Gudissa Legesse, 51, is has been the CEO of Awash Insurance since last year after he has replaced Tsegaye Kemsi, who led the insurance since its establishment 26 years ago. Gudissa obtained his degree in business administration and a master's degree in marketing management from Addis Abeba University. Having almost 25 years of experience in the insurance industry, Gudisa played a big role in the success of Awash when he was serving as deputy for the Firm. Having the motive to emulate what he has achieved so far, the CEO hopes to make Awash one of the best insurance companies in East Africa. FP sat down with him as he reflects on the latest performance of his company and current trends in the insurance industry.
Financial Perspective (FP): In the last fiscal year, Awash was able to gross a profit of ETB200 million, which is the highest in the insurance industry. How did that come about in an era of COVID-19, as well as the political stability that continues to impact all sectors?
Gudissa Legesse: It is undeniable that the last fiscal year was very challenging for the insurance industry. Especially the second half was defying and to be frank, what we achieved before the emergence of COVID-19 helped us a lot in registering a better profit. And it is also imperative to look at our source of income to understand why we achieved such impressive results. Thanks to the pool of funds that we administer, we were able to earn a considerable amount of money from investment.
Our investment income exhibited impressive growth last fiscal year. The dividend declared in 2018/19 was also reflected in our latest financial statement. This has boosted our income and profit. Additionally, ever since COVID-19 came to the picture, we have established a task force in order to assess the impacts of the virus on our business activities and we have immediately taken strategic measures.
Boosting our capacity in retaining customers and bring new ones was our priority. This has helped us further develop our underwriting capacity and effectively manage claims. All in all, the rise in our underwriting surplus, coupled with the rise in our investment returns, helped us register a historic-high profit during the last fiscal year. This is in addition to our strong expense management policy.
In reflection of your portfolio and the success achieved, does the company managed to increase the share of life insurance, which accounts for less than five percent of gross written premium in the industry?
To be frank, the share of life insurance was very low. Even though there has been an improvement, it was not enough, considering its share to gross written premium. To be exact, a premium from life insurance line of business grew by 11 percent, but its share from the total premium was insignificant. Of course, this is not satisfying and it obvious that efforts must be exerted to boost our premium from life insurance.
We are now undertaking strategic measures to raise its share. To list some, we are upgrading our technological system to boost our internal capacity in lifeline of business. We have designed a new market strategy in order to raise public awareness about life insurance and promote our products.
Why do you think life insurance accounts for a significant amount of premium production in the industry in Ethiopia?
The majority of Ethiopians do not know much about life insurance and its benefits. Even those with a better income who can afford to pay a premium for different life insurance products are not buying the policy as they are not aware of it. We, the main player in the industry, have also failed to come up with new products that go with the interests of the public. More emphasis is being given to the general insurance line of business.
Was there any new insurance product or service that the company managed to introduce last year?
Yes. It was last fiscal year that we have begun selling mortgage redemption insurance policy. It is a life insurance policy that covers mortgage balance if the policyholder dies before fully repaying his/her housing loan. It protects the house of the policyholder from foreclosure. We are working with banks to aggressively sell this product. It has a big potential as many banks providing mortgage loans to their customers and the demand for it makes the policy promising. What we have sold so far is also shows the big potential the policy has.
The issue of price-cutting in the insurance industry is yet to be solved. Do you think this will ultimately end?
Unfortunately, there is no end in sight for the practice of price-cutting practices in the industry. Of course, this will ultimately hurt the industry and prevent it from growing. It is a zero-sum game. No insurance industry will win the price war. Every one of us will finally be a loser. For instance, we, at Awash Insurance, don’t consider the price as a marketing strategy. Our prime goal was/is not only to meet but also exceeding customer expectations.
And we also ensure that our products and services are affordable to our clients. Price cutting has no place at Awash Insurance. But what we are witnessing in the industry is disappointing. While inflation is growing, the premium charged by insurers is falling year after year, which does not give any sense at all.
What happened to the plan to implement minimum premium across all insurance products?
Our (Insurance) association has been trying to introduce a minimum premium rate for a long, but it has not borne fruit yet. Ethiopia has no actuarial, [a professional who analyzes the financial costs of risk and uncertainty.] So finding such a professional took some time as they were hired from abroad. A consultant was hired to do the whole job, but it failed to deliver what was expected from it on time. Its contract thus was terminated.
Now the Association is trying its best to finalize the setting of the minimum rate. Meanwhile, the introduction of a new provision that allowed the National Bank of Ethiopia to set a minimum premium rate is commendable. That is a big advantage for insurers and makes it easy to set the minimum rate anytime.
Shareholders of Awash Insurance decided to increase the paid-up capital of their firm from ETB600 million to ETB1.2 billion in the next four years. Tell me about that.
Awash Insurance is usually known for implementing bold measures. We have made such a decision to further improve our capacity. Our mission is to be one of the strong insurance firms in East Africa and build the most reputable brand in the region. We want to provide services beyond borders. So to make this a reality, we need to have a strong capital base.
And our shareholders understand the benefits of increasing our capital and they always agree whenever we propose an increase in paid-up capital without hesitation. Having a strong capital base helps us win the hearts of our customers and reinsurers.
It also improves our retention capacity as it increases the level of risk that we take. Additionally, strong capital is also very essential to undertake more investments. We have leased land from Addis Ababa City Administration to construct a building in the capital.