INTRODUCTION

The Ethiopian Insurance Corporation (EIC) was established on 1st January 1976, with
Proclamation No 68/1975 and managed in accordance with the public enterprises
Proclamation No. 25/1992. EIC was established with the objectives of engaging in the
business of rendering insurance services and in any other related activities conducive to the
attainment of its purpose. Starting from its establishment, EIC has been providing
insurance services for its customers for the last 38 years both as the only insurance service
provider (for 19 years, from 1976-1994) and as a competitive insurance service provider in
the country (1994-Present). Since the liberalization of the financial sector in 1994, the
Ethiopian insurance market has been opened-up for local investors and consequently
private insurance companies have flourished in the country. At the present time, 17
insurance companies are operating in the industry and EIC commands about 41% of the
market in gross written premium (as at June 30, 2014).

Currently, EIC has 63 distribution channels throughout the country, has adequate market
knowledge emanating out of 38 years of experience backed with 1,228 experienced
employees. EIC provides life, property and liability insurance policies. Known for its Strong
and reliable financial position, longstanding and well-built affiliation with many
international insurance organizations and associations, EIC has maintained a
comprehensive range of outward reinsurance contract, and accepting inward reinsurance
(including Co-insurance) business on selective basis. It has also been engaged in different
investment areas.

Because of the competitiveness of the insurance industry, it is becoming very difficult to

sustain its place as a leader without changing itself. To this end, the Corporation has
undertaken a business process re-engineering in its core and support processes to bring
about institutional transformation, which in turn would enable to boost the level of
customer satisfaction and also make the Corporation competitive enough both in the
domestic as well as international insurance markets to achieve its vision.

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Years have passed since the Corporation implemented the newly redesigned business
process reengineering. Even though there are still challenges to be overcome, it can be said
that the Corporation has accomplished most of its targeted goals that were expected from
the implementation. Moreover, the implementation of the insurance and accounting
software packages are also expected to move the service delivery of the Corporation to a
new level.

Our group believes that it is time to develop a new strategic plan that will serve the
Corporation for the next three years. The current thinking of strategic planning is that
strategy developed at the corporate level should be communicated to all employees and
each employee should be working towards meeting the strategic goals set by the
Corporation.

In order to do so, the group has conducted an internal and external environment
assessment. Moreover, the group has also tried to prepare tactics that determine the time
and location of the strategy implementation.
The Vision
 To be a world class insurer by 2025.

The Mission

We provide our customers an efficient and reliable insurance service and engage in
investment activities by deploying the right mix of expertise, the state of the art technology
& cost effective strategy. In doing so, we contribute to the sustainable development of the
national economy and play a vital role in the industry.

Strategic Goals

 Operational Excellence; Timely, reliable & value added customer service, efficient
risk management, efficient & effective investment, & cost effective execution.

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  Build the business; leading the industry in terms of accessibility, product
development, portfolio, ensure sustainable growth and development to proactively
respond to the dynamic business environment.
 Being a development partner; Increase stakeholder’s value, support the national
development agenda & play a forefront role in the insurance industry.

Strategic Objectives

 Increase owner’s value

 Increase profitability
 Enhance customer relationship management (CRM)
 Increase market leadership
 Improve efficiency and effectiveness
 Improve risk management system
 Improve accessibility
 Increase insurance awareness
 Improve product innovation
 Develop human capital
 Improve organizational development
 Ensure strategic alignment
 Improve ICT

Values of the company

 Customer focused
 Development partner
 Excellence
 Pro-activeness
 Transparency & accountability
 Team work
 Professionalism
 Learning organization
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THE EXTERNAL ENVIRONMENT ANALYSIS (OPPORTUNITIES AND THREATS)
Most firms face external environments that are highly turbulent, complex, and global
conditions that make interpreting those environments difficult. To cope with often
ambiguous and incomplete environmental data and to increase understanding of the
general environment, firms engage in external environmental analysis. This analysis has
five parts: social, technological, economical, environmental, and political & legal (STEEP).
Analyzing the external environment is a difficult, yet significant, activity.

Similarly, identifying opportunities and threats is an important objective of studying the

general environment. An opportunity is a condition in the general environment that if
exploited effectively, helps a company achieve strategic competitiveness. A threat is a
condition in the general environment that may hinder a company’s efforts to achieve
strategic competitiveness.
STEEP Analysis
Social
A. Social Opportunities
The Education Sector Development Program (ESDP IV) for the Growth and
Transformation Program period has the goal of producing democratic, efficient and
effective, knowledgeable, inspired and creative citizens who contribute to the realization
of Ethiopia's vision of being a middle income economy by 2025. This will have a positive
impact in the insurance industry through:-
 Creating knowledge based workforce who will have the knowledge and needs for
insurance services.
 The Creative citizens will have new business ideas which will create more market
opportunity for the insurance industry.
 Educating and training a workforce that meets the insurance industry’s needs at all
levels.
The strategic direction for the health sector includes the development of preventive
healthcare system and accessibility of health care for all segments of the population. This

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 will have a direct impact on health and life insurance products by significantly
decreasing the amount of claims paid caused by the materialization of the risks.
Compulsory third party motor insurance:- the proclamation as a whole will increase the
awareness of the society about insurance and premium.
The increasing per capita income of the population (which is expected to reach 482/523
USD by the end of the Growth and Transformation Program period) will increase the
purchasing power of the population and hence the ability to buy insurance products.

B. Social Threats
 Social welfare replacing (decreasing the demand for) insurance products such as pension
schemes and health insurance policies.
 Cultural & Religious Attitude towards insurance mainly due to lack of awareness
 Self insurance
 High traffic accident in the country

Technological
A. Technological Opportunities
 The strategic directions to be pursued for enhancing ICT development in the
country. This strategic direction focuses on the development of ICT infrastructure,
ICT human resources and the legal & security system related to ICT. This will
create an opportunity for the insurance industry to use state of the art technology
and hence excel its efficiency.

