Potential Contribution of E-Commerce

Application in Ethiopian Insurance

Industry

A research submitted to the Post graduate office in partial fulfilment of the

requirement for the award of the degree of Master of Business
Administration in Information Systems Management, Sri Sai College

Submitted by:
Tesfaye Abebe Tegegn

July, 2016
 ACKNOWLEDGMENT

My sincerest thanks to,

Dr. Birara Tesfaye

For the sound and unreserved supervision

My informants and field assistants

For the cooperation and hospitality

My fellow class mates

For friendship and support

My families

For the love, advice, care and motivation

My friends

For friendship and moral support

All the people who have shared their thoughts and understanding of the topic with me and I
am indebted to all the scholars on whose work I have learned.

i
 STUDENT DECLARATION

I declare that this thesis with a title “Potential Contribution of E-commerce Application
on Ethiopian Insurance Industry “submitted in partial fulfilment of the requirement for the
award of degree of MBA is my own work and I carried out this study independently with the
guidance of the research advisor. This study has not been submitted for the award of any
degree or diploma, fellowship or any other similar title or prize in any other universities or
higher learning institutions.

JULY /2016 MBA-ISM-0012/14 ________________

Date ID number Tesfaye Abebe Tegegn

Addis Ababa, Ethiopia.

ii
 Bona-fide Certificate

This is to certify that this thesis entitled “Potential Contribution of E-

commerce Application on Ethiopian Insurance Industry” is the
bona-fide work of Tesfaye Abebe Tegegn who carried out the thesis
under my supervision.

Advisor’s Name -------------------------- signature ----------------------

Date-------------------------------------------------

iii
 ABSTRACT

The purpose of this study is to find the potential contribution of e-commerce application on
Ethiopian insurance industry. The researcher’s particular emphasis was given only to the
insurance company. The study tries to answer the questions on: the attitudes and views of
insurers about e-commerce, potential requirements for the implementation of e-commerce on
the insurance companies, potential areas of business processes and products or services
suitable for e-commerce application, major affecting factors on deployment of e-commerce
and perceived benefits of e-commerce application to the insurance industry.

The general objective of the study is to understand the attitudes and views of insurers and the
current status of insurance companies for adoption of e-commerce. The research
methodology adopted for this study is quantitative through case study. A primary data were
collected through distributing questionnaire to top managers of the seventeen insurance
companies head office situated in Addis Ababa. Generally stratified probability sampling
method is used based on insurance company’s ownership, then primary sample units were
prorated proportionately according to their level of capital contribution in the industry. A
sample size of 80 was taken from the total 100 sample frame based on calculation method by
Taro Yamane.

Based on the data analysis the study found out that most of the insurance companies are
aware of the concept of e-commerce and they assume that e-commerce application would be
an opportunity to their company. Moreover, insurers believe that the implementation of it is
important to the sector. Even though infrastructure and manpower requirements are not
adequately fulfilled and major barriers to e-commerce adoption are huge, they consider that
the benefits outweigh the challenge and hindrances.

Hence, this study suggests that to solve the loop holes that exist in the insurance industry,
supportive partners and government bodies should work hard in addition to insurance
companies strong effort on training skilled staffs, investing on infrastructure, like hardware
and software installation and further effort on customer awareness creation about the
importance of insurance service in particular and online marketing in general.

iv
 TABLE OF CONTENT

Title Page

Acknowledgements ---------------------------------------------------------------------------------- i

Student declaration ---------------------------------------------------------------------------------- ii

Bona-fide Certificate -------------------------------------------------------------------------------- iii

Abstract ----------------------------------------------------------------------------------------------- iv

Table of contents ------------------------------------------------------------------------------------- v

List of tables ------------------------------------------------------------------------------------------ vii

List of figures------------------------------------------------------------------------------------------ viii

CHAPTER ONE: BACKGROUND OF THE STUDY

1.1 Introduction ---------------------------------------------------------------------------------- 1

1.2 Statement of the problem------------------------------------------------------------------- 3
1.3 Research objectives and questions-------------------------------------------------------- 5
1.4 Significance of the study------------------------------------------------------------------- 6
1.5 Scope of the study--------------------------------------------------------------------------- 6
1.6 Limitations of the study--------------------------------------------------------------------- 7
1.7 Organization of the study------------------------------------------------------------------- 7
1.8 Operational Definitions/Abbreviations--------------------------------------------------- 8

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction ---------------------------------------------------------------------------------- 9

2.2 Theoretical Review-------------------------------------------------------------------------- 9
2.2.1 The Internet and Wireless Communication------------------------------------- 9
2.2.2 An Overview to E-commerce----------------------------------------------------- 13
2.3 Empirical Review---------------------------------------------------------------------------- 24
2.3.1 Electronic Insurance--------------------------------------------------------------- 24
2.3.2 Insurance Market Overview------------------------------------------------------ 25
2.3.3 Global Insurance Market Trend-------------------------------------------------- 25
2.3.4 Insurance Market Trend In Africa----------------------------------------------- 27
2.3.5 Africa in a Global Context-------------------------------------------------------- 28
2.4 Insurance Industry In Ethiopia------------------------------------------------------------- 29
2.4.1 Introduction------------------------------------------------------------------------- 29
2.4.2 Ethiopian Insurance Companies------------------------------------------------- 29

v
 2.4.3 Insurance Market Trend In Ethiopia-------------------------------------------- 31
2.4.4 Insurance Services and Coverage------------------------------------------------ 31
2.5 E-commerce In Insurance Industry-------------------------------------------------------- 33
2.5.1 Factors of E-commerce in Insurance-------------------------------------------- 34
2.5.2 Potential Areas of Application of E-commerce-------------------------------- 35
2.5.3 Potential Concerns to E-commerce --------------------------------------------- 36
2.5.4 Insurance Value-chain vs E-commerce----------------------------------------- 38
2.6 Conceptual Framework -------------------------------------------------------------------- 39

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction ------------------------------------------------------------------------------- 42

3.2 Research Approach ---------------------------------------------------------------------- 42
3.3 Research Type ---------------------------------------------------------------------------- 43
3.4 Research Strategy------------------------------------------------------------------------- 44
3.5 Research Design ------------------------------------------------------------------------- 44

CHAPTER FOUR: EMPERRICAL FINDINGS AND DATA ANALYSIS

4.1 Introduction ------------------------------------------------------------------------------- 55

4.2 Response rate and Non-responses------------------------------------------------------ 55
4.3 Respondents’ personal profile---------------------------------------------------------- 55
4.4 Attitudes and Views of Respondents Towards E-commerce----------------------- 61
4.5 Potential Requirements for E-commerce---------------------------------------------- 64
4.6 Factors Affecting Deployment of E-commerce-------------------------------------- 65
4.7 Potential Areas of E-commerce Application------------------------------------------ 67
4.8 Benefits of E-commerce to Insurance Industry--------------------------------------- 70

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMENDATION

5.1 Introduction ------------------------------------------------------------------------------- 72

5.2 Summary of Key Findings -------------------------------------------------------------- 72
5.3 Conclusion -------------------------------------------------------------------------------- 75
5.4 Recommendation------------------------------------------------------------------------- 76

REFERENCES--------------------------------------------------------------------------------------- 79

APPENDEXES---------------------------------------------------------------------------------------- x

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 LIST OF TABLES

Table No. Title Page

Table 2.1: Unique features of e-commerce technology----------------------------------------- 15

Table 2.2: Global real premium growth rate, 2014----------------------------------------------- 26

Table 2.3: Insurance premiums, 2014 in developing countries--------------------------------- 26

Table 2.4: Insurance companies in Ethiopia ------------------------------------------------------ 30

Table 2.5: Ethiopian insurance services and coverage------------------------------------------- 32

Table 3.1: Regional distribution of insurance companies---------------------------------------- 47

Table 3.2: Proportional random sampling for each insurance company----------------------- 52

Table 4.1: Categorical age distribution of respondents------------------------------------------ 56

Table 4.2: Median age of respondents------------------------------------------------------------- 57

Table 4.3: Cross-tabulation of respondents’ field of study------------------------------------- 59

Table 4.4: The average level of awareness of respondents------------------------------------- 62

Table 4.5: The average level of potential requirements----------------------------------------- 64

Table 4.6: Valid percentage of potential requirements------------------------------------------ 64

Table 4.7: Tabulation of major affecting factors------------------------------------------------- 66

Table 4.8: Descriptive statistics in terms of departments---------------------------------------- 68

Table 4.9: The mean values for product suitability----------------------------------------------- 69

Table 4.10: The appropriateness of insurance products to online sales------------------------ 69

Table 4.11: Average perceived benefits of e-commerce----------------------------------------- 70

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 LIST OF FIGURES

Figure No. Title Page

Figure 2.1: The difference between e-commerce and e-business------------------------------- 12

Figure 2.2: The difference between internet marketing, e-commerce-------------------------- 13

Figure 2.3: Atypical insurance company value-chain------------------------------------------- 24

Figure 2.4: Discipline concerned with e-commerce---------------------------------------------- 36

Figure 2.5: Assumed frame of reference----------------------------------------------------------- 41

Figure 3.5: Number of respondents from the total sample frame------------------------------- 51

Figure 4.1: Distribution of respondents’ year of experience------------------------------------ 58

Figure 4.2: Distribution of respondents’ educational level-------------------------------------- 59

Figure 4.3: Occupation of respondents------------------------------------------------------------- 60

Figure 4.4: Perception of respondents on application of e-commerce------------------------- 62

Figure 4.5: Visualize readiness of insurers to adopt e-commerce------------------------------ 71

viii
 CHAPTER-ONE

BACKGROUND OF THE STUDY

1.1 Introduction
Electronic commerce, in a broad sense, is the use of computer networks to improve
organizational performance. Increasing profitability, gaining market share, improving
customer service, and delivering products faster are some of the organizational performance
gains possible with electronic commerce. Electronic commerce is more than ordering goods
from an on-line catalogue. It involves all aspects of an organization's electronic interactions
with its stakeholders, the people who determine the future of the organization (Chaffey,
2009).

