insurable interest.
 The insured has the burden of proving that an insurable interest
exists. An agreement without insurable interest is invalid.
 Insurable interest is a fundamental principle in insurance that is
significant in Ethiopia because it:
Prevents speculative contracts
 Insurable interest prevents insurance contracts from becoming
speculative gambles by ensuring that the policyholder has a
financial stake in the insured event. Without insurable interest,
the policyholder would not incur a direct financial loss if the
insured event occurred.
 Protects insurers
 Insurable interest helps protect insurers' financial stability by
setting boundaries for their operations.
 Aligns interests
 Insurable interest aligns the interests of the insured and the
insurer in preserving the insured subject matter.
 Supports fair dealings
 Insurable interest supports fair dealings between the parties after
the contract is made.
 Helps minimize moral hazard
 Insurable interest helps minimize moral hazard, which is when
someone is incentivized to cause loss or damage in order to
collect on the insurance.
 In Ethiopia, a person has an insurable interest in property if they
would suffer a direct financial loss if the property were damaged
or destroyed. They may also have an insurable interest in the life

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of another person if they have a relationship that would result in

an economic benefit if that person continued to live.
 Several factors can affect the validity of an insurance policy in
Ethiopia, including:
Financial performance
 Factors like credit risk, liquidity ratio, company size, and inflation
rate can affect the financial performance of insurance companies
in Ethiopia.
 Internal factors
 Factors like the age of the company, leverage, size of the company,
growth rate, volume of capital, and liquidity growth rate can affect
the profitability of insurance companies in Ethiopia.
 Managerial efficiency
 Managerial efficiency can impact the profitability of insurance
companies in Ethiopia.
 Loss ratio
 Loss ratio can impact the profitability of insurance companies in
Ethiopia.
 Premium growth
 Premium growth can impact the profitability of insurance
companies in Ethiopia.
 The Ethiopian insurance industry is regulated by the NBE. Some
classes of insurance, like motor third-party liability insurance and
professional indemnity insurance, are mandatory.
 Profitability
 Factors that affect the profitability of insurance companies in
Ethiopia include the age of the company, its size, the growth rate
of premiums, the leverage ratio, the liquidity ratio, and the
tangibility of assets.
 Challenges
 Some challenges the insurance industry in Ethiopia faces include a
lack of qualified insurance professionals, retaining customers,

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price wars between companies, and an increasing number of

motor vehicle accidents.
 Community-based health insurance
 Factors that affect the utilization of community-based health
insurance in Ethiopia include supply side, health facility,
demographic, and socioeconomic factors. Medical-related factors,
such as having a chronic non-communicable disease, can also
affect enrollment in community-based health insurance.
6. What are the key duties and obligations of the insured
and the insurer in an insurance contract? Discuss how
these duties are enforced under Ethiopian law?
 The key duties and obligations of the insured and insurer in an
insurance contract are:
Good faith
 Both the insured and the insurer must act in good faith. This
includes the insured presenting claims in good faith and the
insurer responding to and investigating claims in good faith.
 Duty to defend and indemnify
 The insurer has a duty to defend and indemnify the insured.
 Duty to notify
 The insured has a duty to notify the insurer of any factors that
increase the risk.
 Claim settlement
 The insurer has a duty to investigate claims and settle those that
should be settled.
 Communication
 The insured should ensure that their communication details are
correct and inform the insurer of any changes.
 Policy conditions
 The insurer's obligation to pay a claim is conditional on the
insured or beneficiary complying with all policy conditions.