B. Technological Threats
Problems related to ICT infrastructure development and the problems related to
network failure will create huge problem on our ICT based service provision.

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Economic
A. Economic Opportunities
The Industrial sector share of the GDP is expected to grow in the Growth and
Transformation Program plan to 18.8% from its base year contribution 12.9% (by
growing on average 20% annually). Its emphasis on supporting the expansion &
development of micro & small enterprises, and on medium and large industries
development, will create a huge demand for the existing insurance products and for the
development of the new products.

In the Growth and Transformation Program period, very large investments will be made
to further expand infrastructure services such as roads, railway transport, energy, urban
& construction development, telecommunication etc. Furthermore huge investments
made so far in infrastructure and human resource development will result in greater
returns by increasing the productivity of the economy, creating huge employment
opportunity and by encouraging more productive investment. This in general will create
vast opportunity for the insurance industry.
Government’s initiative to establish a local Reinsurance company which enables to save
huge amount of foreign currency to the Corporation will benefit the Corporation by:-
 Decreasing costs related to reinsurance
 Decrease the dependency on international reinsurers and brokers
 Create knowledge transfer within the insurance industry in the country

B. Economic Threats
One of the factors that affect the performance and the financial strength of an
organization is the inflation rate of the economy in which it operates. In this context the
high inflation rate of the current economy will affect the insurance industry particularly
EIC, in the following manners.
 Given the lower interest rates that prevail in many securities in the economy, EIC’s
return on investments related to securities and fixed time deposits will have a

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 negative net present value when adjusted to the inflation rate at the time of their
maturity.
 Increasing the cost of repayment in the case of claims settlement especially the
increasing price not only sum insured but also its practical to increase the price of
spare parts
 Increasing expense amount
 Increase in claims paid of health related insurances because of increasing medical
treatment.
 Decrease the demand for insurance products, particularly long term insurance
products due mainly to the decrease the relative value of life insurance policies

Exchange Rate Fluctuation:- Devaluation of local currency affects insurance companies

by:-
 Increasing the amount paid for reinsurance
 Increasing price of imported materials such as spare parts in local currency, and this
in turn will increase the cost of claims paid.
Environmental
A. Opportunities
Increased awareness of effects of natural calamities
Customers’ increasing awareness of their need order for protection of their properties
against the natural calamities like flood, drought, volcano, wild fire and earthquake creates
increasing demand for comprehensive insurance coverage like fire, and car insurance.
Trend on increasing lifestyle diseases and epidemics also creates demand for advice on
health and life insurance coverage most especially as part of an employee benefit package.

B. Threats

Climate change and the increasing global warming cause extensive dislocation and
disruption to the whole bio-system and significant economic and social dislocation. This
will negatively affect the corporation.

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Political and Legal
A. Political & Legal Opportunities
Capacity Building & Good Governance
This initiative aims at establishing government structure with strong implementing
capacity, and ensures transparency, accountability and combating corruption from its
source. This will create an opportunity to the Corporation by:-
 Improving the relationship with other government organizations
 Building the capacity of the Corporation and improve its efficiency and
hence bring customer satisfaction.
Regulation to only allow local investors to participate in the financial industry
This regulation was passed in order to protect the infant local financial institutions,
including insurance companies, from the giant international financial institutions until
they are strong enough to compete with them. This protection created opportunity to
the current insurance companies by both securing the local market and giving time to
be strong financially & technically to compete with the international giants.
Strategic Direction on Justice Sector
The direction on this sector includes the independence, transparency and accountability
of courts, and of the judicial system as a whole. This in return helps the Corporation to
facilitate court cases and hence contributes to the cost reduction strategy.
The new proclamation (No Premium-No Cover)
It has resolved the premium collection problems especially with the private sector.
However there is lot to be done regarding collection of previous transactions (trade
debtors) and collection issues related to governmental & public enterprises.
B. Political & Legal Threats
Privatization of different public enterprises
Many of these public enterprises are the Corporations clients. Once they are transferred
to the private sector, there will be competition among insurance companies to acquire
the new opportunity by the transfer of ownership. Furthermore there are cases where
the new owners already have relationship with other insurance companies and some

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 might be shareholders of the companies, so they tend to shift their business to them.
This will decrease the portfolio generated from such business by the Corporation.
Government's policy on compulsory Health insurance
This policy will decrease the demand for health and related insurance services. This is
due to:-
 Existing customers will shift to the compulsory health insurance
 Demand for health and related insurance services will decrease
Limited area of investment
This is due to NBE’s investment directives for insurance companies.
Compulsory third party motor insurance
There are different parts of the regulation that should be revised. An insurance
company will be affected by the regulation in the following ways:-
 There is no risk selection and discounts or loadings
 There are no clear directions on some risks like the motorized rickshaw

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Table 1: External Factor Evaluation (EFE)
Key External Factors Weight Rating Weighted Score
Opportunities
Economic growth .25 4 1.0
Political stability .15 3 .45
ICT development .10 2 .20
Education .06 1 .06
development
Threats
High traffic accident .20 4 .80
Poor ICT .08 1 .08
infrastructure
development
Cultural and religious .06 2 .12
attitude
Privatization of public .10 3 .30
enterprises
Total 1.0 16.0 3.01

Analysis of the External Environment

Every company deals with internal and external factors that affect their business. External
environment affects every company; it is all about how every company adjusts to external
trends and prepares for them before they occur. The best companies always try to
anticipate these external factors and respond strategically to them.
By identifying opportunities and threats, companies can protect themselves from future
harm and take advantage of opportunities as they emerge.
The success of the corporation ultimately depends upon how well it can use its strengths to
take advantage of external trends. By utilizing an External Factor Evaluation Matrix (EFE)

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the corporation’s chief strategist can analyze and determine crucial external opportunities
and threats important to the future of the organization.