Thus, electronic commerce includes activities such as establishing a Web page to support
investor relations or communicating electronically with potential customers. In brief,
electronic commerce involves the use of information technology to enhance
communications and transactions with all of an organization's stakeholders. Such
stakeholders include customers, suppliers, government regulators, financial institutions,
mangers, employees, and the public at large.

The trend of e-commerce application can be seen in two parts: developing and developed
countries e-commerce implementation trend. Most of its utilization was taking place in
developed countries and they are testing the benefits of it at large in all business sectors.
Obviously the adoption of e-commerce depends on capacity of fulfilling the necessary
infrastructural and manpower facilities in addition to creating awareness by the society. The
trend in developing countries like Africa is almost none. Lack of sufficient infrastructure
and skilled manpower are the main obstacles. Moreover, customers understanding about
electronic transaction, security reservation, resistance to online marketing and lagging of
supportive partners to adopt e-commerce were other barriers (Chaffey, 2009).

1
Almost every industry has been undergoing dramatic change for a number of years. Like
other industries in Ethiopia, the insurance industry has also considered the Information and
Communication Technology (ICT) as a channel of communication and advertisement rather
than as means of market distribution which is profoundly applicable in other countries.
However, with the existing rapid development of information technology, infrastructure and
globalization, there is no doubt that online insurance service can offer remarkable
opportunity in the industry. Thus studying about the prospective impact of e-commerce
application in Ethiopian insurance industry gives wider sense.

In general, deployment of e-commerce has huge impact on the business process of insurance
companies. The nature of insurance business by itself encourages the adoption of online sales
considering suitable products that needs less physical assessment. Better networking with the
international market, cost reduction in value-chain management, transparency and speedy
claims management, extended cooperation with partners and increasing sales volume are the
main benefits Ethiopian insurance industry gets through application of e-commerce.

“In the business world, the rear view mirror is always clearer than the windshield.”
Warren Buffett

2
 1.2 Statement of the Problem
The insurance sector is one of the most important service sectors in respect of its impact on
the whole economy and the society. And it’s obvious that most of world business is
challenged by higher risks that need to be controlled by another sector. Insurance companies
play a paramount role in minimizing risks against business and individuals.

According to KPMG International (2014), insurance companies should build upon four key
attributes that are essential ingredients to generate value-focus, efficiency; agility and trust-to
place their customers at the heart of their business and help them face the global
megatrends/changes over the coming decades, including demographic, social, environmental
and technological changes. Harnessing these traits, integrating them into their business
model and supporting operations empowers insurance companies, like other financial sectors,
and intermediaries to recognize, adapt to and succeed in the face of ever-shifting economic,
political and market conditions, that can position them to leverage new digital technologies,
react to competitive threats and seize emerging opportunities.

Currently the insurance industry, in Ethiopia, is lagging behind in application of information

technology except the adoption of internet browsing and advertising comparing to other
service and finance sectors. Most of the activities are under taken by traditional way of data
recording, transferring information and report delivering which directly affects the overall
work process by consuming more time, cost of paper, and more cost for human labour in
particular, and losses to the best competitive advantage in the global market. Despite it is
mainly engaged in information and information activities it will be more productive if the
sector utilized the information technology as a backbone. Moreover, most of the private
insurance companies, except some, are not able to transfer or interchange data on LAN
networking system leave alone the electronics way of transaction.

Since the industry is largely information intensive, application of internet marketing can
generate growth on the insurance industry. Because the use of online marketing increases
transparency, enhances customers’ power over the market, paves a platform for businesses to
make their own business networks, reduces the amount of capital needed for new entrants to

3
the market and it fills the gap formed between business and customers in respect of time,
location and information.

Even though the dominant insurance company, EIC, is on the way to widens its capacity to
join the digital world through adopting some kind of networking tools and software to
downsize cost of paper printing and reporting daily activities and to facilitate customer’s
interaction with the branch as well as main offices, most insurance companies are weak
potentially to meet the application of simple data interchanging tools. According to the
assessments made by the researcher on their company profiles, to mention some, Ethiopian
Insurance Corporation (EIC), Awash Insurance Company S.C, Nyala Insurance Company
S.C, Africa Insurance Company S.C, United Insurance Company S.C and Nib Insurance
Company S.C have better connections with other global reinsurance companies like Swiss
Re, Tunis Re, Kenya Re, China Re, Africa Re and Zep Re (PTA) reinsurance company
(NBE, Bulletin).

According to KPMG Insurance in Africa (2014), Some African countries, like South Africa,
Nigeria, Egypt, and Kenya …, are increasing their annual profit by working with
international insurance companies who adopt e-commerce as a means of stretching market
coverage and increasing their sales volume. As some research shows, most of the private
insurance companies in Ethiopia are in a way to merge them so that they can grow their
competitive power in the market and henceto adopt the electronic way of transaction to
compete in the global market.
Thus studying about electronics market and the use of online transaction adds value to the
national perspective on product development, market penetration, widening distribution
channels and keeping their competitive advantage.

Hence, studying the issue of potential impact of e-commerce in the insurance industry in
Ethiopia would be an input to bring awareness and understanding to policy makers,
regulatory bodies and concerned bodies in the country. In order to fill the gap that existed, in
a local/ global market, between the traditional and digital market, a prospective study to
explore the impact of electronic commerce on the Ethiopian insurance industry is vital.

4
Therefore the main concern of this study is to show the potential impacts, benefits and core
hindering factors of e-commerce application in the insurance industry in Ethiopia so that
company managers as well as policy makers use it as an instrument to introduce this system
of electronic transaction in the area of information communication technology (ICT).

1.3 Research Objectives and Questions

The purpose of this study is to examine the attitudes and views of insurers towards e-
commerce, to identify the potential requisites and areas of work process, and to see the
benefits of adopting online-based-marketing to draw values and progresses to the insurance
sector in the country. To understand the potential contribution of e-commerce application on
Ethiopian insurance market, it would be keen to make a thorough investigation on the areas
to be discussed. Consequently the researcher found grand objectives for studying on the
subject as stated below.

1.3.1 General objective

The general objectives of this study are:
 To know the views of Ethiopian insurance companies to e-commerce in order to explore
to what extent the industry is willing to adopt e-commerce and its importance.
 To examine current practices to ascertain the industry’s view of where it wants to go with
regard to e-commerce and what its priorities will be in this area.
 To identify roadblocks and missing capabilities that will need to be addressed for
increased e-commerce activity to occur.
 To investigate the potential areas of application where by e-commerce can change the
industry’s value chain.
 To identify the core benefits of e-commerce application to the insurance industry at large.
Hence, the concern of this research is to study the current situation of the Ethiopian Insurance
Companies, their attitude towards application of e-commerce, basic infrastructural and
manpower requirement, major factors affecting the implementation, the potential areas of
application and benefits of e-commerce to insurance industry in the country through
addressing the following research questions:

5
1.3.2 Research questions
The research questions of this study are:
1) What are the attitudes and views of the insurance companies regarding e-commerce?
2) How equipped the insurance companies are in infrastructure and manpower for
implementation of e-commerce?
3) What are the major factors affecting the application of e-commerce?
4) What are the potential areas of application of e-commerce in the insurance industry?
5) What are the expected benefits from application of e-commerce?
These questions will be discussed in chapter 2, research methodology, in detail.

1.4 Significance of the study

Comparing to other service sectors insurance products seems very suitable for online
production, administration and distribution since its services are informative. Even though
there is no concert adoption of online marketing in Ethiopian insurance industry, showing a
prospective study can help the industry to gain better understanding of the impact of the
application of e-commerce in Ethiopian insurance companies.

