Tsegaye Kemtsti: The Embodiment of Ethiopian Insurance

Tsegaye Kemtsti joined the insurance industry almost half a century ago. After joining the sector at his first employer, The Imperial Insurance, he spent five decades to culminate his career as Chief Executive Office of Awash Insurance, which he founded and led for a quarter of a century, until his departure earlier this year. Although he did not push his formal education further than the College Diploma he received from Addis Ababa Commercial College during the Imperial regime, Tsegaye has the entire history of the sector for an experience. He has also proven himself as one of the most successful CEOs in the insurance industry. Awash Insurance, under his tenure, never registered a loss. The insurance company he founded has become one of the biggest private insurance companies in Ethiopia, where there are 16 private firms. During the last fiscal year, Awash netted ETB160 million profit – 25Pct higher than the performance of the preceding fiscal year. Likewise, its gross written premium exhibited an 18.3Pct rise to become ETB793 million.

Tsegaye, who now services as an advisor to the management of Awash Insurance, is on his way to retirement. Of course, he still has a lot to give to the industry he loves. He now plans to train insurance practitioners and wants to help policymakers design better policies and strategy to boost the contribution of the sector to the national GDP and avert industry malpractices.

EBR’s Samson Berhane discusses his 50 years of distinguished professional services in the industry and current challenges that hold the industry from further growth.

Despite its long years of operation, the insurance industry is still at its infancy in Ethiopia. Only a few people have managed to stay in the sector for a long period of time. But you have been in the industry for over four decades. Walk us through your course of life in the insurance industry.

I have been in the insurance industry since the early 1970s. I first joined Imperial Insurance Company, which was one of the private insurance firms during the reign of Emperor Haileselassie I. It was one of my friends who told me to apply for the job after spotting the vacancy on the newspaper. Luckily, trusting my skills, the company hired me.

There were around 13 private insurance companies during the imperial period; however, they were subsequently nationalized by the Dergue Regime. I remember that some of them worked as brokers for international insurance companies before the introduction of a law governing companies in the sector.

The law even put a minimum capital requirement for both life and non-life insurance companies. At that time, a separate directorate under the Ministry of Trade was mandated to regulate the insurance industry. The Insurance Controllers Office, as it was called back them, was later abolished by the Dergue Regime as part of measures taken to nationalize all insurance firms and banks just three months after it took power.

The military government instead established a board, comprising of officials of the central bank and insurance professionals, with a mandate to regulate all of the nationalized insurance firms. However, this was again abolished and the mandate was transferred to the National Bank of Ethiopia.

What was your role at the Imperial Insurance Company when it was nationalized by the Dergue?

I was personal assistant to the General Manager. Concurrently, I was head of the human resources department. However, after the nationalization, a new management took over the responsibility and a restructuring was implemented. I then became Personnel and General Service Head in 1976.

As lots of people my age, I was drawn to politics and joined a political party a few years later. For almost seven years, I was political active against the military regime and then spent some time in prison. After that, I got the opportunity to join the Ethiopian Insurance Corporation (EIC) as Personnel and General Service Manager once again. Soon after, I became a Deputy CEO for Life Insurance. Five years later, I was transferred to the post of General Manager for North East District of EIC.

It was around that time that the EPRDF took power and introduced a new economic manifesto, signalling the need for liberalizing the insurance and banking industries. It was at this moment that I met the founders of Awash Insurance and Awash Bank. I was then given a project to undertake a feasibility study to establish an insurance company. In 1994, Awash Insurance was founded and I was entrusted with the task of leading it. I kept that position until last year.

No CEO has been able to hold such a position for as long as you did since the liberalization of the insurance industry almost three decade ago. Tell us how your Journey was.

We went through a lot of ups and downs. During our early years of operation, there were only three insurance companies. Back then, it was even difficult to find office space to provide services to our customers. For over a decade, there were only a handful of buildings and there was almost no activity because of several economic reasons. As a result, we even rented an unfinished building as headquarter for both Awash Bank and Insurance. We agreed with the landlord to finish the building with our own finance and have him rent us the second and third floors.

Persuading investors to buy shares was also very challenging, although three million Birr paid-up capital was enough to establish an insurance company when we became operational. Finance was on the hands of few people as wealth accumulation had been impossible for 17 years under the Dergue Regime.

Many were too discreet to publicly show their wealth, as the traumatic experience of property confiscation by the government still lingered. Bucking this trend was not easy. Many also doubted the success of both insurance and bank companies, presuming it would be risky to make such an investment.

Getting skilled manpower was also very challenging as EIC was the only insurance company before the liberalization. We have started with just 12 employees. As per our feasibility study, we planned to make profit within three years of our establishment. Curtsey of our promotional activities, however, we were able to make profit during our first year of operation.

So, no loss has been registered by Awash Insurance ever since.

We have never registered loss since the establishment of the company. Our net profit was almost one million Birr during our first year of operation. The figure soared up to over ETB160.3 million in the last fiscal year.

All insurance firms in Ethiopia are criticized for being less innovative and offering similar products.

That is true, but presuming there are no new products is also wrong. It should be understood that new products can only thrive in a market where there is demand. There should first be a need for new products. For instance, over the last five or six years, there was political unrest in the country. This has increased demand for political violence and terrorism insurance policies. When I was at EIC, there was an insurance product that covered losses from civil war and bandits. It was introduced as there was demand for it because of the civil war in Eritrea and Tigray.

But after the end of the war, no one was interested in buying the product. It is, therefore, not easy to introduce new products in Ethiopia unless there is demand for them because of pushing economic and political factors. In a country with a very underdeveloped capital market, introducing innovative products and services is not simple.