Industry Analysis
Analysis of the insurance industry was performed using Porter’s competitive strategy
theory which is based on an analysis of a company's competitive position within its
environment, using the 'five forces' that drive competition. These forces are the relative
strength of buyers or customers; the relative strength of suppliers; the relative ease with
which potential new competitors can enter the market; the potential availability of
substitutes; and rivalry between competing firms.
Intensity of Rivalry
Competition Purely Based on Price:- The rivalry of the insurance companies in the
country is characterized by price cut competition. This is very hard to companies who try to
provide a better insurance coverage of the same policy and a relatively prompt service due
to the fact that the customer is mostly price sensitive.

Consistent Industry Growth:- The insurance industry is showing a consistent growth in

generating revenue. The industry’s gross written premium grew on average by 27.1%
during the past three years. The growth in the insurance industry among other things
shows the existence of huge potential market in the country. This fact will increase the
competition in the industry.
Chronic Shortage of Manpower in the Industry:- The insurance industry is characterized
by chronic shortage of manpower and hence snatching each other professionals within the
industry. This will intensify the rivalry in the industry because the competitive advantage of
insurers in having insurance professionals shifts from one to another in a very short time
and also by making the training and development cost of a company for its professionals
high and unprofitable.
The Number of Insurance Companies in the Industry:- The number of insurance
companies in the industry is consistently increasing since Proclamation No 86/1994 that
allowed local investors to establish local private insurance companies. Currently there are
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seventeen insurance companies and some insurance companies are under establishment.
When new insurance companies enter the industry, mostly they take the customers of
existing insurance companies. This is mainly due to:-
C. Investors that are shareholders of newly established insurance companies
will move their existing insurance policies to the new insurance companies in
which they have stakes.
D. The new insurance companies will change premium that doesn’t
commensurate with the risk or widen the scope of cover being affected by
identical products that exist in the industry.
Identical Products: Insurance products that are on offer served in the industry are almost
identical in nature. This is because most of the insurance products are developed a long
time ago and continued to be offered without significant modification. The existence of
identical products in the industry will intensify the competition because there is no product
differentiation and hence the competition is mainly based on other attributes such as price.
Stagnation of Long Term Business: The long term insurance business of the industry is
stagnant. The long term business generates only about 6% of the total portfolio of the
insurance business. Accordingly, the competition in long term insurance of the country is
characterized by taking each other’s business and this will increase the intensity of the
rivalry.
Existence of Sister Companies: In recent years financial institutions are established as
sister companies. There are a number of insurance companies which have sister banks and
there is a tendency to work together. There are also companies which are owned by
shareholders of insurance companies and market opportunities will be created to those
insurance companies without competition.

Exit Barriers: In the financial sector, where there are so many public liabilities and risks
attached, liquidation is not easy. Because of the relatively strong exit barrier, companies in
the insurance industry will have no choice but to work harder even where liquidation is a
better solution.

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THREAT OF NEW ENTRANTS
Low Capital Requirement: Since the introduction of the Proclamation which allowed
private local capital to carry on insurance business, the number of licensed insurance
companies is continuing to grow. This is because it’s generally easy to establish an
insurance company since the paid up capital requirement is relatively lower than what is
needed to establish another financial institutions like Banks. Theoretically, the relative ease
of entrance in the insurance industry will intensify the competition between companies to
the point where the return from investing in insurance is so low that the investors will
resort to another investment rather that establishing a new insurance company. The logic
fails to work in this respect, even though there are a number of investment opportunities
that yield more return than insurance companies do.

Limitation of Investing In Insurance For Only Local Investors: Establishing an insurance

company is only allowed for local investors by law. Though this will create the opportunity
for local investors and increase the number of entrants in the industry, it also avoids new
entrants from the international markets whose impacts would have been very threatening
to the local investors and insurance companies. In general it can be said that the regulation
has a role in avoiding new entrants which are very strong and might have dominated the
insurance market.

Initiatives to Establish Stock Market: Recently there are some initiatives towards
establishing stock market in the country. This will motivate investors to participate in
buying shares. This is because once the stock market is underway they will be able to
transfer their shares to others which will make the shares more liquid. The insurance
industry is no different in this respect, so investors will be attracted to buy shares of
insurance companies under establishment. These will attract new entrants to the industry
and also strengthen the financial capacity of the existing insurance companies and hence
there will be threat of new entrants.

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SUPPLIERS STRENGTH
The supplier’s strength analysis for an insurance industry lay on those institutions that
provide services like reinsurance, international brokerage, actuaries and ICT technology.
These parties have a relatively high strength as a supplier on EIC because:-
 Using limited number of reinsurers and international brokers will adversely affect
the bargaining position of the Corporation on terms and conditions of cover they
provide.
 Weak co-insurance arrangements between local insurance companies will create
strength for suppliers because the Corporation will need their support at large.
 Since the switching cost from one ICT supplier to another is very high, EIC is
unlikely to do so. This creates more strength on the suppliers of ICT
products/services.
 The numbers of firms that provide actuarial services are few; the suppliers of the
service have strong negotiation power.

BUYERS STRENGTH
The number as well as strength of buyers of insurance products has grown through time.
This is especially the case with corporate clients that have huge impact on the
Corporation’s portfolio. The reasons for the growing strength of buyers among other things
include:-
 Sensitivity to poor Services;
 Growing negotiating capacity of customers on policy terms and prices;
 Little or no switching cost for customers who shift from one insurer to the
other;
 Strong negotiating capacity of brokers on price and terms;
 Increasing demand to accept buyers on their own terms.
AVAILABILITY OF SUBSTITUTES
The other point of industry analysis of Porter is the availability of substitutes. To this end,
there are substitutes to some insurance products such as:-
 Self insurance
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  Microfinance institutions carrying on activities that should be done by insurance
companies
 Existence of community based associations – e.g. Meredaja Mahber, Edir & Ekub
Strategic groups of the industry and the type strategy pursued by the competitors

Currently, there are about 17 insurance companies operating in the country. Of these
insurance companies one is government owned and the remaining 16 are private owned
companies. Most of these insurance companies use almost similar strategies, price
competition.

