A2ii Newsflash| National Bank of Ethiopia issues a Directive on Licensing and Supervision of Microinsurance Business
On 17 August 2020, the National Bank of Ethiopia’s (NBE) Directive on Licensing, License Renewal and Product Approval for Microinsurance Providers No. SMIB/3/2020 came into force. The Directive is aimed at encouraging microinsurance business in the country, or in other words, improving access to insurance for the low-income and vulnerable segments of the population.
In light of issuing the Directive, Belay Tulu, Director of the Insurance Supervision Directorate of the NBE stated: ‘The main purpose of issuing this Directive is to make insurance services accessible to the low-income people (the poor) to avail them with an alternative risk coping mechanism that may help to break the poverty cycle. As a regulator, among others, we are working on the required regulatory infrastructure, a proportionate one. Microinsurance prudential and microinsurance agents’ directives are in the pipeline.’
In Ethiopia, microinsurance is seen as an important strategy to provide risk protection for vulnerable and low-income people. In fact, as stated in the Directive, ‘the microinsurance market has grown considerably over the recent period and thus in order to further promote its development in a sound and prudent manner, specific regulations are required to creating enabling conditions for licensing, license renewal and product approval.’
Though it has mainly been practiced by three insurance companies for years, microinsurance [in Ethiopia] did not have a legal framework until 2019, when the insurance law was amended. The amendments gave legal grounds for this Directive.
The requirements to conduct microinsurance business, as set out in the Directive, includes:
- Microinsurance providers may offer all microinsurance products. However, weather index insurance will always be subject to prior reinsurance treaty arrangements.
- Mainstream companies are not required to have a separate license for microinsurance products.
- In order to deal with microinsurance products, licensed insurance companies shall
- Have renewed insurance business license
- Achieve composite risk assessment rating of at least 3 (CRA-3) in the recent on-site examination
- Seek microinsurance product approval from the National Bank, prior to the commencement of operation, and
- Establish a separate unit that exclusively runs and manages the microinsurance operations
- Applicants for microinsurance company license will require capital of 7 million Birr (around $ 195 thousands) for life and 3 million Birr (around $ 83 thousands) for general microinsurance products. To run both types of products, a capital of 10 million Birr (around $ 277 thousands) is provisioned by the Directive.
The Directive with the complete list of requirements can be found here.