The main importance of this study is to clarify the unclear understanding on the adoption of
e-commerce through proposing a roadmap to evaluate their capabilities and competitiveness
in the market regarding e-commerce implementation in Ethiopian insurance industry. Despite
the fact that, an effective e-strategy is highly recommended in this regard, for all insurance
companies (insurers) in order to survive in the competitive market and to satisfy their
customers as well.

1.5 Scope of the study

The scope of this study can be expressed that the study only focuses on the insurance
companies. It is also demarcated its sphere only to the insurers not the stakeholders like
insurance agents, insurance brokers, customers, and concerned government bodies like
ministry of communication and information technology (MCIT), Ethio-telecom.

6
1.6 Limitation of the study
Despite the fact that the researcher tried to access all the insurance companies head office
managers, the representativeness of the sample might be a limitation due to the time and
cost of making less in-depth research. Even though an adequate sampling method were
undertaken, qualitative study on insurers, customers, insurance intermediaries can also be
done for through investigation on the application of e-commerce.

1.7 Organization of the study

This research is organized as follows:
 Chapter 1: provides a brief introduction to the current research on the subject.
 Chapter 2: considers the literature review and pulls on secondary research data from
around the world.
 Chapter 3: addresses on the proposed methodology in this regard and will lead to a
primary data collection and data analysis.
 Chapter 4: provides data presentation and analysis according to the field study
(survey).
 Chapter 5: conclusion and recommendations will be proposed in this final section and
also further suggestion for the next research and study will be provided in this
chapter.

7
1.8 Operational Definition/Abbreviations
Aggregatory- are usually independent providers who specializes in providing quotations
from different insurance companies for comparison purposes. The service is often
supplemented by general information on insurance products as well. These providers can also
be described as online insurance brokers or internet brokers.
Business Process (BP)- the process within a business or standardized set of activities that
accomplish a specific task. For example, processing a customer’s order.
Business to business(B2B)- e-commerce that takes place between organizations.
Business to Customer(B2C)-e-commerce sites that sell products and services or provide
information services directly to customers.
Commerce- people buying and selling products and services from and to each other
Customer relationship management (CRM)- use information about customers to gain
insights into their needs, wants, and behaviors in order to serve them better.
Customer to business(C2B)-consumers band together in order to obtain volume discounts
from a business.
Customer to customer (C2C)- consumers deal with each other. E.g. ebay
Digital signature- a digital code that can be attached to an electronically transmitted
message that uniquely identifies the sender
Disintermediation-cutting out the middlemen
E-commerce-commerce accelerated and enhanced by IT, in particular the internet,
E-government-describe the application of e-commerce technologies in governmental
agencies
E-marketplace- the electronic market place can be describes as meeting places over the
net(cyber) where large numbers of buyers and sellers interact.
Extranet- intranet that is restricted to an organization and certain outsiders such as
customers and suppliers.
Intermediaries- specialist companies that provide services better than their client companies
can themselves. E.g. call centers, UPS deliveries.
NBE- National Bank of Ethiopia, the regulatory body for finance sectors in Ethiopia.
MCIT: FRDE, Ministry of communication and information technology.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction
In undertaking research, going through various topic-related literatures is an essential part for
the study. It enables a researcher to get familiar with the subject background and to see the
theoretical as well as the empirical views of professionals and academicians. Though finding
relevant published material is a major activity in the early stages nowadays things became the
easier way of getting materials, thanks to technology. Through a literature review, one can
find out other people ideas, approaches, methodologies, findings and recommendations about
once subject of interest. Finally this activity will help the researcher to clarify the subjects,
define objectives and make an accurate understanding about the topic he/she wants to. Here
under the researcher provided the literature review part in two categories: as Theoretical and
Empirical review.

2.2 Theoretical Review

2.2.1 The Internet and Wireless Communication
Behind addressing the concept about internet, web and wireless communication technologies,
discussing about e-commerce would be impossible. After the introduction of digital data
transferring method, businesses had been beaten by the wave of internet technology.

According to Dave-Chaffey (2009), the Internet refers to the physical network that links
computers across the globe. It consists of the infrastructure of network servers and
communication links between them that are used to hold and transform information between
the client PCs and web servers. World Wide Web (WWW) is the most common technique for
publishing information on the internet. It is accessed through web browsers which display
web pages of embedded graphics and HTML/XML-encoded test. Wireless Communications
is an electronic transactions and communications conducting using mobile devices such as
Laptops, personal digital assistants (PDAs) and mobile phones with different forms of

9
wireless connection. For further detail the following section shows various scholars
perspectives regarding internet, e-commerce, e-business and e-market.

2.2.1.1 Internet
As Khan and Mahapatra (2009) remarked, technology plays a vital role in improving the
quality of services provided by the business units. One of the technologies which really
brought information revolution in the society is Internet Technology and is rightly regarded
as the third wave of revolution after agricultural and industrial revolution. The ubiquitous
nature of the Internet and its wide global access has made it an extremely effective mode of
communication between businesses and customers (Rowley, 2001). Thompson (2005)
introduced that the growth of Internet technology has enormous potential as it reduces the
costs of product and service delivery and extends geographical boundaries in bringing buyers
and sellers together.

The majority of internet services are available to any business or consumer that has access to
Internet. However, many e-business or e-commerce applications that access sensitive
company information require access to be limited to qualified individuals, business partners,
and customers as well as employees working in the organization.

As Chaffey (2009) stated, if information is restricted to employees inside and organization

called an Intranet otherwise, Extranet if access to an organization’s web service is extended
to some others, but not everyone beyond the organization. And along with other
environmental challenges, organizations face three critical strategic challenges as demand
risk, innovation risk and inefficiency risks (T. Watson et al, 2008). Hence internet is the main
device to reduce those risks.

2.2.1.2 E-commerce
E-commerce is defined in different ways by various scholars in different literatures.
Devendra et. al., (2012) defined it that electronic commerce, commonly known as e-
commerce or eCommerce, consists of the buying and selling of products or services over
electronic system such as internet and other computer network. E-commerce is the exchange

10
of information across electronic networks, at any stage in the supply chain, whether within an
organization, between businesses, between business and consumers, or between the public
and private sector, whether paid or unpaid (Cabinet Office, 1999). And it is also remarked
about opportunities of e-commerce for buy-side as well as sell-side e-commerce transactions
which is e-commerce transaction between purchasing organization and its suppliers and
transaction between a supplier organization and its customers respectively (Chaffey, 2009).

2.2.1.3 E-Business
Similar to e-commerce various literatures defined e-business in a different way since its main
interest is the same. E-business is the digital enablement of transactions and processes with in
a firm, involving information systems under the control of the firm. Electronic business (e-
business) is defined as all electronically mediated information exchanges, both within an
organization and with external stakeholders supporting the range of business processes
(Chaffey, 2009).

There is a debate among consultants and academics about the meaning and limitations of
both e-commerce and e-business. Some argue that e-commerce encompasses the entire world
of electronically based organizational activities that support a firm’s market exchanges
including a firm’s entire information system’s infrastructure (Rayport and Jaworksi, 2003).
Others argue, on the other hand, that e-business encompasses the entire world of internal and
external electronically based activities, including e-commerce (Kalakota and Robinson,
2003) as stated in figure 2.1 below.

11
Figure 2.1 The difference between e-commerce and e-business

Source: Introduction to e-commerce,

2.2.1.4 E-market

According to El-Gohary (2010), electronic Marketing (e-marketing) can be viewed as a new

philosophy and a modern business practice involved with the marketing of goods, services,
information and ideas via the Internet and other electronic means. By reviewing the relevant
literature it is noticed that definitions of electronic marketing (e-marketing) vary according to
each author's point of view, background and specialization. For that, while Smith and
Chaffey defines it as: ―Achieving marketing objectives through applying digital
technologies‖ (Smith and Chaffey, (2005).

E-marketing has a broader scope than internet-marketing since Internet Marketing (IM)
refers only to the Internet, World Wide Web, e-mails. While e-marketing includes all of that
plus all other e-marketing tools like: Intranets, Extranets and mobile phones. In contrast with
that, e-commerce and E-business have a wider and broader scope than e-marketing. To
summarize e-business, e-commerce, e-marketing and internet marketing has basic differences
as stated in the figure below.

12
Figure 2.2) The differences between internet marketing, e-marketing, e-commerce and e-business.
Source: El-Gohary et al, (2010)

Since the main theme of this study is to focus on the potential contribution of e-commerce on
business, particularly insurance industry, the next section will go through the importance and
wider understanding of electronics way of transaction.