Table2. Competitive Profile Matrix (CPM)

UNIC
EIC Nib Awash Africa
Weight
Rating

Rating

Rating

Rating

Rating
Score

Score

Score

Score

Score
Critical Success Factors
High quality Service .25 3 .75 3 .75 3 .75 4 1.0 3 .75

Good risk management .20 3 .60 3 .60 3 .60 2 .40 4 .80

Strong financial position .10 4 .40 3 .30 3 .30 3 .30 3 .30

Skilled manpower .15 4 .60 3 .45 3 .45 3 .45 3 .45

Effective marketing strategy .08 3 .24 3 .24 3 .24 3 .24 3 .24

Use of Technology .10 4 .40 3 .30 3 .30 3 .30 3 .30

Good investment .12 3 .36 3 .36 3 .36 3 .36 3 .36

management
Total 1.0 24 3.35 21 3.0 21 3.0 21 3.05 22 3.2

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Analysis of Competitive profile matrix

Out of the 17 insurance companies providing an insurance service in the country, Nib,
Awash, Africa and UNIC are considered the major competitors of EIC. The average weighted
score of the five insurance companies is 3.15. EIC’s weighted score is 3.35, which is above
the average weighted score. This indicates that EIC is operating very well.

INTERNAL ENVIRONMENT ANALYSIS

Core Competencies of Ethiopian Insurance Corporation

Core competencies are resources and capabilities that drive an organization to a

competitive advantage over its competitors, and they must fulfill the following criteria to
be considered as core competencies:

* Valuable
* Rare
* Costly to imitate
* Non-substitutable
So having in mind the above criteria, Ethiopian Insurance Corporation has the following
core competencies.
 High Insurance Professionals
The corporation has a lot of highly skilled and well experienced insurance
professionals. The corporation only recruit fresh graduates then nurture them with
various types of insurance exposures and trainings in the country and also
internationally.
But it's hard to say with full mouth that the corporation is exploiting this huge
potential to its advantage, because according to survey conducted by the
corporation's change management directorate, employee satisfaction is very low,
about 58% of the employees are dissatisfied by the corporation. (Strategic
document, EIC 2014) yet the corporation is growing in respect of profit and the like,
so we can simply tell that the corporation would have been performing way better

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 than its current performance if it corrects the unsuitable conditions that dissatisfies
its majority of its employees.

 Physical Assets
The corporation has several buildings in Addis Ababa and also across the countries
and almost it works in its own building everywhere in the country. This helps the
corporation to improve its image, increase its asset, decrease production cost and
also increase income by renting the buildings.
 Financial strength
If there is one thing the corporation acquires from its long time service in the
industry, it would be its financial strength.
For Insurance Corporation financial strength includes its ability to pay its current
liabilities, underwriting capacity, claim payment capacity and the like. So from its
long time relationship with internationally respected re-insurers, the corporation
has developed a huge capacity of underwriting and also claim.

Business Model

The insurance industry business model can be categorized into two types of main activities,
service domain and support domain. Service domain activities make up the company's
value chain and support domain provides the infrastructure and support to sustain the
value chain. Support activities may include corporate services, finance, human resources,
or information systems and technology.

Insurance Value Chain

A value chain provides a functional model for an organization. It constitutes of the service
domain, technological domain and the organizational domain and models the various
functions an organization must perform to deliver. It is through the act of defining these
domains that roles and responsibilities are defined, and organizational structure comes
into view. A value chain describes the company's product offering from start to finish. A
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value chain is a chain of activities that a firm operating in a specific industry performs in
order to deliver something valuable (product or service). A business unit is appropriate
level for construction of a value chain, not divisional or corporate level. Products pass
through activities of a chain in order, and at each activity the product gains some value.
Chain of activities gives the product more added value than sum of the independent
activities.

The following seven primary activities depict the corporation's value chain as an end-to-
end process:

Marketing

Marketing plays a vital role within the corporation. It is the first step in the value chain
process for the corporation. At this point, a business must determine which policies it will
offer. It is used to increase the corporation’s sales and sustain marketplace positions.
Marketing tactics and strategies are developed to target consumers and prospects to cover
their insurance needs for home, health, life and commercial coverage.

Risk Modeling

As part of marketing, the corporation determines policy mix and pricing strategy. To
determine how premiums will be calculated for each policy, the corporation must also
perform risk modeling. Risk management is very important for the corporation. Insurance
means that insurance companies take over risks from customers. Hence, the corporation
considers every available quantifiable factor to develop profiles of high and low insurance
risk. Level of risk determines insurance premiums. Generally, the corporation charges a
higher rate for insurance policies involving factors with greater risk of claims. With much
information at hand, the corporation can evaluate risk of insurance policies at much higher
accuracy. To this end, the corporation collects a vast amount of information about policy
holders and insured objects.

Insurance products are priced, or rated, according to a complicated algorithm that matches
risk characteristics to the possibility of a claim. Rate adequacy ultimately plays a vital role

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in achieving an underwriting profit. Using the information gathered from risk modeling, the
corporation can then determine the actual prices for each policy.

Sales

Once the marketing and risk modeling is achieved, the corporation is now in a position to
begin selling its insurance policies to customers. Most insurance buyers work with
insurance agents to determine and address their insurance needs. The agent is the primary
source of information, education and advice. However, today’s buyers are demanding more
choices and insurance companies are trying out more varied sales strategies to reach a
much broader base of potential clients. The corporation is experimenting with
orchestrating a mix of diverse distribution channels - including the internet, call centers,
social media and/or agents – to meet the changing needs of the market. Selling involves
quotations, proposals, risk assessments, and commission calculations. Commissions are
paid to all parties involved in the distribution channel.