Another challenge in the insurance industry is dispute between the board and management over operations, although it is relatively better compared to the situation in the banking industry. How much of a challenge was that to you?

I worked with several boards of directors. I might be lucky, but I can say this was not a problem for me. Since I joined Awash, no board member tried to get involved in operation. I might have been asked to clarify issues that are unclear to them. However, having a responsible board that clearly knows its duties and responsibilities is very important.

Board members should cooperate with the management for smooth operation of any corporate company. I know sometimes it is hard to settle some rumours and misinformation, but they are not going to be major challenges as long as there is discussion. It is also important to note that board members have the right to check the company at every level and see that it is operating properly, as they are assigned by shareholders.

How much did your salary change during your 25 years of stay at Awash Insurance?

When I was first hired by Awash Insurance as a General Manager, my salary was just ETB2,500. I was earning a salary of ETB160,000 when I resigned after serving for over 25 years.

What kind of management style do you follow? Some of your subordinates say you are bold in implementing decisions.

I don’t stick to a specific management style. I make management decisions with the current situation in mind. If the situation requires being a slave driver, nothing will lay me back from being so. So the kind of management style I follow depends on the situation at hand. I don’t accept people who tend to do their assignment tomorrow, instead of doing it today or now.

Such a culture encourages mediocrity and negatively affects the performance of firms. I don’t compromise on such behaviour and I also coached my subordinates to refrain from it. I believe work should be done on time and no one should be allowed to delay it. Failure to do so means it will be impossible to achieve annual plans, targets and goals.

The last 25 years witnessed over 16 insurance companies come into existence. There are also companies that are under formation. Yet the contribution of the insurance industry to the economy is still small. Its share to GDP is estimated to be below one percent. Why do you think the industry grew disproportionately with the economy?

Ethiopia is the second most populous country in Africa. Aggregate premium written for life insurance in Kenya, which has barely half the size of our population, is nonetheless higher than our country. Although some have bought insurance policies, the large chunk of society that contributes tremendously to economic growth is still uninsured. This is largely the result of lack of awareness about the benefits of getting insurance coverage.

So, who is to blame for the conundrum? The public or the players in the industry?

It is the industry players that should be blamed. It is the responsibility of insurance companies to create awareness about insurance products and their benefits. We have done a lot in promoting our products to the public in a simple way that can be understood by anyone. Media outlets also ask a large sum of money, if we ask them to teach the public about the importance of having insurance coverage. They tend to focus on issues of entertainment, instead of addressing such pressing problems. That has kept insurance coverage secondary in the priority list of businesses and individuals. Insurance coverage is considered as something unimportant. Changing such attitudinal problems requires long time and aggressive promotion.

Do you think making some policies mandatory would be helpful in changing the existing situation?

Yes. For instance, I suggest they enact a law that makes getting insurance coverage for houses, be it apartment or villa, mandatory. There are people who have house rent as their primary source of income. What if something happened and their property turned to ash? Would they be able to cover the losses? Could they have the potential to recover promptly? Such issues can easily be left to insurance companies with an affordable price. In this case, it is the poor who should buy such policies than the rich who can easily recover from their savings or by selling part of their wealth. If it becomes mandatory to buy a policy to cover such losses, it will be very affordable as insurance is governed by the law of large numbers. Anyone willing to give up his/her daily expenses for macchiato would afford it.

Why do you think the share of life insurance is very low?

Our society usually believe in waiting for a miracle, instead of preparing for any eventualities. Agents and brokers also don’t focus on life insurance policies that are very cheap and affordable to a large portion of the society. They don’t pay much attention to the promotion and sell of low premium products. Whether agents or brokers, they tend to focus on policies with better return.

Don’t you think this is also the fault of insurance companies, as they could have responded with a different business model?

It is very costly to sell such products. I believe that a different payment mechanism should be developed to sell life insurance policies, like term coverage.

Aggregate production of premium by private insurance companies exhibited an enormous growth over the last two decades. Their market share, compared to the state-owned Ethiopian Insurance Corporation, showed a significant growth as it reached as high as 65Pct. However, private insurers are criticized for unethically cutting prices and charging below par premiums just to win the hearts of other customers.

This is so true. The problem stems from lack of awareness about fair competition. It is very saddening that firms charge prices that are insensibly low even to customers. We are charging a premium rate that is a fourth of what the Ethiopian Insurance Corporation used to charge 25 years ago. Such decisions also come from being hopeless about the market as it is sometimes difficult to get new customers. If companies don’t charge sufficient amount of premium, it will be difficult to pay claims and cover daily and monthly expenses. Although cutting price is not expected from a firm that is loyal and strong, some do it deliberately out of desperation. Yet the industry is more or less stable. Firms are registering better growth in premium, retention rate and profit.

On the other hand, the government is usually criticized for paying less attention to the insurance sector and treating it as if it is less important than the banking sector. We can raise the absence of a separate strong regulatory institution for the sector as an instance.

Few years ago, we asked the then former governor of National Bank of Ethiopia why more attention is given to the banking sector and insurance is taken as something that is not under its mandate. He said: why should we care about a sector that doesn’t even contribute one percent to GDP? That is true. However, I see no reason why we can’t replicate the success of South Africa’s insurance industry, which contributes over 15Pct to their GDP. With the necessary support in place, insurance can contribute as a large source of pool fund.

What policy change do you expect from the government?

I, for example, expect the government to exempt tax on life insurance policies in order to attract new buyers and make it very affordable. Equally important is making insurance coverage for houses mandatory. Introducing more compulsory insurance packages based on their benefits to large portion of society is very crucial. At least state owned media outlets should be given the task to dedicate time to teach the benefits of insurance policies. EBR

9th Year • May.16 – Jun.15 2020 • No. 86