2.2.2 An Overview to E-commerce

Electronic commerce or e-commerce may be defined as being ―Any form of business or
administrative transaction or information technology exchange that is executed using any
information and communication technology‖(e-centre UK). With the growth of commerce on
the Internet and the World Wide Web, e-commerce often refers to purchases from online
stores on the Web, otherwise known as e-commerce Web-sites. They may also be referred to
as "virtual-stores" or Cyber stores. Since the transaction goes through the Internet and the
Web, some have suggested another term: I-commerce (Internet commerce), or i-commerce
(Arora, 2003).

According to a book on e-commerce (2016), e-commerce is classified as below based on the

parties involved in the business transaction:
 Business-to-business (B2B). Most of e-commerce today is of this type. It includes
the EDI, Electronic Data Interchange i.e. the electronic transmission of business

13
 information between the computers of trading partners, transactions described earlier
and electronic market transactions between organizations.
 Business-to-consumer (B2C). These are retailing transactions with individual
shoppers. The typical shopper at Amazon.com is a consumer, or customer.
 Consumer-to-consumer (C2C). In this category consumer sells directly to
consumers. Examples are individuals selling in classified ads (e.g., www.clas-
sified2000.com) and selling residential property, cars, office and household furniture
and so on. Advertising personal services on the Internet and selling knowledge and
expertise is another example of C2C. Several auction sites allow individuals to put
items up for auctions. Finally, many individuals are using intranets and other
organizational internal networks to advertise items for sale or services.
 Consumer-to-business (C2B). This category includes individuals who sell products
or services to organizations, as well as individuals who seek sellers, interact with
them, and conclude a transaction.
 Non-business e-commerce. An increased number of non-business institutions such
as academic institutions, not-for-profit organizations, religious organizations, social
organizations, and government agencies are using various types of e-commerce to
reduce their expenses (e.g., improve purchasing) or to improve their operations and
customer service. (Note that in everything has its pros and cons, same is with e-
commerce, let’s have a look at the previous categories one can usually replace the
word business with organization.)
 Intra-business (organizational) e-commerce. In this category we include all internal
organizational activities, usually performed on intranets, which involve exchange of
goods, services or information. Activities can range from selling corporate products
to employees to online training and cost reduction activities.
According to some literatures, e-commerce technologies have unique features based on its
dimensions and its significance to business. The basic dimensions are ubiquity, global
reaches, universal standard-ness, richness, interactivity, information density and
personalization/customization as showed in the table below.

14
Table 2.1 Unique features of e-commerce technology
E-commerce Technology Dimension
Ubiquity—Internet/Web technology is available
everywhere: at work, at home, and elsewhere via
mobile devices, anytime.
Global reach—The technology reaches across
national boundaries, around the earth.
Universal standards—There is one set of
technology standards, namely Internet standards.
Richness—Video, audio, and text messages are
possible.
Interactivity—The technology works through
interaction with the user.
Information density—The technology reduces
information costs and raises quality.
Personalization/Customization—The
technology allows personalized messages to be
delivered to individuals as well as groups.
Source: Introduction to e-commerce, Chapter 1.(2016)
Here, the next section shows the benefits of e-commerce in a general sense.
15
Business Significance
The marketplace is extended beyond traditional
boundaries and is removed from a temporal and
geographic location. ―Marketspace‖ is created;
shopping can take place anywhere. Customer
convenience is enhanced, and shopping costs are
reduced.
Commerce is enabled across cultural and
national boundaries seamlessly and without
modification. ―Marketspace‖ includes
potentially billions of consumers and millions of
businesses worldwide.
There is one set of technical media standards
across the globe.
Video, audio, and text marketing messages are
integrated into a single marketing message and
consuming experience.
Consumers are engaged in a dialog that
dynamically adjusts the experience to the
individual, and makes the consumer a co-
participant in the process of delivering goods to
the market.
Information processing, storage, and
communication costs drop dramatically, while
currency, accuracy, and timeliness improve
greatly. Information becomes plentiful, cheap,
and accurate.
Personalization of marketing messages and
Customization of products and services are
based on individual characteristics.
2.2.2.1 Importance of E-commerce
E-commerce is widely believed to offer considerable growth and cost saving opportunities. It
also attracts enormous interests world-wide from all sectors of the economy including
government, legal, financial organizations, universities and research institutions and industry
associations. The potential of e-commerce has been recognized by governments throughout
the world and hence many of which have developed strategies to facilitates and promote its
adoption.

Nowadays, application of e-commerce in the business offers a competitive advantage in the

global market. The market for e-commerce is growing as more customers and businesses
have access to internet and transaction processing technologies improves security and
delivery. Most companies that applied e-commerce have full understanding on the benefits of
e-commerce to business and are preparing themselves to capitalize on emerging Information
Technology (IT) for the next coming technology-driven business environment.
In the next section I will try to describe in detail the benefits of e-commerce to each stalk
holders in the business. The major beneficiaries in e-commerce application are the
organization, the customer and the society. According to a book on introduction to e-
commerce the following benefits as well as limitations were stated.
The benefits to organizations:
 Electronic commerce expands the marketplace to national and international
markets. With minimal capital outlay, a company can easily and quickly locate more
customers, the best suppliers, and the most suitable business partners worldwide. For
example, in 1997, Boeing Corporation reported a savings of 20 percent after a request
for a proposal to manufacture a subsystem was posted on the Internet. A small vendor
in Hungary answered the request and won the electronic bid. Not only was the
subsystem cheaper, but it was delivered quickly.
 Electronic commerce decreases the cost of creating, processing, distributing,
storing, and retrieving paper-based information. For example, by introducing an
electronic procurement system, companies can cut the purchasing and administrative
costs by as much as 85 percent.

16
  Ability for creating highly specialize businesses. For example, dog toys which can
be purchased only in pet shops or department and discounted stores in the physical
world, are sold now in a specialized www.dogtoys.com (also see www.cattoys.com).
 Electronic commerce allows reduced inventories and overhead by facilitating
“pull”-type supply chain management. In a pull-type system the process starts from
customer orders and uses just-in-time manufacturing. The pull-type processing
enables expensive customization of products and services, which provides
competitive advantage to its implementers. A classic example is Dell Computer
Corporation.
 Electronic commerce reduces the time between the outlay of capital and the
receipt of products and services. Electronic commerce initiates business processes
reengineering projects. By changing processes, productivity of salespeople,
knowledge workers, and administrators can increase by 100 percent or more.
 Electronic commerce lowers telecommunications cost. The Internet is much
cheaper than VANs. Other benefits include improved image, improved customer
service, newfound business partners, simplified processes, compressed cycle and
delivery time, increased productivity, eliminating paper, expediting access to
information, reduced transportation costs, and increased flexibility.
Benefits to Customers:
 Electronic commerce enables customers to shop or do other transactions 24 hours a
day, all year round, from almost any location.
 Electronic commerce provides customers with more choices; they can select
electronic commerce frequently provides customers with less expensive products and
services by allowing them to shop in many places and conduct quick comparisons.
 In some cases, especially with digitized products, e-commerce allows quick delivery.
 Customers can receive relevant and detailed information in seconds, rather than days
or weeks.
 Electronic commerce makes it possible to participate in virtual auctions.
 Electronic commerce allows customers to interact with other customers in electronic
communities and exchange ideas as well as compare experiences.
 Electronic commerce facilitates competition, which results in substantial discounts.

17
Benefits to Society
 Electronic commerce enables more individuals to work at home and to do less
traveling for shopping, resulting in less traffic on the roads and lower air pollution.
 Electronic commerce allows some merchandise to be sold at lower prices, so less
affluent people can buy more and increase their standard of living.
 Electronic commerce enables people in Third World countries and rural areas to
enjoy products and services that otherwise are not available to them.
 This includes opportunities to learn professions and earn college degrees.
 Electronic commerce facilitates delivery of public services, such as health care,
education, and distribution of government social services at a reduced cost and/or
improved quality. Health-care services, for example, can reach patients in rural areas.

2.2.2.2 Limitation and Barriers to e-commerce

The limitations of e-commerce can be grouped into technical and non-technical categories.
Technical Limitations of e-commerce
 There is a lack of system security, reliability, standards, and some communication
protocols.
 There is insufficient telecommunication bandwidth and the tools for software
development are still changing rapidly.
 It is difficult to integrate the Internet and e-commerce software with some existing
applications and databases. Some vendors may need special web server.
 Some e-commerce software might not fit with some hardware, or may be
incompatible with some operating systems or other components. As time passes,
these limitations will lessen or be overcome; appropriate planning can minimize their
impact.
Non-Technical Limitations
Of many non-technical limitations that slow the spread of e-commerce, the following are the
major ones:
 Cost and justification: The cost of developing e-commerce in-house can be very
high, and mistakes due to lack of experience may result in delays.

