Developing and Structuring MTPL Insurance in Ethiopia

Project Development Objective (PDO)

This project aims to develop and restructure the Motor Third-Party Liability (MTPL) insurance market by amending the MTPL insurance legal framework, claims management, reinsurance policy, reserving requirements, methodology for risk-based premiums, and the structure of the information center to achieve sustainability in the long term. 


The insurance sector in Ethiopia remains small and underdeveloped. The Vehicle Insurance Against Third-Party Risk Proclamation (issued in 2008 and amended in 2013), which makes it compulsory for vehicle owners to have MTPL insurance, has resulted in a substantial growth of the motor account. However, only 30 percent of vehicles owners have MTPL insurance because of weak enforcement of the law. 
Challenges the Insurance Fund Administration Agency (IFAA) faces include (a) setting insurance premium and fund tariff rates, (b) dealing with the lack of reinsurance mechanisms, and (c) fast claims management. Assisting IFAA with the development and restructuring of the MTPL insurance market will increase the coverage of the sector. 


The project is assessing current MTPL insurance market practices in Ethiopia. The project will (a) develop a roadmap and time-bound action plan to design an information management system with data collection, (b) review MTPL databases and the current information center, and (c) provide advice on how to adapt the information center to market needs. In addition, the project team is (a) developing an actuarial model and methodology for risk-based premiums and reserve practices to improve and set sound management principles for the MTPL insurance sector, (b) providing advice on the MTPL legal framework to ensure timely and reasonable compensation to vehicle accident victims, and (c) designing a reinsurance program or pooling system. 

Expected Outcomes

The expected outcomes of the project at each level are as follows: 
Enabling environment level 
    1.    Improving the quality of the MTPL insurance legal framework to increase policyholders’
    2.    Ensuring IFAA staff members are aware of the changes to the MTPL insurance legal framework
           during development and restructuring of the MTPL insurance sector 
    3.    Developing a sustainable and inclusive MTPL sector with a detailed methodology for the
           actuarial calculation of premiums, reserves, and tariffs 
Financial sector (MTPL sector) level
    1.    Developing risk-based pricing and reserving requirements and practices to enhance the
           solvency and claims paying capacity of local insurers
    2.    Ensuring effective operation of the guarantee fund
Beneficiary level (policy holders) 
    1.    Transitioning to the risk-based tariff system with upgraded legal framework to enable fair
           pricing, adequate reserves, and timely claims payment
    2.    Increasing regulatory enforcement to result in a higher percentage of insured vehicles