Analysis of Market Power and Competitiveness of Ethiopian Insurance Industry

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Addis Ababa University


Competition in the economy can create a positive prospect for economic growth and development of a country. Competition in Ethiopian financial sector in general and insurance industry in particular should be strong enough for enhancement of efficiency, provision of better service to customers, greater innovation and lower prices thus resulting in improvement of consumers welfare and overall economic growth of the country. Since the introduction of modern financial sector in Ethiopia in 1905, the market structure of insurance industry in Ethiopia is characterized by competition and monopoly depending on the financial policies issued by the ruling governments of the country. This paper studies the existence of market power in the Ethiopian insurance industry during 2001- 2010, using non-structural measures of market power such as market share and Lerner index. And hence insurance market concentration is measured by using Herfindahl-Hirschman Index (HHI) and four largest insurers’ concentration ratio (CR). These measures suggest the existence of market power in insurance industry of Ethiopia and the sector was dominated by the single state owned Ethiopian Insurance Corporation (EIC). The major source of dominance tends towards government regulation that is prohibition of foreign investors in financial sector of the country in general and insurance sector in particular. The study also reveals that Ethiopian insurance market is highly concentrated and the top four insurers holds above 70% of the market share in terms of gross premium, total asset and capital. Key words: market power, market concentration, market dominance, entry barrier.



market power, market concentration, market dominance, entry barrier