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 The main obligations of the insured and the insurer in an

insurance contract are:
 Insured
 Pay the premium on time, notify the insurer of claims within the
time limit, and notify the insurer of any changes to the risk. The
insured also has a duty to act in good faith when presenting a
claim.
 Insurer
 Compensate the policyholder for financial damage, pay the agreed
amount for life assurance and accident insurance, and act in good
faith when investigating and responding to claims. The insurer also
has a duty to defend and indemnify the policyholder.
 Insurance contracts are conditional, meaning the insurer's
obligation to pay a claim depends on whether the insured or
beneficiary meets all policy conditions.
 The insured may be entitled to a premium reduction if the risk
materially decreases. The insurer may refuse payment if the loss
was caused by the insured aggravating the risk, but is usually
required to pay a proportion of the claim.
 In Ethiopia, the duties and obligations of the insured and insurer
are enforced in insurance contracts through the Ethiopian
Commercial Code, the Civil Code, and the National Bank of
Ethiopia's (NBE) regulatory powers:
The Ethiopian Commercial Code
 Defines life insurance and provides general provisions that apply
to all types of insurance. For example, the code states that if the
insured object is worth more than the insurance amount at the
time of the incident, the insured is responsible for the difference
in value.
The Civil Code

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 States that parties can agree to any contract, but the contract
cannot violate mandatory laws. For example, the law distinguishes
between intentional and unintentional misrepresentation, and the
consequences for each are different.
The National Bank of Ethiopia
 Regulates insurance companies through licensing, supervision,
and monitoring. The NBE also protects the interests of
policyholders.
 The principle of indemnity
 States that the insurer will pay no more than the actual amount of
the loss. This means that the insured should not profit from the
loss.
7. Describe the process for making a claim under an
insurance policy in Ethiopia. What are the typical steps
involved, and what documentation is usually required?
 The process for making an insurance claim in Ethiopia generally
involves:
 Reporting the event: Contact your insurer as soon as possible to
report the event that is covered by your policy.
 Filling out a claim form: Request a claim form from your insurer
and fill it out.
 Providing supporting documents: Gather and submit any relevant
documents to support your claim.
 Waiting for a decision: Your insurer will review your claim and
either approve or reject it. If approved, they will pay you the
benefits outlined in your policy.
 The process for making an insurance claim typically involves the
following steps:
 Contact your insurer: As soon as you discover a problem, contact
your insurer or broker to let them know you need to make a claim.
They may have a free emergency helpline.

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 Fill out a claim form: Request a claim form from your insurer and
fill it out carefully. Keep a copy for yourself.
 Attach relevant documents: Include evidence of the covered loss
with your claim form.
 Wait for a surveyor: The insurance company will appoint a
surveyor to assess the damage.
 Review your policy: The insurer will review your policy to
determine if it covers the claim and to evaluate your
compensation.
 Receive payment: If the claim is legitimate, the insurance
company will issue payment to you or an authorized party.
Depending on your policy, you may need to pay a deductible
before coverage begins
 The documents required to make an insurance claim in Ethiopia
depend on the type of insurance policy:
 Life insurance
 A claim intimation, original policy document, death certificate,
claimant's statement, police FIR, post mortem exam report, and
certificate and records from the treating doctor or hospital. The
nominee will also need to provide their bank account details.
 Health insurance
 The policyholder's death certificate.
 Fire insurance
 A fire department report and a police report if the fire was caused
by arson or other criminal activity.
 Car insurance
 A copy of the car insurance policy document, theft declaration
from the RTO, police FIR copy, letter of subrogation, tax payment
receipts, and original car registration book.
 The first step in the insurance claim process is to contact the
insurer to inform them of the claim. It's important to submit all
the required documents as soon as possible to speed up the
process.
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8. Discuss the role of the National Bank of Ethiopia and

