Analysis of Market Power and Competitiveness of Ethiopian Insurance Industry
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Date
2012-06
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Addis Ababa University
Abstract
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.
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Keywords
market power, market concentration, market dominance, entry barrier