18
  Security and privacy: These issues are especially important in the B2C area,
especially security issues which are perceived to be more serious than they really are
when appropriate encryption is used.
 Lack of trust and user resistance: Customers do not trust an unknown faceless
seller (sometimes they do not trust even known ones), paperless transactions, and
electronic money. So switching from physical to virtual stores may be difficult.
 Lack of touch and feel online. Some customers like to touch items such as clothes
and like to know exactly what they are buying.
 Many legal issues are as yet unresolved, and government regulations and standards
are not refined enough for many circumstances.
 Electronic commerce, as a discipline, is still evolving and changing rapidly. Many
people are looking for a stable area before they enter into it.
 There are not enough support services. For example, copyright clearance centers for
e-commerce transactions do not exist, and high-quality evaluators, or qualified e-
commerce tax experts, are rare.
 Electronic commerce could result in a breakdown of human relationships.
 Accessibility to the Internet is still expensive and/or inconvenient for many potential
customers. (With Web TV, cell telephone access, kiosks, and constant media
attention, the critical mass will eventually develop.) Despite these limitations, rapid
progress in e-commerce is taking place. For example, the number of people in the
United States who buy and sell stocks electronically increased from 300,000 at the
beginning of 1996 to about 10 million in fall 1999. As experience accumulates and
technology improves, the ratio of e-commerce benefits to costs will increase,
resulting in a greater rate of e-commerce adoption.
Despite the above technical and non-technical limitations, adoption of e-commerce nowadays
plays paramount role in the business industry. Rather than thinking about the limitation, its
better be a follower to the volatile technological changes that occur every day. Because the
future is with no doubt be ruled by Information and Communication Technology (ICT). It’s
rather a choice.

19
2.2.3 Introduction to Insurance Industry
Insurance is an agreement where, for a stipulated payment called the premium, one party (the
insurer) agrees to pay to the other (the policyholder or his designated beneficiary) a defined
amount (the claim payment or benefit) upon the occurrence of a specific loss. This defined
claim payment amount can be a fixed amount or can reimburse all or a part of the loss that
occurred. The insurer considers the losses expected for the insurance pool and the potential
for variation in order to charge premiums that, in total, will be sufficient to cover all of the
projected claim payments for the insurance pool. The premium charged to each of the pool
participants is that participant’s share of the total premium for the pool. Each premium may
be adjusted to reflect special characteristics of the particular policy.

To mention the yearly introduction of insurance, early methods of transferring or distributing

risk were practiced by Chinese traders as early as the 3rd millennia BC. These merchants
travelling treacherous river rapids would cleverly distribute their wares across many vessels
to spread the loss due to any single vessel's capsizing.
Modern profit seeking insurance is manifested in Babylon almost 2000 years B.C. in a
contract of loan of trading capital to travelling merchants. With having a contracting clause
for the loss due to robbery in transit were borne by the party providing the loan. The Greeks
and Romans introduced the origins of health and life insurance to us around 600 AD.

Toward the end of the seventeenth century, London's growing importance as a center for
trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a
coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and
thereby a reliable source of the latest shipping news. It became the meeting place for parties
wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today,
Lloyd's of London remains the leading market (note that it is not an insurance company!) for
marine and other specialist types of insurance, but it works rather differently than the more
familiar kinds of insurance.

To summarize the long story in short, today’s insurance is being in a way of addressing vast
areas of personal, commercial, marine, aviation, agriculture, life, health, financial and

20
engineering insurance. Moreover, the sector aims to provide insurance coverage up to the
entrainment businesses like filming, bazars and sport events
Normally, only a small percentage of policyholders suffer losses. Their losses are paid out of
the premiums collected from the pool of policyholders. Thus, the entire pool compensates the
unfortunate few. Each policyholder exchanges an unknown loss for the payment of a known
premium (www.ijbssnet.com).

Under the formal arrangement, the party agreeing to make the claim payments is the
insurance company or the insurer. The pool participant is the policyholder. The payments
that the policyholder makes to the insurer are premiums. The insurance contract is the policy
which can be classified as occurrence based policy and claims based policy. Risk is
unpleasant or unexpected event due to the uncertainty of situation. The risk of any
unanticipated losses is transferred from the policyholder to the insurer who has the right to
specify the rules and conditions for participating in the insurance pool.

The insurer also stipulates exceptions, inclusions and exclusions to restrict the type of losses
covered. For example, a peril is a potential cause of a loss. Perils may include fire and
lightening, earthquake, flood, hurricanes, theft and heart attack. The insurance policy may
define specific perils that are covered, or it may cover all perils with certain named
exclusions (for example, loss as a result of war or loss of life due to suicide). Hazards are
conditions that increase the probability or expected magnitude of a loss. Examples include
smoking when considering potential healthcare losses, poor wiring in a house when
considering losses due to fires, or a California residence when considering earthquake
damage.

In summary, an insurance contract covers a policyholder for economic loss caused by a peril
named in the policy. The policyholder pays a known premium to have the insurer guarantee
payment for the unknown loss. In this manner, the policyholder transfers the economic risk to
the insurance company. Risk is the variation in potential economic outcomes. It is measured
by the variation between possible outcomes and the expected outcome: the greater the
standard deviation, the greater the risk (Anderson; Brown, 2005).

21
A developed and functioning insurance sector is a fundamental condition for economic
success. The objective of insurance is to provide financial stability to individuals,
organizations and businesses. As a risk pooling and transfer mechanism, insurance allows the
insured to mitigate pure risks (i.e risks that involve only the possibility of loss or no loss).
Examples of such risks are fire, flooding, ill health and unintentional damage to a third party.
Insurance helps business to stay open and individuals to continue their work or education by
providing financial compensation if an insured risk occurs and cause damage. Even when no
loss occurs, insurance provides peace of mind, a service of considerable, if unquantifiable,
value. As a financial sector insurance is a major investor on economy (UNCTAD, 2002).
With regard to its coverage the insurance sector covers long-term and general insurance
activities which comprise life insurance and non-life insurance accordingly.
Life Insurance includes common life insurance and life reinsurance with or without a
saving component.
Non-Life insurance” comprises insurance and reinsurance of non-life insurance business
like fire, accident, health, property, motor, marine, aviation, transport, pecuniary (monetary)
and liability insurance.
Moreover, insurance companies play an important role as investors and shareholders in the
country’s market. The insurance industry has been undergoing dramatic changes for a
number of years. Significant movements toward deregulation in financial services, along
with advances in telecommunications and computer technology are forcing significant
changes upon the industry and making far more competitive. If it’s important to mention
most significant technological innovations that the industry has faced in recent years, these
are the two most once (Graven, 1998):
 The emergence of capital market alternatives to traditional reinsurance products, and
 The growing importance of computer networks such as the internet in the marketing
and distribution of insurance products.
The result in the industry, emergence of electronic market, is becoming more competitive
and is particularly important and interesting to study. The next section focuses on detailed
discussion on the value chain and business process of a typical insurance company. The
insurance market overview (or in other words, economic profile of insurance industry) will

22
be followed to show fairly the financial importance of this industry, in particular its share to
GDP. Finally current issues with in this industry will be addressed.

Premiums are collected based on an assessment of average loss expected that is sufficient to
pay for all the damages in a year, if that year generates greater-than-average losses. Thus
insurers need to have additional funds in reserve. Such reserves are established when an
insurer incorporates its business and are often addresses by government insurance regulations
and supervision. More importantly, reserves may be replenished during the years when losses
are less severe than the expected average (UNCTAD, 2002).

2.2.3.1 Insurance Value Chain and Business Process

The business of insurance is pure risk. In insurance theory risk is defined as the variation
between actual losses and expected losses. Insurers’ premium rates are based on an
assessment of average expected losses or damages.
During insurance induction, the insurer must undertake several fundamental steps. First, it
must calculate a premium rate for the risk it intends to insure against particular causes of
damage (e.g when insuring vehicles or buildings against theft or fire). It must also establish
adequate reserves to cover deviations from average, expected losses. Finally the insurer must
determine whether any particular clients are likely to attract greater-than-average misfortune
and must decide how to adjust the rates it proposes to them individually (UNCTAD,
2002).Value chain in a typical insurance company is shown in figure 2.3.

23
 Product Marketing and Asset Claims
sales Administration
development Management Management

Figure 2.3 A typical insurance company value chain

Source: Swiss Re (2004)

An introduction to each of the elements in the value chain, shown above, will be presented as
follows (Swiss Re, 2004). However, the researcher will investigate how internet affects value
chain later on.

2.3 Empirical Review

2.3.1 Electronics Insurance/e-insurance/
E-insurance can be broadly defined as the application of Internet and related information
technologies (IT) to the production and distribution of insurance services. In a narrower sense, it
can be defined as the provision of an insurance cover whereby an insurance policy is solicited,
offered, negotiated and contracted online. General meaning of e-insurance is the use of internet
and information technology to produce and distribute the insurance services.
Furthermore the specific meaning of e- insurance is, providing insurance coverage through an
insurance policy, in which all request, proposal, contract, negotiation will be performed online.
Although paying insurance premium, distributing insurance policy and process of paying the
claim can be done online, in some countries, regulatory (supervisory) and technological
(technical) restrictions may not allow doing quite electronic operations. Internationally, however,
in order to support the paying insurance premiums and online distributing insurance policy,
regulations are modifying continuously (Fathiyan, 2008).

