The insurance industry emerged mainly after the industrial revolution. Different types of business were prone to disaster; thus, employees and employers sensed the protection to reclaim their property and lives.
This was ensured through insurance companies. As a result, accident insurance, social insurance, theft insurance, motor vehicle insurance, etc., emerged. Later on, other forms of insurance such as crop insurance, livestock insurance, house insurance, life insurance etc., came into existence (Rena, 2007). It is evident that human beings exposed to risks in all walks of life, and emergencies of all types are by nature unpredictable. Unless it minimizes loss arising from such risks, society will never make progress. Insurance comes to its aid by minimizing the loss. The insurance industry in Eritrea was instituted and developed with the emergence of the Italian colonialism.
Globally 327 disasters had been recorded in 2016, 191 of them natural disasters and the remaining 136 were man-made. As a result, the amount of loss on human and physical resources nearly doubled by $ 175 billion US dollars compared to the previous year and 11 thousand lives were lost. A $ 50 billion US dollars lose was registered on the insurance and reinsurance industry.
In Eritrea, a sum of 57.7 million Nakfa damage was recorded on insured and uninsured persons and institutions. The National Insurance Corporation of Eritrea (NICE) has paid 49.6 million Nakfa to its clients. This amount has been a significant increase compared to 2015 with a total net pay of 38.4 million Nakfa. Official documents of NICE show that compared to the previous years, the year 2016 registered the highest number of accidents. Among the major losses were 19 human lives, 3 buses, 2 cargo trucks and a net loss of assets worth 12 million Nakfa.
Mr. Zeru Woldemichael, General Manager of NICE, affirms the readiness of the institution to give any kind of insurance to customers in order to reduce the consequences of damage.
NICE was established in 1991 and was privatized in 2004. “We have settled the complexities of insurance agreements with the former Ethiopian companies’ right after independence and issued the National Insurance proclamation in 1992. Since its foundation we have been engaged in educating our personnel, making connections and get recognition in the international insurance market, and now we are among the most distinguished insurance companies in this region”, says Mr. Zeru.
Thanks to its skilled and prudent financial as well as operational management, NICE has shown a remarkable growth in recent years. In 2016, the corporation had 280 million Nakfa premiums, with most of its activities concentrated in non-life activities such as car, marine, livestock as well as fire and accident insurance. If a damage exceeding 3 million Nakfa occurs, NICE has reinsurance contract with other institutions and pays around 1 million Nakfa for it annually. Thus, all the major institutions in Eritrea are reinsured and the risk is minimized.
Similar to other African countries, insurance penetration in Eritrea is relatively low compared to developed economies. Sixty percent of NICE profit and premium is related to non-life insurance. In Eritrea, life insurance coverage is still at a very low stage, though this is related to economic and social circumstances. It contributes only 2% of the overall premium of the company. Cultural and religious factors make effective penetration difficult. This is because “Traditional risk-sharing arrangements are made within extended families and mutual aid community associations” points Mr. Zeru.
“Given that NICE is the only insurance corporation in Eritrea, we assess ourselves with countries of our region with similar economies as ours through the ‘management expense ratio’. This ratio differs from one company to another. Our maximum expense ratio, approved by the Board, is 10%. So, we can say that we are performing well”.
While answering to the complexities of payment for claims, Mr. Zeru says, “One big challenge the company faces is dealing with expense ratio in doing business. Our corporation is primarily profit oriented while at the same time we continue to remain alive to our national responsibility objectives. If any one comes to this institution for money, what are we going to gain from you? While entering into contract, we simply try to minimize our cost. But if the cost exceeds our projected income, we withdraw”.
Some people say that insurance contract is very hard that when you give them your money at long last they will disappoint you. They don‘t give you your money back. On this subject Mr. Zeru says “This stems from the misconception or misunderstanding of the insurance terms and policies. Most of the clients don’t even read/understand their contracts. We are working to increase public awareness towards the impact of insurance and about how insurance works, and to consider the per capita income and ways they can buy different kinds of insurances”. NICE has agents in different corners of the country.
The economy of Eritrea is attracting investment, especially in the mining sector. Where there are big companies operating in mining such as Bisha, Zara, and Asmara. “We act as an insurance company for the country and we are also the one that advises on how the country manages its risk when it comes to the Eritrean power plant, Eritrean Airlines, and the mining industry. When a concerned government institution or company needs advice on the best way to handle their risk, we provide it”, says Mr. Zeru.
“NICE enters an insurance contract with the consideration that the insured amount can pay off if an accident occurs. In order to do this we follow a group insurance contract. If this would be impossible to cover, we have reinsurance partners. For instance, the airplane owned by the Eritrean airlines is difficult to insure alone ourselves, so it is reinsured in Lloyd’s Insurance Company, based in London. Thus, insurance is a risk sharing-arrangement”, he adds.
NICE also engages in strategic investment at home and abroad and has shares in foreign companies. “This helps us not only to generate profit but also to gain experience and underwrites”, says Mr. Zeru. Currently NICE’s capital is estimated at $ 13 million US dollars and gets around $200 thousand US dollars dividend annually from its foreign shares.
NICE’s 56% and 30% share is owned by the government and the martyr’s trust fund respectively and the remaining is owned by private individuals and institutions. Around 2200 Eritreans are investing and becoming new members of NICE. From 2005 onwards, the corporation has been conducting shareholders’ meeting on the first Saturday of June where the board presents an audited report and ratifies the amount of dividend to the shareholders.
Computer systems at the headquarters are currently being integrated in negotiation with an Indian company which is hoped to bring a major shift. The Corporation focuses on upgrading the knowledge and qualification of its employees. Based on this plan a number of insurance staff are involved in Chartered Insurance Institute Policies and overseas training. One of the major future programs of NICE is to introduce the micro-insurance program and to reach the wider Eritrean public through mobile and banking technological infrastructure.
Despite the numerous challenges encountered in its trading environment, NICE has been showing satisfactory performance in terms of profit and premium income and it is considered one of the profitable insurance companies in Africa.