Insurance companies begin to show little appetite to provide coverage against political risks after receiving an instruction from reinsurance companies to stop applying business as usual approaches.
The move comes following the declaration of the state of emergency, which will last for six months. It aims to avoid risks that may jeopardize the financial position of the insurance firms and reinsurers.
Only SwissRe and AfricanRe provide reinsurance coverage for political violence and terrorism insurance policy (commonly referred as PVT), which industry insiders consider as risky due to the huge amount of claims it requires in case of any unforeseen circumstances.
In an email sent to executives of insurance companies, the management of African Reinsurance, the industry leader, have given advice to their clients in Ethiopia, particularly insurance companies, to temporarily avoid accepting new application from customers seeking to buy political violence and terrorism insurance policy.
The Reporter also confirmed from four private insurers that they have temporarily stopped accepting new customers looking for coverage against political risks.
“Though we are renewing existing contracts in line with what is stated in our treaty with the reinsurance company, we have temporarily not been accepting new deals to avoid accumulation of risks and protect our company,” said an executive working for one of the private insurance firms.
Underscoring that the matter has been given a due emphasis, African Re has also requested the insurance firms to provide their risk profile for the policy in a bid to assess the existing risk accumulation in the market.
“Due to the nature of the business, we always advise companies to be very vigilant whilst writing the policy,” said Habtamu Debela, country direction of African Re, while responding to queries of The Reporter via Whatsapp.
The management attributed the measure to the exposure of the policy to possible risks beyond the control of the insurance firms and the reinsurance company. It is an instruction communicated six months after the reinsurance firm advised its clients to put in place precautionary measures when selling the policy, which account around three percent of the annual portfolio of insurance firms.
One of the clients of SwissRe, Awash Insurance, is also aware of the risks associated with this particular policy. Its management has already put in place stringent risk management system for PVT.
“For obvious reasons, our risk appetite has diminished,” said Abel Tadesse, Reinsurance Director of the Firm, adding that his firm has been already avoiding risks exceeding 350 million Birr worth of properties. “We have also avoided risk accumulation based on our treaty, which does not allow us to provide coverage for properties worth above 1.2 billion Birr within one kilometer of radius.”
Despite its lower share to the gross premium of insurance firms, which was almost 14 billion Birr in the last fiscal year, the policy is characterized by high risks since it gives full coverage to clients against losses due to riots, strikes, protests, and unexpected outcomes from political volatilities.