the Insurance Supervision Directorate in regulating the
insurance industry. What are their main functions?
 The National Bank of Ethiopia (NBE) and the Insurance Supervision
Directorate regulate the insurance industry in Ethiopia by
licensing, supervising, and investigating insurers:
National Bank of Ethiopia
 The NBE is responsible for licensing, supervising, and regulating
the insurance industry. The NBE can also investigate the affairs of
any insurer at any time. Insurers must submit quarterly reports to
the NBE's Supervision Department.
Insurance Supervision Directorate
 The Insurance Supervision Directorate evaluates insurance
legislation, supervisory systems, and procedures. They apply these
principles to the supervision of insurers and reinsurers.
 The National Bank of Ethiopia (NBE) has many roles and
responsibilities, including:
 Monetary policy: The NBE manages the country's monetary policy
and regulates the cost of money and credit.
 Banking supervision: The NBE licenses, supervises, and regulates
banks, insurance companies, and other financial institutions.
 Exchange rate management: The NBE manages the country's
exchange rate and foreign exchange reserves.
 Economic research: The NBE conducts economic research to help
improve policymaking.
 Government banker: The NBE acts as a banker for the government
and provides loans to the government and banks.
 Bank notes and coins: The NBE provides bank notes and coins.
 Foreign currency transactions: The NBE developed Famous, a web-
based platform that monitors and manages foreign currency
transactions.
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 The NBE was established in 1963 and began operations in 1964.

 The Insurance Supervision Directorate (ISD) of the National Bank
of Ethiopia (NBE) regulates the insurance industry in Ethiopia:
Licensing and supervision
 The ISD licenses and supervises insurance businesses to ensure
the safety and soundness of the sector.
 Risk-based supervision
 The ISD has moved from compliance-based supervision to risk-
based supervision (RBS).
 Quarterly reporting
 Insurance companies must submit quarterly reports to the ISD on
their handling of IT incidents.
 The ISD is currently being considered for transformation into an
independent insurance regulatory body, separate from the central
bank. The NBE board will make the final decision on this after a
committee studies the viability of the proposal.
 The National Bank of Ethiopia's (NBE) main function is to ensure
the safety and soundness of Ethiopia's financial system and
maintain price stability. The NBE's other responsibilities include:
 Monetary policy: Administering the country's monetary policy
 Bank notes and coins: Providing bank notes and coins
 Government banker: Acting as a banker for the government
 Financial institutions: Supervising financial institutions, including
banks, insurance companies, and other financial institutions
 Exchange rate: Managing the exchange rate and foreign exchange
reserves
 Economic research: Undertaking economic research
 Regulating money and credit: Regulating the supply, availability,
and cost of money and credit
 Licensing and supervising banks: Licensing and supervising banks
 Holding commercial banks reserves: Holding commercial banks
reserves and lending money to them

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 The IRFF will also support the National Bank of Ethiopia in setting
up an Insurance Supervision Directorate that will act as an
independent regulatory body, overseeing the insurance industry,
outside of the Central Bank per the new regulations.
 The Insurance Supervision Directorate of the National Bank of
Ethiopia (NBE) regulates the insurance industry in Ethiopia. The
Directorate's functions include:
 Assessing insurance companies
 The NBE ensures that insurance companies are managed and
directed in a sound and prudent manner.
 Issuing licenses
 The NBE issues licenses to act as an insurance agent, broker,
assessor, surveyor, or actuary.
 Regulating IT incidents
 Insurance companies must report their handling of IT incidents to
the Directorate on a quarterly basis.
 Enforcing compliance
 The NBE enforces compliance with the Insurance Business
Proclamation and other relevant directives.
 Supervising risk-based insurance
 The NBE is moving from compliance-based supervision to risk-
based supervision (RBS).
 The NBE also regulates other aspects of the insurance industry,
such as requiring motor third-party liability insurance and
professional indemnity insurance for insurance intermediaries.
9. Analyze the consumer protection measures in place for
policyholders in Ethiopia. How does Ethiopian law
safeguard the rights of insurance consumers?
 Ethiopia has a number of laws and regulations that protect
consumers, including the Trade Competition and Consumer
Protection Proclamation No. 813/2013 and the Financial
Consumer Protection Directive No. FCP/01/2020:

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 Trade Competition and Consumer Protection Proclamation No.