Policy Administration

Having sold a policy, the next step is to write the policy. The corporation uses policy
administration systems to handle its applications, policy changes, anniversary processing,
and other business-critical functions. This step involves keeping full record and providing
support for all policy lifecycle transactions - from policy issue, billing, collections, and
policy processing to claims.

The corporation produces thousands of printed insurance policies each year. These policies
are created with the help of technology, with clerks and support staff responsible for the
accuracy and timely delivery of the documents. An army of staff oversee the assembly,
printing and mailing of each policy, as well as the filing or archiving of all documents for
future reference.

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Billing

Every issued policy the corporation sells is a financial transaction that must be booked,
tracked and supported. Billing departments produce invoices, accept payments and
coordinate monthly payment plans for the each policy. The billing department is also
responsible for providing customer support on all issues related to billing. Customers can
be billed once their policies have been written.

Claims

Customers who have paid their premiums may at some point make a claim. Efficient claims
management is vital to the success of both large and small companies working within the
corporation. Major components of the claims handling process include developing
strategies to cut costs and reduce fraud while keeping customers satisfied. Claims should
be sent to the company claim department within an appropriate time period. Once a claim
has been filed and, when applicable, after any additional documents that are required to
process the claim have been received, claimants are informed of the acceptance or denial of
the claim within a reasonable amount of time after the receipt of the notification.

The corporation contacts any other company that is involved in the claim within a
reasonable amount of time, and resolves inter-company claim disputes as quickly as
possible. The insurance company endeavors to settle the claim as soon as possible and
advises in writing the policyholder on the reasons for any delay. Quick claims settlement as
well as high-quality and punctual information provided to the policyholder are key
competition features for corporation. After an agreement has been reached between the
corporation and the policyholder on the amount of compensation, the payment is effected
within a reasonable amount of time.

Customer Service

The customer service activity involves serving the needs of customers until their policies
expire. Customer service is clearly very important for the corporation to win new
customers and retaining existing ones. With this regard, the corporation provides advisory

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services, informational services and transactional services. Each category focuses on
achieving specific goals or outcomes and generally is associated with a service channel
through which services are delivered. Advisory services are the most interactive category
and generally focus on longer term relationships, ensuring that customer needs are
satisfied with appropriate insurance products or services. Such services are a critical
component of long term value, since customer insurance needs change over time.

Functional Resources and Capabilities

Organizational Structure

The organizational structure of the corporation is depicted as follows:

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Strategic Marketing, Research and Development Issues

A. Marketing, Research & Development Strengths

 Having multiple distribution channels especially in Long term insurances is a
competitive advantage to EIC as it enables it to access its customers and also exploit the
enormous potential of long term insurance in the country. And wide distribution
network outreach as compared to competitors and over 260 active agents, works with
banks and all insurance brokers in Ethiopia.
 Maintaining a leading market share in the industry, 41.1 % by the end of the 2014. EIC’s
gross written premium has been growing on average by 25.3% for the last three years.
This is a bit lower than the average growth rate of the industry’s gross written premium
which is 27.1%. However it’s fair to say that the Corporation is still on a good ground in
copping up with the industry growth and hence just maintain its leadership in gross
written premium in the industry.
 The Corporation has goodwill that is acquired through:-
 Its long term service, known brand, reliability, huge claims settlement capacity & its
contribution in fulfilling its corporate social responsibility.
 Its membership & key role in different regional organizations; and
 Its relationship with internationally accepted reinsurers & brokers.

B. Marketing, Research & Development Weakness

 The promotional, public relation & awareness creation activity of the Corporation about
its products and services is not at the desired level. According to a survey conducted by
BSC committee in 2005 E.C, 62.7 % of employees think that the promotional and
advertisement activity of the Corporation is not sufficient and only 8.8% think that the
Corporation is good.

The product development, assessment and price revision of the Corporation should be
innovative and should be in line with the development agenda of the country and the
growing demand of the economy. The attention given in this respect is not as expected.

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 According to the employee survey conducted 58.1% of the employees believe that the
Corporation is poor in product development, assessment, product and price revision
and only 6.5% believe EIC is good in those aspects.

 Weak recruitment follow-up and retention of agents. Up until now EIC has trained 1,
502 agents however only 260 agents are actively working.

 EIC’s customer retention has not been satisfactory over the years. For the last three
years from the total renewable policies on average 19.1% were lapsed for different
reasons. Fire, Motor & Workmen’s Compensation classes of businesses take the largest
shares from the total lapsed policies. One of the major reasons for lapse is in Fire
policies (though there are cases where the number of fire insurance policies decrease
because of the inclusion of individual condominium fire policies in to one master
policy), because most clients buy the policies as a requirement to qualify for bank loans
and they tend to terminate their policies once the loan has been repaid. EIC should
follow up those customers and persuade them to continue their insurances. Attention
should be given as to why policies lapse and act accordingly to reduce the lapse rate as
much as possible.

 One of the ways of exploiting a new market opportunity in insurance is through office
business (i.e. through direct marketing activity of the insurer itself). According to the
redesigned business processes, EIC has developed a system as to how the marketing
processes of the Corporation at different levels should work in order to exploit the
market potential. Though the process has been in implementation for more than a year,
the marketing activity in respect to the mentioned end has not been satisfactory
especially in districts and branches. In order to achieve the targets that will be set by the
Corporation, much should be done by the marketing teams in Districts and Branches in
soliciting new businesses.

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 In its current strategic plan, EIC has pointed out some directions as to what its
marketing strategy should be. The marketing strategy incorporates the mixed use of
service differentiation, pro-activeness in understanding the needs & wants of customers
and focus on a segmented market that will have a huge potential to the Corporation and
is also in line with the development agenda of the nation. Over the strategic periods, this
strategy has not been given due attention and its performance has not been monitored
and evaluated. Furthermore, the strategy itself is not clear and is not developed to be a
standard marketing strategy of the Corporation. So EIC should have a well developed
marketing strategy that will show the way as to how to achieve its goals set and hence
the mission and vision of the Corporation.
 As a financial institution, EIC should extensively work in research and development
that will massively contribute in achieving it mission and vision. However the research
and development activities of the Corporation are not to the desired level.