The accepted impacts of e-insurance on the efficiency are included as (IJCRB, 2012):
1. E-insurance will reduce managerial and administrative costs through the process of business
automation, and will improve the managerial data

24
2. E-insurance, by selling insurance policy, directly will reduce commission paid to middlemen
(of course part of this commission should be spending to attract customer and marketing.)
Cost reduction in competitive market, lead to reduce insurance premiums, and allow people and
customers to buy more insurance, which results in greater penetration of insurance in the
countries.
E-insurance as one of the main parts of e-commerce is an industry that has been considered
extremely. The loss of spatial and temporal restrictions, reduction of rates, increasing the sales
volume, easy access to information, reduction of transaction costs, customer focus, specialization
of activities and restructuring sales network are some advantages of electronic insurance.
Producing and distributing insurance credit cards is one of new instruments in this industry that
along with other credit and debit cards will fundamentally change the structure of selling
insurance policies and the structure of insurance tariffs. Information and communication are the
primary means of e- insurance. In other words, e-insurance is utilizing information and
communication technology in order to develop a new process of insurance, which is consistent
with the information and networking community. Therefore e-commerce, including developing
and implementing information infrastructure, as well as preparing, compiling and implementing
the necessary policies, rules and regulations to performance of digital or information society in
insurance industry (Hatami, 2005).

2.3.2 Insurance Market Overview

The insurance market trend pictured in the world shows different arrangements. It’s may be
because of internal and external influencing factors including economic, political and
environmental factors. Here after mentioned the Global and narrowly African insurance market
trend consecutively.

2.3.3 Global Insurance Market Trend

According to the Global real premium growth rate (2014), global market is divided in to two
categories based on their contribution to the economy. These are the advanced markets ( i.e.
North America, Western Europe, Advanced Asia and Oceania) and the emerging markets (i.e
Emerging Asia, Latin America and the Caribbean, Central and Eastern Europe, Africa, Middle

25
East and Central Asia) (Swiss Re, 2015). The table below shows the economic environments of
insurance market:

Table 2.2 Global real premium growth rates,2014

Global market Life Non-life Total

Advanced Markets 3.8% 1.8% 2.9%
Emerging Markets 6.9% 8.0% 7.4%

World 4.3% 2.9% 3.7%

Source: SwissRe, 2015 (compiled)

In 2014, the economic environment for insurers improved only marginally as global real GDP
grew by 2.7% in 2014, a marginal uptick from 2013 and close to the 10-year average of 2.8%.
Economic growth in advanced market increased to 2.9% while the emerging markets had a
difficult year with aggregate growth easing to 4.1%, well below the 10-year average of more
than 6%. The detail for this data can be obtained from Swiss Re Sigma Series No.4/2015.
During the same time insurance companies in developing countries generated premium worth
758 billion representing 26 percent of global premiums, 93 percent of market share in these
countries belong to Asia. Table 2.3 visualizes these figures.

Table 2.3- Insurance premiums, 2014 in developing countries (in Billion USD)

Region Insurance Premium World market share

Africa Life 46 1.7%
Non-Life 23 1.1%
Middle East, Central Asia Life 6 0.2%
and Turkey Non-Life 40 1.9%

Source: Swiss Re (2015)

26
2.3.4) Insurance Market Trend in Africa
Africa’s insurance and reinsurance markets continue to attract most businesses due to the rising
interest from financial market participants around the world. These include the mature markets of
the United States and Europe, which have historically had a presence on the continent, as well as
newer entrants from emerging BRIC (Brazil, Russia, India and China) countries. In addition,
robust regional cross-border activity with Africa-based insurance groups buying other regional
insurance companies has created a vibrant landscape.

Insurance markets in Africa are comprised of 54 different countries of varying economic,

political, geographic and cultural diversity. Taken as a whole, Africa has a combined gross
domestic product (GDP) of approximately USD 2 trillion, which is nearly equivalent to that of
Canada and greater than Australia, both resource-based economies. A number of African
economies are growing by 5% to 10% and more, much faster than the mature markets, with
drivers such as energy, construction and mining projects. This has made them attractive to
insurance groups in the United States and Europe, where growth has been more limited.
According to the World Bank, Africa economically was the world’s fastest growing continent in
2013, and GDP is expected to rise by an average of more than 6% annually between 2013 and
2023 (Africa Non-life & Life, 2014).

Insurance facilitates investment by reducing the amount of capital that businesses and individuals
need to keep at hand to protect themselves from uncertain events. Despite its importance for
economic development, the majority of African countries lack access to insurance products.
Access to insurance only starts to increase quickly in the upper middle income brackets, but with
most Africans still just struggling to meet their basic food and other day-to-day needs, insurance
is still a long way off. Apart from low income levels, other reasons for low insurance penetration
in Africa are (KPMG International, 2014):

 Low awareness and understanding of insurance across various population segments;

 People do not trust financial service providers;
 Given the low income levels and how challenging the business environments are, there
are not enough incentives for multinational companies to enter African markets and
develop the sector;

27
  There is a lack of reliable information, making it very difficult to assess people’s risk;
 The legal and judicial systems are poor;
 There is a lack of human capital and expertise;
 Shallow financial markets make it difficult to raise enough money to capitalize
insurance/re-insurance companies; and
 Communities often make use of informal forms of insurance rather than using the
services of formal insurers.

Though Africa’s market share to global insurance premium is very low compared to others,
recently some progresses have been made.

2.3.5 Africa in A Global Context

According to Swiss Re (2013/14), the total value of Africa’s insurance premiums was just
reluctant of US$70bn in 2013, down 2% from the US$71.35bn in 2012. This means that Africa’s
share in the global market was 1.5%. The poor performance of Africa on a global stage is
particularly noticeable if South Africa is excluded. South Africa accounted for nearly 74%
(US$51.6bn) of all African insurance premiums in 2013, with the other 53 countries contributing
only US$18.3bn, which is only 0.4% of the global insurance market.

South Africa is particularly dominant in terms of life insurance, accounting for 88.6% of the
continent’s life insurance premiums in 2013. South Africa has a sophisticated and well-
developed life insurance industry; however, the rest of the continent remains a long way behind.

Life insurance dominated the global insurance market, accounting for 55.3% of all insurance
premiums. In South Africa, life insurance is even more dominant, accounting for 81% of all
insurance premiums. Outside of South Africa, however, life insurance is a small player on the
continent, accounting for only 29.5% of total insurance premiums. Life insurance premiums in
the rest of Africa totalled a mere US$5.4bn in 2013 (0.2% of the global market) (KPMG, 2014).

28
2.4 Insurance Industry in Ethiopia
2.4.1 Introduction
The introduction of insurance industry in Ethiopia was in early twentieth century by European
entrepreneurs who came from Great Britain, Italy, France and others. By then, foreign investors
owned the lions share in the joint investment (Hailu, 2007).
According to NBE, modern forms of insurance service, which were introduced in Ethiopia by
Europeans, trace their origin as far back as 1905 when the Bank of Abyssinia began to transact
fire and marine insurance as an agent of a foreign insurance company. The first domestic
insurance company, namely Imperial Insurance Company, owned by the Emperor started issuing
policies in fire, life and general accident since 1951. In 1960, the issuance of the Commercial
Code of Ethiopia played vital role in the history of insurance business in the country. Four
chapters of the Commercial Code of Ethiopia are devoted to providing a legal framework in the
insurance industry.
The first remarkable market regulatory proclamation called ―promulgation of proclamation No.
281/1970‖was issued in 1970. However, the military government, in 1974, came to power and
put an end to private insurance and took over the ownership and control of all insurance
companies in to single company called Ethiopian Insurance Corporation.
Following the change in the political environment in 1991, the proclamation for the licencing
and supervision of insurance business heralded the beginning of the new era. Immediately after
the enactment of the proclamation private insurance companies began to flourish. Currently there
are 16 private and 1 governments owned insurance companies (NBE, 2015).
Nowadays the National Bank of Ethiopian provided directives on the type of services delivered
to insurers and the requirements from the insurers before they put themselves in to operation.
Most importantly the national body engaged in monitoring and regulation of the finance sectors:
the insurance and banks.

2.4.2 Ethiopian Insurance Companies

According to National Bank of Ethiopia’s annual report (2014/15), the number of insurance
companies operating in Ethiopia increased to 17 from 16 last year and other branch network
reached 377 following the opening of additional branches. About, 55 percent of insurance
branches were located in Addis Ababa.

