Insurance: Right or Privilege?

From historical insurance archives, one learns that mankind has always faced both man made and act-of-God risks on human life and property. In the old days, many faced severe weather conditions, sea perils and placed their fate in the hands of the ancient gods. The exchange of goods, with outstanding risk management and entrepreneurial skill, was extraordinary.

This wonderful history left its mark on the development of modern insurance theories, principles, philosophies and risk management and entrepreneurial bill of fare.

The world during Galileo had an edge until he disproved ‘entrepreneurial myopia‘. In the same way, the Magellan, who once faced sea perils, insuring his life (self-insuring) with insurers of the 21st century would generate huge premiums. Today, we find ourselves in a unique and very turbulent situation, and for insurers everywhere both AOG and insurable risks are becoming similar in terms of magnitude of impact and complexity.

We do not have enough capital for the ‘none enough business appetite‘ on one hand and the blessed gold, which attracts us more than any time, on the other. Whereby, we find dynamism and complexity in the process of the rules of the game.

We may, therefore, find ourselves in a state of bewilderment and immersed in a dilemma in trying to insure the ever increasing risks. Even common risks, whose costs are spread across a broad spectrum, are hard to be placed at a lower premium.

For instance, during the United States presidential debate, “Obama care” was a key debate issue among the candidates. Trump claimed that Obama’s policy had high deductibles and expensive premiums while Democrats viewed it as a social benefit to the vulnerable. The issue of insurance is not only a case of profit to Americans, but an issue of human rights.

The notion is that every bit of risk that disturbs the normal course of action ultimately disturbs the citizens’ quality of life. The goal of life, among other parameters, is measured in terms of health, peace, longevity/sustainability and uninterrupted joy. That is why it is worthy of debate. Insurance is becoming more attractive, more lucrative and a business politics in western nations.

Why not in Africa’s business politics then? And why is it still a political risk to insurers? The dynamics of the insurance business is not only a political debate but an economics debate. It is an antidote. We pray to be blessed, but we must save to buy insurance policies to secure ourselves and our businesses from harm.

Today’s business seeks a high tech item in surgery, city-scan, MRP and costs are not affordable. And the cost of indemnity for the insurer is becoming more costly than ever before – at 25% of claims ratio – and the trend continues at an alarming rate. That is why it becomes the core issue among other insurance coverage.

The question now is what should be the solution for this and other emerging risks in order to be insured? At what price? If not, why not? What are the political risks?

These are valid questions that need serious answers. The most capitalised way of responding to these questions is on the concept of timeliness and a strategy of urgency. Both the government and insurance companies must learn from Obama’s healthcare issue and the huge amount of concern the modern world invests into life and health insurance.

As catastrophic risk disturbs the value chain of the global economy, so too are certain political risks an inevitable peril of society.

Ethiopia is a growing nation and modernisation is expanded. In modernisation and civility, any missing link in the value chain creates unrest and irregularity. Political risks are mutually inclusive in this inherent process, whereby catastrophic outcomes cannot be mitigated by government action alone.

The rate of return on investment should increase at an ever faster rate in order to feed the industrial sector transformation. The supply of money in the money market should not be periled in the value chain due to problems in the inflow of hard currencies; the export market should drag more transnational companies through an effective FDI strategy.

Taking the bigger picture of the modernisation index, Ethiopia should command all types of security, with investors demanding the highest form of peace of mind and seeking the true value of real investment.

In modernisation, participants challenge the value chain to ease satisfaction and the meaning of life. A convenient environment, lower costs, high returns and quality with a reasonably fast paced delivery of service is now the common agenda of citizens. Nothing disturbs the value chain more than catastrophic risks.

When we trade globally and attract more foreign investors to add value in the value chain of the export market, we are branding our country. Notwithstanding, any missing link in the value chain – unrest, civil commotion, riot etc – turns out to be a fundamental risk and damages everything, leaving spoilage marks for future equity as well as the distortion of brands. So, political risk is more than unrest and should be managed from the insurance perspective.

The urgency of managing political risk is mainly because Ethiopia is growing as fast as emerging economies where global investors demand a seamless service from financial sectors, with a very tight requirement and insuring political risk is becoming mandatory in bilateral arguments between and among states and global companies. Thus insuring, political risk is not simply the fashion, but a mandatory and timeless need.

The concept of timeliness is of civility, whereby insurers place their core competences in the right place of a buyer’s mind. This enables them to shout more about their uniqueness during branding.

Every nation has its goal to reach and to show the world that it is the most profitable nation to trade with it. There is not any other country by its will to follow its leader, sacrificing its competitive advantage at zero return.

Ethiopia, as a nation, should brand itself as securing its citizens by promoting the most effective health package – a core competence in attracting foreign direct investment. This is as a secured citizen increases productivity and insurers should work towards promoting such an opportunity to sell their policy to the government and the citizen. This is also true in attracting joint ventures, which is a profitable class of business.

The dynamics of business transactions in the transnational companies, and by lateral agreements between and among countries in the globalisation arena, could not be thought of as taking ‘no as an antidote’.

The Ethiopian insurance sector has been forced to push and embrace the agony of public risks. We should have to have at this juncture a revision of policy terms and conditions.

I would suggest that NBE, the Ministry of Foreign Affairs, the Investment office, trade and industry, Office of Finance Agency, bankers and insurers should adequately dwell upon it in order to find a solution for the desired evil/emerging risk, and create a common pool as an alternative once ETHIOPIA is a member of the ATIC (Africa Trade and Insurance Credit Agency).

By Asseged Gebremedhin

Published on Nov 29,2016 [ Vol 17 ,No 865]



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