Basic Categories of Insurances under Ethiopian Law
Basic Categories of Insurances uder Ethiopian Law
Types of Insurance in Ethiopia – Insurance is a way of protecting oneself from financial loss. It is a kind of risk management in which one pays a premium (fee) to the insurer (which can be the state, a bank, or any other designated financial institution) in order to receive a stipulated payment in the event of losing whatever has been insured, due to an accident, or any other event in which the insured (policyholder) does not have a hand.
Types of insurance can vary from place to place, and this could be determined by various factors including Religion, Culture, and Topographical factors including the Climate and other factors like the kind of occupations that are dominant in the area.
In this article, we are specifically looking at types of insurance Ethiopia, Ethiopia which is a landlocked country of over 102 million inhabitants, and over 1,100,000 square kilometers of ground. The country has a population of Christianity, and the Ethiopian Orthodox Church(which is one of the Worlds Oldest Religious Institutions) is the most populous single religious organization in Ethiopia. Islam and Traditional Religions are also common.
Ethiopia is one of the world’s oldest civilizations and has transitioned through a long history of unrest, particularly invasions and rebellions which were sponsored by foreign countries, cumulating in occupation by Italian forces, during the World War II era.
Ethiopia has a strong national identity, and a sense of pride which is evident in the way things are done, and the country organized. Therefore, Ethiopia does not commonly follow the cultures, and ways of life, of other countries. They prefer to grow their own culture, language, and so on. It is worthy of mention that the Insurance laws of Ethiopia are in many ways unique.
Types of Insurance in Ethiopia
Ethiopian Law recognizes that some of the most serious financial loses that a person can face are those that arise from possible loss of home from fire, personal injury arising from an accident, perhaps a vehicle accident, and the legal suit that arise from a lapse in judgment, or awareness, resulting in harming another. Therefore, provision is made to protect oneself from such occurrences.
Under Ethiopian law, there are three types of insurances; 1. Insurance against damages, 2. insurance of liability for damages and 3. insurance of persons. Without any further time wasting let us highlight them one by one.
- 1. Insurance Against Damages
Insurance against damages: The most common risks that a person faces, could be danger of making loses as a result of fire incidences, injury and damages could arise as a result of automobile accidents, the possible dispensation of property by arsonists, or thieves, and so on.
Insurance against damages or Property Insurance protects the insured from the loss caused by damage or destruction of physical property. This category of insurance covers losses caused by an accident or negligence that damages one’s personal property. For example damage to one’s vehicle as a result of a collision.
The purpose of all Property insurance against damages is indemnification- that is a technical term for compensation. It means that the person who makes the loss recovers back what he has lost. What the insured (policyholder) person gets is not more than what he lost in the first instance. Even if a person has Insurance Policies with more than one insurance company he does not get more than what he has lost. This is a matter of Law. The Ethiopian Commercial Code states in Article 678 that: “A contract for insurance of an object is a contract for compensation, Therefore compensation shall not exceed the value of the object insured on the day of the occurrence.”
Ethiopian Insurance companies provide such indemnification against losses on almost all kind of risks including fire, theft, vandalization, accidents, and so on, although exceptions are stated, for example, losses may arise due to war, invasions, nuclear disasters, and so on. In such cases, the policyholder must bear the loss by himself.
- 2. Insurance of Persons
Insurance of Persons means that such persons are indemnified against any risks arising from the death or injury to persons. Injury may also mean an illness that prevents the insured person (or policyholder)from functioning fully.
According to Article 654 of the Commercial Code the contract for the insurance of persons cannot be considered as compensation because compensation means paying a person equal to his loss, and because you cannot place a monetary value to human life, such contracts are freely fixed, as per the negotiation between the insurance company and the policyholder.
In the Insurance of Persons, there are two sub-categories which are Insurance for Life, and Insurance of Death.
- In the insurance for life, the arrangement is similar to what is available in western countries (called Annuity) in which the Insurance Company agrees to pay the policyholder a stipulated amount of money after a given time, having received a premium fee for an agreed period of time. Here it is called Endowment Life Insurance and is paid to the policyholder himself because he is alive. This kind of policy is not transferable to the dependents or beneficiaries of the policyholder. It expires at the death of the policyholder.
- The Insurance of Death, on the other hand, is an agreement between an insurance company and a policyholder in which the insurer agrees to pay a specified capital in the event of the death of the insured person. This money usually goes to the beneficiaries who have been listed in a signed document. Although in the event of lapses, such monies are usually paid to living relatives of the insured party.
The Insurance can be made on behalf of another person, regardless of whether there is any blood relationship between them. However the insured person must agree in writing, and if he has a wife, she too must agree in writing.
A person who buys the insurance policy can name any person as a beneficiary, without any blood relationship between the policyholder and the beneficiary. According to Article 705 of the Ethiopian Commercial Code “where no beneficiary has been specified or he has revoked or is not alive, the capital shall be paid to the estate of the policyholder.” That means that the policy shall become a property itself, and all those who have a right to inherit something from the deceased shall get a share.
There are two partly unsolved questions:
- What if the policyholder commits suicide? Article 699 states that the provision “shall be of no effect.” In other word, it becomes null and void.
- What if a beneficiary kills a policyholder? If a beneficiary kills the policyholder he loses his share. Other beneficiaries, however, shall get their share of the estate.
3. Insurance of Liability for Damages
In this category of Insurance a person who realizes that he could cause damage to others as a result of going about his daily business may sign a contract with an Insurance Company such that in the event of such damages, he may then call open the insurance company to pay damages to the injured party.
Article 685 of the Ethiopian Commercial Code states that “The insurer who insures a liability for damages shall not pay compensation until a claim is made against the policyholder with a view to amicable and settlement.” That means the injured must make a valid documented claim, probably of a legal form.
This category of Insurance policy is mostly used by corporate institutions to protect themselves financially against loses they may cause on others, including their own workers, during the carrying out of their daily business.
Questions that could possibly be raised include:
- What if the policyholder causes the death of a person? A person who has no life insurance with an insurance company. How much money is paid to the the relatives of the deceased? Remember that according to the Ethiopian Commercial Code states that payments to be made to the dead are not to be considered as compensation because compensation means that the loss is repaid, and human life cannot be valued with money.