813/2013
 This law aims to protect consumers from harmful goods and
services, misleading market practices, and ensure that consumers
receive goods and services that are commensurate with the price
they pay.
 Financial Consumer Protection Directive No. FCP/01/2020
 This directive promotes trust and confidence in financial
consumers, which can lead to healthy financial transactions,
financial inclusion, and growth.
National Financial Inclusion Strategy
 This strategy includes financial consumer protection as a
component, recognizing its importance for promoting responsible
financial inclusion.
 The National Bank of Ethiopia (NBE) has made efforts to address
consumer protection issues, including handling consumer
complaints related to insurance.

Ethiopia has consumer protection laws in place to protect

consumers from unfair business practices and to ensure they
have certain rights:
 Consumer rights
 Consumers have the right to be treated with respect, to receive
accurate information about goods and services, and to be able to
purchase goods and services freely. They also have the right to
claim compensation if they are damaged by a product or service.
 Seller duties
 Sellers have a number of duties, including providing accurate
information about their goods and services, displaying prices, and
issuing receipts.
 Consumer protection authority

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 The Trade Practice and Consumers Protection Authority is

responsible for enforcing consumer protection laws.
 Regional adjudication
 Regional states can establish organs to adjudicate on consumer
rights protection matters.
 Reporting defects
 Consumers can report defects in goods and services to the
relevant bureau or ministry.
 Remedies
 Consumers have the right to a refund or free redelivery of
defective services. They can also claim compensation for any
damages caused by defective goods or services.
 Ethiopia's consumer protection laws were enacted in 2010 and
2014, in addition to the Civil Code of Ethiopia, which had been in
place since 1960.

 Ethiopian law protects the rights of insurance consumers and

policyholders in a number of ways, including:
 Insurance policy terms
 The National Bank of Ethiopia (NBE) ensures that insurance policy
terms protect policyholders' rights under Ethiopian law.
 Trade Competition and Consumer Protection Proclamation
 This 2013 law protects consumers from harmful goods and
services, misleading market practices, and ensures that consumers
receive goods and services that are worth the price they pay.
 Institutional framework
 The Trade Practice and Consumer Protection Authority adjudicates
cases of law violations, while the Ministry of Trade investigates
violations and brings cases to the Authority.
 Regional Consumer Protection Organs and Regional Trade Bureaus
 These bodies at the regional level have roles similar to the
Authority and the Ministry, respectively.
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 Federal and regional courts

 These courts are also involved in enforcing the law.
 Other consumer protection laws in Ethiopia include the 1960 Civil
Code.

 Ethiopia's consumer protection laws and institutions help

safeguard the rights of insurance consumers in several ways,
including:
 Insurance policy terms
 The National Bank of Ethiopia (NBE) ensures that insurance policy
terms protect policyholders' rights.
 Consumer protection laws
 Ethiopia has laws that specifically address consumer protection,
including the Trade Competition and Consumer Protection
Proclamation No. 813/2013.
 Trade Practice and Consumer Protection Authority
 This authority adjudicates cases of law violations, and the Ministry
of Trade investigates violations and brings cases to the authority.
 Regional Consumer Protection Organs and Regional Trade Bureaus
 These bodies have roles similar to the Trade Practice and
Consumer Protection Authority and the Ministry of Trade,
respectively, at the regional level.
 Regulatory bodies
 The Organs for National Quality Infrastructure and the Food,
Medicine and Health Care Administration and Control Authority
are regulatory bodies that directly affect consumer protection.
 Penalties
 The consumer protection proclamation imposes administrative
and criminal penalties, including fines and imprisonment, for
violating its provisions.

 Ethiopia's consumer protection laws and regulations protect the

rights of insurance consumers in several ways, including:
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 Trade Practice and Consumer Protection Law

 This 2010 law protects consumers in the marketplace for goods
and services.
 Trade Competition and Consumer Protection Proclamation
 This 2014 proclamation prohibits unfair trade practices, anti-
competitive agreements, and abuse of market dominance.
 National Bank of Ethiopia (NBE)
 The NBE ensures that insurance policies protect the rights of
policyholders. The NBE can require a bank to certify that an
insurance business's rates, terms, and conditions are sound before
granting a license.