Strategic Financial Issues

A. Financial Strengths
The financial strength of EIC is analyzed by considering the average three years’ financial
ratios and comparing it with international standards and standards set by the NBE. Most of
the financial ratios are average ratios of the general insurance business for the last three
fiscal years (2011-2014 F.Y.) which are collected from the Risk Management Guideline of
the Corporation, which is under development. In some cases where the data are available,
the ratios of the existing insurance industry are used for the analysis. The major financial
ratios analyzed are:-

 Liquidity Ratio:- it measures the case with which an asset of EIC can be converted in to cash
with approximation of its true value. The average liquidity ratio of the Corporation for the
last three years is 1.07% which is higher than the maximum liquidity ratio set by the NBE,
1.05%. This shows that EIC is slightly over liquid. EIC’s asset slightly exceeds its liabilities
implying low risk. Therefore, cash, marketable securities, accounts receivable or inventory
should be increased in order to minimize the risk.
Strategic Plan formulation of Ethiopian Insurance Corporation Page 24
 Solvency Margin: - This ratio measures a business organization’s ability to meet its
financial obligations on time. The acceptable value for this ratio is from 50 to 100 and
average solvency ratio of EIC for the three years is 61.3. This shows EIC is within the
acceptable range and able to meet its financial obligations on time.

 Return on Equity:- it shows the effectiveness of the Corporation to produce returns for
the equity invested in it. The net return on equity that is the ratio of net income/profit
after tax to EIC’s statutory equity is on average 55.7% which is way higher than the
industry standard which is >10%. This shows that the Corporation is very profitable
over the years.

 High Paid Up Capital: - the paid up capital of the Corporation is Birr592 million. This
gives the corporation an investment opportunity.

 Claims Ratio: - measures underwriting profitability of different portfolios and the ratio
may vary from one class of business to another. The higher the claims ratio, the higher
the probability to business loss and vice versa. Hence diversification of different class of
business could contribute to minimization of loss. For the past three years the average
claims ratio of general insurance business is 68.9% which is within the industry
standard which is max of 70%. However EIC need to work on the diversification of
products as well as identify problems related to claims ratio at each class of business.

B. Financial Weakness
 Credit Control System:- Though it’s expected to be addressed by the implementation of
the enforcement of the “No premium No cover” provision, one of the financial weakness
of EIC is its credit control system. Over the years, EIC has accumulated huge amount of
uncollected premium due from its clients. There are two main ratios to measure the
credit risk of the Corporation.

Strategic Plan formulation of Ethiopian Insurance Corporation Page 25

 Net Trade Debtors to Statutory Equity: - this ratio measures the extent to which the
Corporation’s equity base would be impacted if outstanding debts were not collected
from trade debtors. The acceptable value for this ratio is below 50%. For the last three
years, EIC’s net trade debtors to statutory equity ratio have been showing a consistent
increment being 30.8% in 2012, 31.3% in 2013 & 77.0% in 2014. These in turn will an
adverse effect on the Corporation’s solvency ratio, investment capacity and reputation.
It also implies that EIC will have a capacity problem in meeting its short and long term
financial obligations.

 Total Receivable to Statutory Equity: - it measures the extent to which EIC’s equity
would be impacted if total receivables were not collected from debtors (i.e. both trade &
other debtors). According to the draft risk management guideline of EIC, the acceptable
value for this ratio is below 50% & EIC’s average for the past three years is 59.1%. This
would have impact among other things on EIC’s capital & surplus position, solvency,
increasing liability, decreasing its investment potential.

 Return on Investment: - this ratio measures the extent to which EIC can earn from
investment and average cash. According to the risk management guideline of the
Corporation, the investment yield ratio should be above 6%. The average investment
yield of EIC for the past three years is 6.6% which is slightly higher than the standards.
Given its financial capacity and hence potential to invest, EIC has invested much less
even than the limit set by the NBE for insurers. Though the following ratio analysis are
done only on general insurance business by the risk management directorate, they show
how the Corporation’s investment are below the limit set by the regulatory body in
specific areas and also its potential.
 Investment in Shares:- According to the NBE regulation, the total investment in
shares to admitted asset for general insurance is limited to 15%. However the
average investment ratio for this specific area of investment for the last three years
is on average 2.9% which is below the limit set in the investment directive.

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  Investment in Real Estate:- in this particular area, the regulation states that an
insurer shall invest not more than 10% of its admitted asset in respect of its
general insurance business. However there is no particular investment in this area
for the Corporation during the past three years. This shows that the Corporation
could significantly increase its investment yield by investing in this area.

Strategic Core Process Issues

A. Core Processes Strengths
 The implementation of BPR which moves the Corporation a step forward in improving
customer service delivery.
 The redesigned structure of long term insurance gives emphasis to long term insurance
business. This in principle will allow EIC to exploit the huge market potential of long
term insurance business in the country.
 According to a data by J.B Boda insurance brokers about the ideal portfolio mix of an
insurance company, and comparing it with the average portfolio mix of EIC for the last
five years, the risk management guideline of EIC explains that there is a good amount of
diversification in portfolio generated in general insurance category of the Corporation.

Class of J.B. Boda Insurance EIC’s last five

Business Brokers’ Ideal years average
Portfolio Mix portfolio mix
Motor 40-45% 29.7%
Marine 10-15% 22.1%
Fire 9-10% 7.9%
Engineering 10-15% 15.2%
Others 30-35% 25.1%

Strategic Plan formulation of Ethiopian Insurance Corporation Page 27

 B. Core Processes Weakness
 In the eyes of the customers, the true worthiness of an insurance company is measured
when the insured peril materialize. At that time the company is expected to process the
claims in an efficient and reliable manner. In the redesigned business process, EIC has
designed its claims payment system in a way that it would be efficient in meeting
customers’ expectation and also being cost effective as well. However because of
different reasons the Corporation is still having problems in properly implementing the
redesigned system and hence meeting customers’ satisfaction.

