Lucy Insurance, one of the late entrants in the insurance industry, is to begin providing life insurance policies in six months’ time.
The Firm’s Board of Directors, which is chaired by Mesfin Tefera, deputy chief executive officer (CEO) of the Ethiopian Shipping Lines & Logistics Enterprise, has already approved the budget proposal of the management to start the service in January 2018.
Lucy has already surpassed the 75 million Br minimum paid up capital requirement needed to provide life and general insurance policies. Currently, it has a paid up capital of 100 million Br and an authorised capital of 200 million Br invested by more than 508 shareholders.
The five-year-old insurer began an effort to introduce the new policy after a repetitive request from its customers, according to Paulos Tadesse, executive officer of strategic development & marketing at Lucy.
Also, the new policy is also expected to raise the market share of the Company, which currently stands at 1.5pc, according to the management of the firm.
“Raising the market share of the Company is one of the major goals of introducing the new policy,” said Mesfin.
As a first move to start the service, Lucy has started a negotiation to hire actuaries to undertake a feasibility study for the project in a two-month period at a cost of half a million Birr.
“We are currently setting up a separate project office and a new team for the life insurance business,” said Paulos. “Then, we will set up a branch office after we get an approval from the National Bank of Ethiopia (NBE).”
Upon getting the green light from the Central Bank, Lucy will be the tenth insurer to launch a long term insurance policy in the country. The insurance company is planning to apply to get permission from NBE after four months.
The nine insurance firms that already launched life insurance collected 366.4 million premiums last year, of these almost one-third of the premium is written by the state giant Ethiopian Insurance Corporation (EIC), which is the pioneer to provide life insurance policy in Ethiopia.
The advancement of life insurance in Ethiopia is significantly low. It accounts for only five percent of the total premium portfolio in the country. This is in contrast with the trend observed in the global insurance industry where it accounts for more than half of the aggregate premium.
“This indicates more life insurers are needed in the country,” said Paulos. “The market is untapped and yet to be developed.”
However, Abdulmenan Mohammed, an expert in the financial industry, believes that the domination of veteran insurers in the market will be troublesome for Lucy.
“As the life insurance business is dominated by big private insurance firms, it will be hard for Lucy to penetrate the market,” he said. “There might be some possibility to compete by lowering premiums. So, the trouble is that the risk of plunging into loss in this area is high.”
Nevertheless, Lucy has a plan to leverage written premiums of one million Birr from the life insurance policy within a year. It is also targeted to raise its customer base by 41pc from 9,887 during the same period.
Established by 39 business professionals, Lucy netted a profit of around 13 million Br and underwriting surplus of 17 million Br in 2015/16, 14pc up compared with the previous fiscal year.
Despite the challenges, Abdulmenan thinks the growth in population and economy will help Lucy to earn a big chunk of money from the business in the long term.
“The emergence of a middle class with a better education level indicates that there is a potential for this line of business to expand,” he said. “What insurers need to do is earmark adequate resources to promote life insurance.”
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