10. Identify and discuss some of the key challenges facing

the insurance industry in Ethiopia today. What reforms or
improvements could be made to address these
challenges?
 The insurance industry in Ethiopia faces several key challenges that
hinder its growth and effectiveness. Here’s an overview of these challenges
along with potential reforms and improvements that could be implemented
to address them:
 Key Challenges

 Low Insurance Penetration:

• Discussion: Ethiopia has one of the lowest insurance penetration
rates in Africa. Many individuals and businesses do not see the value
of insurance or are unaware of available products.
• Reform: Implementing extensive public awareness campaigns about
the benefits of insurance can help educate consumers and encourage
uptake.
 Limited Product Diversity:

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• Discussion: The range of insurance products available is often limited,

which does not meet the diverse needs of consumers, particularly in
agriculture, health, and microinsurance.
• Reform: Encouraging insurers to develop innovative products tailored
to the local market, including microinsurance for low-income
populations, can enhance accessibility.
 Regulatory Challenges:
• Discussion: The regulatory framework can be cumbersome, with
bureaucratic processes that slow down the licensing of new products
and companies.
• Reform: Streamlining regulatory processes and adopting a more
flexible approach to product approval can stimulate innovation within
the industry.
 Underdeveloped Infrastructure:
• Discussion: The lack of adequate technological infrastructure limits
insurers' ability to efficiently process claims and manage policies.
• Reform: Investing in technology, such as digital platforms for policy
management and claims processing, can improve operational
efficiency and customer service.
 Insufficient Risk Assessment and Pricing Models:
• Discussion: Many insurers struggle with accurately assessing risks,
leading to either underpricing or overpricing of premiums.
• Reform: Developing better data collection and analysis methods can
enhance risk assessment capabilities. Training actuaries and
underwriters in advanced pricing techniques is also essential.
 Limited Access to Reinsurance:
• Discussion: Domestic insurers often face challenges in accessing
reinsurance, which is critical for managing large risks.
• Reform: Establishing partnerships with international reinsurers or
creating a domestic reinsurance pool can enhance capacity and
stability for local insurers.
 Lack of Skilled Professionals:

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• Discussion: There is a shortage of qualified professionals in the

insurance sector, including underwriters, actuaries, and claims
adjusters.
• Reform: Promoting education and training programs in actuarial
science and insurance management at universities can help build a
skilled workforce.
 Consumer Trust Issues:
• Discussion: Many consumers harbor distrust towards insurance
companies due to past experiences of claim denials or lack of
transparency.
• Reform: Enhancing transparency in operations and improving
customer service can help rebuild trust. Establishing independent
consumer advocacy groups may also assist in addressing grievances.
 Economic Factors:
• Discussion: Economic instability, inflation, and currency fluctuations
can impact both consumers' ability to purchase insurance and
insurers' financial stability.
• Reform: Developing insurance products that are resilient to economic
fluctuations (e.g., inflation-indexed policies) can help maintain
affordability for consumers.
 Natural Disasters and Climate Change:
• Discussion: Ethiopia is prone to natural disasters such as droughts
and floods, which pose significant risks to both insurers and insured
parties.
• Reform: Implementing parametric insurance solutions that provide
quick payouts based on predefined indicators (like rainfall levels) can
offer more effective coverage against natural disasters.

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Reference
1. Insurance business regulation No 410/2017
2.Law of banking, Negotiable instruments And Insurance module
prepared by
1. FASIL ALEMAYEHU
2. MERHATBEB TEKLEMEDHIN
3. Insurance business proclamation No 746/2012
4. Banking business proclamation No 592/2008
5. Banking proclamation No 1159/2019
6. Insurance business proclamation No 86/1994
7. National bank of Ethiopia directives No 90/2021
8. Commercial code of the empire of Ethiopia 1960
9. Trade competition and consumer protection proclamation No 813
/2013
10. The Ethiopian 1960 civil code

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THE END

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