 The rate charts & the terms and condition of the insurance covers are not revised in
response to the dynamic market environment. In some classes of business, the
premium price charged for insurance covers does not commensurate to the risk
transferred to the Corporation.
 The retention capacity in general insurance, particularly in Aviation, Marine, &
Engineering & Fire Classes of Businesses is low. This is due to among other things EIC’s
low paid up capital.
 According to a research conducted on life insurance, currently only 6% of the total
portfolio of the insurance business is generated from life and related insurances.
Furthermore the growth rate of the life insurance premium for five years up to June 30,
2014 is on average 26.8%. The low market exploitation of the life insurance is explained
further by it density and penetration. The average insurance density of the life
insurance for the past five years is 0.9%. This life insurance density (life assurance per
capita) shows that on average a person spends 0.9 Birr annually for life insurance in the
country. Additionally the life insurance penetration in the economy for the same
periods is on average 0.029%. This shows that the life insurance contributes only
0.029% to the total GDP of the economy over the years. (Birritu, No 111, 2014)
 Decreasing private sector market share of EIC from the industry’s total private sector
premium. In 2014 the private sector share of premium for EIC was 21.4% while it was
22.8 % in its preceding year.

Strategic Plan formulation of Ethiopian Insurance Corporation Page 28

Technological Issues
A. Technological Strengths
 The competitive advantage that the Corporation enjoys is the implementation of
insurance & accounting software packages. This is expected to improve EIC’s service
delivery in terms of time, cost and meeting customers' expectation. The introduction of
the accounting software packages will also improve EIC’s inventory management and
administration.

B. Technological Weakness
 The data center is located in a place where there is high physical security risk.
 The data center does not have sufficient humidity and air conditioner and safety
measures.
 Since the Corporation is becoming highly dependent on IT, it should have data recovery
center or recovery site. There should also be a contingency plan so as to sift towards
that in case of failure of the technology.
 The types and diversification of IT professionals are limited. It also lacks the necessary
human resource development and succession plan.
 Failure to meet the stretched objectives set for IT related tasks such as online customer
service, portal (SMS) service, minimum or no down time, full automation of support
processes within the Corporation, sustainable and efficient networking and efficient
application development.
 There are few certified IT professionals to minimize dependency on outsourced
suppliers.
 Though a central database is established with the introduction of the insurance and
accounting software packages, it’s difficult to retrieve past data prior to the introduction
of the software packages. This is because the Corporation’s historical data in different
parameters are not fully encoded in the central database.

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Resource Management
A. Resource Management Strengths
 Equal employment opportunity and fair requirement and selection of new employees.
 EIC has physical assets such as buildings, transportation equipments (Towing Cranes &
Vehicles) and its own garage that puts it in a stronger position than its competitors in
the industry. This will create a competitive advantage among other things in its
operations, profit, reliability and building good image.

B. Resource Management Weakness

 Weak performance measurement & management systems, and consequently poor
reward and motivation scheme.
 According to the survey conducted by the committee the current level of employee
satisfaction is low. The employee satisfaction is assessed based on the points such as
compliant handling of the Corporation, employee benefit, nature of the work, working
relationship with colleagues and bosses and also decision making at different levels of
the Corporation. Based on these points on average only 23.4% of the Corporation’s
employees are satisfied. About 58% of the employees feel that EIC is poor in compliant
handling & employee benefit and also placement, promotion & transfer process of EIC is
not clear.
 To calculate the skilled manpower turnover (Regrettable Turnover:- it represents key
individuals, individuals with critical skills, diverse individuals, individuals in a hard to
fill positions or future leaders), the team considered the total number of employees that
have qualification with bachelor degree or above and the number of employees
voluntarily leaving EIC with the same educational qualification. Based on this
calculation the turnover rate for the 2013/14 fiscal year is 7.5%. This is higher than the
average voluntary turnover rate of the insurance industry which is 6.9%. According to a
survey conducted by Work Force Management 2014, Turnover rate by industry
benchmark survey.
 There is no well developed job evaluation system. The jobs in all processes should be
evaluated with in a limited time interval so that some adjustments should be made
Strategic Plan formulation of Ethiopian Insurance Corporation Page 30
 based on the changes that affect the nature of each job such as the work load, the
change in environment relative to the job etc.
 There is no succession plan.
 EICs should have a well developed human resource development scheme.
Leadership
A. Leadership Strengths
 Commitment to execute initiatives that bring change to the Corporation e.g. BPR
 One of the new things that came with the undertaking and implementation of
redesigned business process in EIC is the emergence of a new process called risk
management to the Corporation. Managing risk is one of the most important things in
an organization and it’s a matter of survival in insurance companies in particular.
Though there is a lot to be done in establishing a well developed risk management
system at Corporate and different levels of the Corporation, the introduction of the
process itself in the Corporation a huge step forward.