29
Table.2.4: Year of establishment, Branches & Capital of Insurance Companies (2015)

(Branch in Number and Capital in Millions of Birr)

Sr. Insurance Companies Year of Branch Capital

Establishm
No. 2013/ 2014/15 2013/14 2014/15 %chang
ent
14 e
1 Ethiopian Insurance corporation 1/1/1975 62 66 434.4 643.2 48.1
2 Awash Insurance Company 1/10/1994 33 36 182.9 219.0 19.7
3 Africa Insurance Company 1/12/1994 15 18 134.9 211.5 56.8
4 National Insurance Company 23/09/1994 21 22 72.6 80.8 11.3
5 United Insurance Company 1/04/1997 28 28 203.1 258.4 27.3
6 Global Insurance Company 11/1/1997 11 12 67.1 95.8 42.7
7 Nile Insurance Company 11/4/1995 28 31 182.0 232.6 27.8
8 Nyala Insurance Company 6/1/1995 21 23 206.3 286.3 38.8
9 Nib Insurance Company 1/5/2002 25 28 207.3 263.6 27.1
10 Lion Insurance Company 1/7/2007 20 25 83.4 96.6 15.8
11 Ethio-Life Insurance Company 23/10/2008 7 12 20.3 31.8 56.8
12 Oromia Insurance Company 26/01/2009 25 29 119.2 138.1 15.9
13 Abay Insurance Company 14 17 48.5 108.3 123.2
14 Birhan Insurance Company 24/05/2011 7 7 22.4 46.9 108.9
15 Tsehay Insurance Company 28/03/2012 8 8 24.3 48.7 100.3
16 Lucy Insurance Company 3 5 16.8 64.7 285.9
17 Bunna Insurance Company 21/05/2013 4 10 8.6 38.8 352.5

Total 332 377 2,034.2 2,865 40.8

Source: NBE, Annual Report, 2014/15, Summarized

The share of private insurance companies in total branches stood at 81.3 percent, slightly down
from 82.1 percent a year ago. On the other hand, total capital of insurance companies increased
by 40.8 percent reaching Birr 2.865 billion from Birr 2,034 billion last year. Private insurance

30
companies accounted for 77.6 percent of the total capital of insurance sector while the share of
EIC was 22.5 percent.

According to a report by NBE, (2014/15), total number of insurance branches in Ethiopia

increased to 377 from 332 of previous year (2013/14). Of the total insurance branches 17.5% is
owned by the state owned EIC and the rest 82.5% are branches by the private insurance
companies. As mentioned above, the number of branches in Addis Ababa, the capital city, are
greater than the regions by 21(i.e regions 178 and Addis Ababa 199). The details of this are
presented in chapter 4 of methodology part.

2.4.3 Insurance Market Trend In Ethiopia

According to the World Bank Group 4th Ethiopia Economic Update (2015) report, the insurance
sector in the country remains underdeveloped. Because most insurance is targeted at the
corporate market, focusing on general insurance, about 90 percent of the population does not
have any type of formal insurance. Insurance premiums represent about 0.47 percent of GDP for
non-life insurance, and 0.03 percent of GDP for life insurance. The market retail premiums are
dominated by motor insurance and compulsory insurance include third-party policies. A total of
17 active insurance companies are operating in Ethiopia, most of which are private. The
significant expansion of the branch network (59 new branches in one year) is led by only four
major insurance companies, including the state-owned Ethiopian Insurance Corporation, which
opened 13 new branches in 2013/14. In total there are now 377 branches, of which over 50
percent are concentrated in Addis Ababa (WBG, 2015).

2.4.4 Insurance services and coverages

As a main agent for insurance service, most of the insurance companies in Ethiopia provide the
following services and coverages to its clients.

31
Table: 2.5 Ethiopian Insurance services and its coverage

Sr.No. Categories Types of services

All Risks Live stock
Aviation (Cargo & Hull) Marine (Cargo and Hull)
Bankers Blanket Policy Money
Burglary & House Breaking Motor.
Bonds Personal/Group Personal
Condominium Insurance Accident
Consequential Loss Plate Glass
(Business Interruption) Product Liability
Crop Insurance Professional Indemnity
1 General Engineering Public Liability
Insurance Fidelity Guarantee Warehouse Operators Liability
Fire and Allied Perils Weather Indexed
Policies
Goods-in-Transit Coffee Plantation
Horticulture-Plantation Tea Plantation
Insurance Policy Cotton Plantation
Inland Carriers Liability Exhibition & Bazaar
Workmen’s Compensation et

Endowment Term
 Ordinary Endowment  Individual Term Life
 Anticipated Endowment Assurance
Policy (with profit)  Group Term Life Assurance
 Children’s Education  Modified Large Group Term
Policy (with profit) Life Assurance
 Endowment Annuity  Individual Mortgage
 Joint Endowment Protection Assurance
2 Long-term  Joint Annuity  Group Mortgage Protection
 Group Endowment Assurance
Insurance
Whole Life  Joint Mortgage Protection
Policies Assurance Assurance etc.
Medical
 Individual Medical
Assurance
 Group Medical Assurance
 Executive Medical
Assurance
 Travel Health Insurance
3 Reinsurance With a selection of the leading international reinsurance companies
representing first class security in the world reinsurance market.

Source: EIC website (2016)

32
Table 2.5 shows the types and coverages of insurance in the country and the details can be traced
from each company’s website.
Moreover, the potential Ethiopian Insurance Corporation (EIC) is working with:

Federation of Afro Asian Insurers and Re-insurers (FAIR);

African Insurance Organization (AIO); and
Organization of Eastern and Southern African Insurers (OESAI).

2.5 E-commerce in insurance industry

According to a research by KPMG International (2014), insurance companies and intermediaries
are facing five inter-related issues:
 What it means to be digital and how to operate in a digital world.
 How to make the best use the increased data that the digital world generates.
 How to conquer and tame the challenges of the complex web of legacy systems many
have inherited.
 How to achieve all of this in a manner that keeps the business secure in the face of
increased threats to cybersecurity and, lastly but most importantly,
 How to attract and retain the people needed to drive the change this implies-in a nutshell-
how to get started.

Keeping the issues mentioned above in mind, insurance companies have also regarded the
internet mainly as another channel of distribution for their products. Compared to online stock
brokerage and online banking, development of the internet in the insurance industry has been
somewhat cautious. Websites mainly serve to provide information about the company and its
products .Many insurers especially in developing economies have not seized the opportunities
created by e-commerce for making all business processes more efficient; beginning with the
online sale of policies .But the growing number of those who have embraced the technology is
most encouraging (Vress, 2002) and (Yao, 2004). The next section will briefly describe the
affecting factors on electronic means of insurance marketing.

33
2.5.1 Major affecting factors of E-commerce on Insurance
Since insurance business is largely based on information, e-commerce application can impact
greatly on the insurance industry. The internet increases transparency on the insurance market,
giving customers more market power. It allows virtualization of organizational networks,
increasing the opportunity for systematic co-operative service offers. It also reduces the amount
of capital needed to enter the insurance market, so that new firms find lower barriers to compete
in the market.

Internet and e-commerce as two main factors, not only are the pioneers of major transformations
in the business, but also have influenced people's daily lives. In a short period of time, the
internet is regarded as a means of communication, and studies have shown that Americans were
the pioneers to acceptance internet and using it in online purchases. As well as, available
evidences indicate using internet and developing e-commerce in other countries; and it seems
there is no other option but to accept it. The world transformations indicate that, in the last
century, using e-commerce has been the major activity of developed countries. Developing
countries also are moving quickly towards accessing and using it. However, all countries based
on infrastructures and capabilities have invested in this important activity (IJCRB, (2012).

Therefore, the products that have potential of standardizing, describing and rating through
limited number of parameters are appropriate to marketing over the internet and online
distributing; such as car insurance, private liability insurance, household insurance and
endowment insurance; of course, it does not mean that other insurance products don’t use lots of
opportunities that e-commerce gives them to improve the quality of their services (Ahmadi,
2005).
In the case of life insurance, supervisory institutions should ask insurers to add some items at the
issued insurance policies on the website. Item of being undeniable is an example. It means, after
a period of time insurers cannot deny the issues presented by policyholder and ignore them. In
addition, a clause on not penalizing should be proposed. Such kind of clauses defends the cash
value of insurance policy and provides a time to holding over the insurance premiums that is not
terminable and default able. Such items should be mentioned in the e-insurance, because, it is
possible that the insurer cannot pay insurance premium on time. In developing countries, due to

34
lack of insurance popular culture and training insurance, and in order to allow consumers make
decision on the base of necessary information, there should be high levels of comparisons
between proposed contracts through the website (Ahmadi, 2005).

