By Dawit Endeshaw
A new policy of rural insurance is to be drafted in the near future as officials from Ministry of Agriculture (MoA), Ethiopian Insurance Corporation (EIC) and Federal Public Financial Enterprises Agency (PPEFA) have discussed a policy framework study made by the latter two.
The discussion at the stakeholders' forum held at Hilton Hotel in order to use ideas rose as an input for the policy framework on January 13, 2015.
The study focused on designing a new policy framework for rural insurance; and it took more than a year to finalize, says Fikru Tsegaye, Marketing & Strategic Management director at the Ethiopian Insurance Corporation. It is mainly focused on providing insurance solutions for agriculture and rural based risks targeting smallholder farmers. It emphasizes that lack of a single framework has left the service fragmented.
As the majority of farmers are smallholders, the study gives more emphasis on how to use a holistic approach that would help to provide the insurance. The study has indicated that such fragmented practice of providing agriculture insurance was only implemented as a pilot project by EIC but failed to deliver significant changes due to several drawbacks such as infrastructural limitation, telecommunications, and financial limitations.
As the nature of agricultural insurance needs a well-developed communication infrastructure that would facilitate the way data, such as weather forecast, is acquired, such limitations were considered as challenges. Moreover, financial incapability of smallholders is also another challenge as most Ethiopian farmers depend on subsistence farming. To overcome this, the sector needs subsidy from government, said Fikru Tsegaye, director of marketing & strategic management at EIC.
Solomon Zegeye, general insurance manager at Nyala Insurance S.C. shares this view. This policy, in order to materialize, needs the support of government,especially on subsidizing the farmers, as many of them cannot afford to buy insurance policy, he told Fortune.
Nyala is among the few insurance companies that have worked on agricultural insurance since 2009 but it mainly focused on providing insurance for commercial farms and livestock production at a larger scale. The company provides three kinds of agricultural insurance, namely multi-period crop insurance, livestock insurance and weather index insurance.
Three main suggestions were given by Solomon; one is that this policy framework, prior to its drafting process has to be backed by subsidy of farmers, a regulatory framework by National Bank of Ethiopia and founding national reinsurance company.
As risks associated with agriculture are high and occur at a larger level, the establishment of national reinsurance companies is a must, noted Solomon. The policy framework will attempt to design a rural insurance that considers the financial capacity of poor farmers, added Fikru.
The state-owned EIC as well as Nyala, Africa and Oromia insurance companies are currently engaged in providing rural insurance. The EIC has gained 8.2 million Br of gross premium and at the same time incurring 5.6 million Br of gross claim, in 2013/14.
According to the 2014 report by NBE, total capital of insurance has reached two billion Br and private insurance companies accounted 78.6pc of the total capital.
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