B. Leadership Weakness
 Leadership’s involvement on day to day activities, so little emphasis is given to strategic
issues.
 The strategy of EIC is not communicated & aligned with the day to day activities of the
performer.
 The decision making process at different levels of leadership is not timely &
efficient.
 Lack of pro-activeness in the dynamic environment

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Table3. Synthesis of Internal Factors

Weighted
Weight

Rating

Score
Internal Factor Comments
Strengths
Strong Financial position .25 4 1.0 Excellent
High paid up capital .20 3 .60 Very good
Technology .10 2 .20 Satisfactory
Physical Asset .15 4 .60 Very good
Weaknesses
Claim service .10 3 .30 Not satisfactory
Decision making .08 3 .24 Not efficient and timely
Reward and motivation .04 3 .12 Poor
scheme
Performance evaluation .08 2 .16 Poor
Total Score 1.0 24 3.22

Corporate Strategy
Based on the outcome from the environmental scanning and the outcome of the newly
revalidated mission, vision and values of the Corporation, the next step is developing the
corporate strategy. The corporate strategy is a guiding book that shows what should be
done and how it should be done to achieve the vision set by the Corporation. Here, before
proceeding to activities that are performed in this step, one should define what strategy is.
Strategy:-

 Is about broad business options and choices that have organization-wide impact. There
is always more than one way to achieve a vision or support a mission;
 is a hypothesis of the best way for the organization to achieve its vision and mission;

Strategic Plan formulation of Ethiopian Insurance Corporation Page 32

 requires selection among alternative ways of doing things, focusing on a few things, and
deferring or rejecting the rest;
 Can be long-term (e.g., “What must we do to achieve our vision?”), or short-term (e.g.,
“What should we do to achieve our short-term business goals?”);
 Answer the broad question “What approach (as) should we pursue to get the results we
want?”;
 Is different than tactics; tactics answer more narrow questions, such as: “What specific
actions should we take at our levels, which are consistent with the organization’s
overall strategy?”

NAMING PERSPECTIVES WITH WEIGHTING

The group identified four perspectives. These are;
 Financial perspective;
 Customers perspective;
 Internal Business Process Perspective; and
 Learning and Growth perspective

Financial perspective
The firm should set first perspective “financial” in view of the fact that it is a profit making
public enterprise. On top of this EIC is expected to support the government in fostering
national economic development while maximizing profit as well as paying part of its profit
as dividend to the government. Therefore, our group believes that its owner focuses not
only on its financial performances (making profit) but also on the roles it should play in the
national economic development. Accordingly, the weight allocated for this perspective is
25%.

Customers’ perspective
EIC has included this perspective when choosing measures for the “Customer
perspective” to answer two critical questions: Who are the target customers? And what is
the value proposition in serving them? It is to give due attention in terms of increasing
Strategic Plan formulation of Ethiopian Insurance Corporation Page 33
access to customers in order to achieve targets set under financial perspectives. 20%
weight is set for this perspective.

Internal Business Process Perspective

Here, EIC should identify the key processes that enable it excel at in order to continue
adding value for its customers and, ultimately to its shareholders. Our task in this
perspective is to identify those processes and develop the best possible measures with
which to track a progress. To satisfy customers and shareholders expectations, one may
have to identify entirely new internal processes rather than focusing its efforts on
incremental improvement of existing activities. Product development, production, delivery,
and post sale service may be represented in this perspective. This perspective is weighted
30%.

Learning and Growth Perspective

If EIC commits itself in achieving its ambitious results for internal processes, customers,
and financial targets, where are these gains found? The measures in the Learning and
Growth perspective of the Balanced Scorecard are really the enablers of the other three
perspectives. It touches employee competency, information systems, and organizational
capitals necessary to achieve its results. The measures EIC should design in this perspective
will help to close that gap and ensure sustainable performance for the future. It accounts
for 25%.
CUSTOMER VALUE PROPOSITION
One of the benefits of the strategy formulation is that it gives emphasis and tells that one
should have to develop its strategy putting its customers’ needs at the top of its attention.
To this end, as we have seen above in the customer perspective, the Corporation should ask
two important questions: Who are its target customers? And what is its value proposition
in serving them? The answers to these questions will be the building blocks of the strategic
themes and results. Customer value proposition is developed by answering these two
questions in detail. Customer value proposition helps in:

Strategic Plan formulation of Ethiopian Insurance Corporation Page 34

  Aligning an organization’s product or service with the values and needs of
customers;
 Identifying how the organization’s product or service will provide a unique benefit
to the customer;
 Distinguishing an organization’s product or service from competitors;
 Giving focus to customers by deliberately seeking to understand and respond to
customers’ needs, to build brand loyalty and support from your customer base; and
 Understanding how the organization’s products or services satisfy the needs and
wants of customers.

In developing the customer value proposition for the Corporation, first the primary
customers should be selected. The primary customers of the Corporation will be selected
based on their portfolio generation premium, loyalty, purchase of diversified product, high
bargaining power, high contribution to national development, high customer life time value
(prospects) etc
Based on the parameters, the clients of the Corporation are divided in to two broad
categories, Corporate and Retail Clients. EIC’s primary customers are the Corporate Clients
which include:-
 Governmental organization
 Financial institutions
 Public enterprises
 Private organizations and
 NGOs
The customer value proposition is developed by giving primary emphasis to the above
customers. The customer value proposition of EIC is developed by identifying what
primary customers seek from it on the following three categories:
 Its functionality and performance
 Its relationship with them
 Its image on the eyes of the public

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STRATEGIC THEMES AND STRATEGIC RESULTS
One of the most important stages in formulating a corporate strategy is developing
strategic themes. Strategic themes broadly define the business and allow the organization's
vision to be decomposed into operational effort. They represent the major focus areas of
the organization; they are the “Pillars of Excellence”.

The main focus of this strategy should be in selecting ways to achieve the expected results
based on the parameters. Consequently, the themes and hence the thematic results that
emanate from them are based on their importance in achieving the Corporation’s vision.
Based on this objective in mind, the following themes and their results are selected.

Theme One:
OPERATIONAL EXCELLENCE
Timely, reliable & value added customer service, Efficient risk
Result: management, efficient & effective investment, & cost effective
execution

Theme Two:
BUILD THE BUSINESS
Result: Leading the industry in terms of accessibility, product development,
portfolio, ensure sustainable growth and development to proactively
respond to the dynamic business environment.
Theme Three:
BEING A DEVELOPMENT PARTNER
Result: Increase stakeholder’s value, support the national development
agenda & play a forefront role in the insurance industry.

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