New Ethiopian Vehicle Insurance Policy Faces Scrutiny Over Clarity and Implementation
By Eyasu Zekarias
August 25, 2024
The newly implemented vehicle insurance policy in Ethiopia, designed to cover third-party risks, is generating controversy among industry stakeholders. Concerns center around the clarity of the regulations and the ramifications of the new premium and indemnity rates.
Despite the debates, the need for effective insurance coverage has become increasingly crucial. The rise in vehicle accidents across Ethiopia has resulted in significant loss of life and severe property damage. Victims of road accidents often face not only physical injuries but also crippling financial burdens, particularly when the responsible vehicle lacks insurance.
In response to this urgent issue, the Ethiopian government has mandated third-party insurance coverage for vehicle accidents. However, sources within the insurance sector are reporting that the recent revision of insurance tariff rates came unexpectedly and with poor communication.
One source within the industry expressed concerns about existing loopholes within the legislation. Previously, the payment ceiling for death claims was capped at 5,000 birr. Now, this has been significantly increased to a minimum of 30,000 birr and a maximum of 250,000 birr. The source also noted that it remains unclear to whom these payments will be disbursed, a point of concern for potential beneficiaries.
Another fear surrounding the new vehicle insurance policy is the potential for customers to opt out of insurance altogether. The cost to insure a private car has risen dramatically. What previously cost around 500 birr for standard coverage has increased to over 2,000 birr. This price hike may discourage drivers from obtaining the necessary coverage.
The new vehicle insurance policy, as outlined in Regulation 554/2024, supersedes Proclamation No. 799/2003. It sets forth the premium rates and compensation amounts for third-party vehicle accident insurance. Under the revised guidelines, monetary compensation for bodily injury has increased from 40,000 birr to a range of 30,000 to 250,000 birr. Additionally, compensation for property damage has risen from a maximum of 100,000 birr to 200,000 birr.
Yared Mola, president of the Ethiopian Insurers Association and CEO of Nyala Insurance S.C., has defended the policy. He stated that international experts carefully studied the policy before its implementation. Mola emphasized that the changes address previous concerns regarding insufficient payment limits for third-party insurance. He argued these changes represent a significant improvement for individuals injured in vehicle accidents.
Experts generally agree on the benefits of the reform. The changes are expected to encourage more individuals to obtain insurance. This shift is anticipated to allow insurance companies to reap greater profits from the premiums they collect. The primary aim of the insurance compensation system will remain assisting individuals in recovering from economic losses stemming from liability, property damage, or bodily injury.