2.5.2 Potential area of Application of e-commerce

Areas on insurance business processes
Major areas of discipline concerned to e-commerce application as stated in figure 2.2
[Introduction to E-commerce (chapter 1)] are:
 Information system researchers primarily interested in because of its implication on
firms and industry value chain, industry structure and corporate strategy.
 Economists focus on consumer behavior at Websites, pricing of digital goods and on the
unique features of digital electronics markets.
 Marketing professions are interested in marketing, brand development and extension,
consumer behavior on Websites, and the ability of internet technologies to segment and
target consumer groups, and differentiate products.
 Management Scholars suggest on entrepreneurial behavior and the challenges faced by
young firms who are required to develop organizational structure in short time spans.
 Finance and Accounting scholars focused on e-commerce firm valuation and
accounting practices.
 Sociologists and psychologists focused on general population studies of internet usage,
the role of social inequality in skewing internet benefits and the use of web as a personal
or group communication tool.
However, no one perspective dominates research about e-commerce. It is just to grasp
knowledge the areas where e-commerce is more concerned.

35
Figure 2.4: Disciplines concerned with E-commerce

Source: Introduction to E-commerce, Chapter 1- book (2016)

Areas on insurance product/service suitability

Their suitability depends on how much advice is required and how necessary the physical
accessibility of the subject to be insured. And the following are the core issues that determine the
suitability of insurance products to online transaction:
 The complexity of the product/service,
 The size of its financial scale and transaction volume,
 The customer’s willingness to pay for advice.
 The manageability of claims for the products/services.
Products that are particularly suitable for marketing on the internet are those that can be
described and rated using a small number of parameters, such as motor, private liability,
homeowners, household contents and term life-insurance. These types of cover are also suitable
for online price comparisons, which make the internet even more attractive for potential clients
(Swiss Re, 2000).

2.5.3 Potential concerns to e-commerce

In view of tendencies concerning the progress of e-commerce in the general economy, it is
important to consider the potential contribution of it on the insurance industry. Although other
online financial services have already taken off quite vigorously, the insurance industries
involvement with and commitment to electronic commerce lags far behind competitors in the
banking and brokerage industries (Moodley, 2003). Among many, the insurers cite as top
36
obstacle factors; resistance to change, threat of agent/brokers/company disintermediation, lack of
technology infrastructure, regulatory hindrances and lack of industry vendor solutions (Hann,
1999).
Advantages and Benefits of E-commerce
According to IJCRB (2012), implementation of e-commerce, in other words e-insurance, have
the following advantages and benefits of that can be addressed from three perspectives of
―insurer‖, ―under contract agencies‖, and ―policyholder‖:
1- The advantages to insurer
 More speed, in the process of issuing insurance policy and getting damage.
 Increasing the accuracy in the insurance activities.
 Upgrading mechanized insurance system, according to the latest hardware and software
facilities.
 Eliminating costly and time-consuming stages, such as issuing letter of introduction,
inquiries from centers.
 Reducing the office space of insurance companies through developing virtual space.
 Encouraging policyholders to further use of insurance affairs through a perfect informing
 Attracting organizations to contracts with insurance.
 Retaining policyholders and current contract centers.
 Facilitating the insurance affairs such as documents, reporting.
 The possibility of further controlling and managing the affairs of insurance
 The possibility of intelligent performing of some insurance processes such as introducing
the policyholder to the medical centers, only by phone or internet.
 Inhibiting fraud and forgery and exact analyzing the costs.
 Integration of mechanized insurance systems in all branches, insurance website and
insurance ATM terminals
2- The advantages to contract companies
 The possibility of rapid identifying insurance coverage.
 Reducing the time repayment to the Center, from insurer.
 Inhibiting offence and fraud.
 The possibility of issuing special insurance policies in Center place without referring to
insurer.

37
  Rapid identifying the policyholders
 Increasing the clients in order to use provided facilities
 Rapid identifying letter of introduction
 Reducing the administrative costs of the above mentioned Centers in order to
communicate with insurer
 Increasing the rate of interaction between institutions and insurer affairs
3- The advantages to Policyholder
 Increasing the rate of identifying actual insurer
 Reducing the frequency of actual presenting in the branches of insurance
 No need to manually completing forms
 The possibility of observing the information of insurance policies related to the
policyholder
 No need to providing a letter of introduction
 Ease of paying and receiving related funds
 Reducing the time and the cost of using insurance coverage and the resultant satisfaction
 Increasing familiarization with the insurance affairs by insurer website
 The possibility of taking insurance free consulting through accurate informing of insurers
website
 Possibility of direct communicating (virtually) with the managers and administrators in
any time and space

2.5.4 Insurance value-chain vs e-commerce

The newly coming information and communication technologies are making the insurance
process easier in developed countries for insurers to break up the traditional value-chain and to
bring a new way of business process in the industry. Individual functions, such as underwriting,
policy administration, claims management, investment or risk management can be optimized
with in the business divisions or outsourced to external providers. Comparing to the traditional
insurance value-chain mentioned in figure 2.1, the traditional insurers perform all stages of the
value creation process themselves however in e-commerce a specialized service provider at
greater efficiency and lower cost may be assigned.

38
2.6 Conceptual Framework
The previous section provided a brief review of literature related to the research questions.
According to the literature review stated above, it is obvious that the scholars and researches
showed that application of e-commerce in to a business is very important to address the wider
market. Moreover, it tries to back-up the research questions by giving light about global business
contexts. Hence Ethiopian insurance industry, as one part in the net shell, needs to focus on how
to introduce electronic form of transaction through giving consideration to the questions. So the
researcher prepared a questionnaire to answer the research objectives. Here below the researcher
want to see each of the research questions on point of general theories. This part will also be
discusses in detail in chapter 4 of research findings and data analysis part.
2.6.1 Attitudes and Views
RQ1. What are the attitudes and views of the insurance industry regarding e-commerce?
Most of developing countries, especially in Africa, are walking back on awareness of e-
commerce in their companies. And it’s clear that Ethiopia was part of those countries for long
time but nowadays the attitudes towards online marketing is changing in finance sectors and
other service providing companies. Hence this question tries to find out insurers mind set and
their thinking towards accepting e-commerce application in the insurance industry and their
endeavours for the execution of it.
2.6.2 Potential Requirements
RQ2. To what extent are they equipped with infrastructures and manpower for implementation of
e-commerce?
Most of financial sector businesses in the world make themselves in to the web based services
through promotion, marketing, management and administration about their organization.
Financial industries in Ethiopia are now aware of having websites, e-mails, and face book
accounts mostly for advertising and some for online ordering transferring cashes through internet
as well as mobile banking.
Hardware and software systems, IT experts and skilled staffs in e-commerce must be available to
increase customer accessibility and efficiency of insurance service moreover protects both
insurer’s systems and the confidential information of customers.

39
2.6.3 Major Affecting Factors
RQ3. What are the major factors affecting application of e-commerce?
According to Swiss Re (2000), internet marketing threatens traditional distribution channels and
therefore tends to meet with strong resistance within the company. The adoption of e-commerce
needs substantial investments for the new information communication technology (ICT),
changes in business models, strategies and management tasks that leads to many different
internal conflicts. Hence, this question raises answers for items that hinder implementation of e-
commerce in the insurance company. These are the items that can be hindrance to adoption of e-
commerce which can be classified as internal and external factors in addition to the standard
environmental factors.
2.6.4 Potential Areas of Application
RQ4. What are the potential areas of applications of e-commerce in the insurance industry?
Potential area of application of e-commerce focuses on business process capabilities in bringing
significant efficiency improvements in product development, marketing and sales, administration
and claims management as stated in chapter 1 of value chain of a typical insurance company. By
applying automated business processes the insurance company can reduce costs. Modern
information technologies also bring cost savings for claims payments. For example, better data
analysis may improve risk selection, while the detection of insurance fraud and tighter control by
partner companies can help to reduce claims costs (UNCTAD, 2003).

The potentiality can also be evaluated based on the type of products or services suitable for e-
commerce in Ethiopia. The insurer should identify the suitable insurance products that exist in
the market considering the challenges and risks related to fraudulent acts, physical evaluation,
and complexity of the product and risk of existing hazards.

2.6.5 Perceived benefits

RQ5. What are the benefits expected from application of e-commerce?
According to IJCRB December (2012), application of e-commerce in insurance companies
benefits those actors in the policy making. These actors are the insurer, contract agencies and the
policyholder. Regarding this question it seeks to answer prospective benefits or impacts of e-

40
commerce to the insurance industry. Potential benefits and advantages of e-commerce are listed
in the research questionnaire.
Based on the conceptual presentation, the researcher will describe the emerged frame of
reference which will guide in data collection and analysis. Figure 2.5 shows the emerged frame
of reference.

Potential Potential Area of Perceived

Requirements Application Benefits

Attitudes and views

Business processes
& Infrastructural
requirements
Benefits expected

Internal and External

Products/services
factors

Figure 2.5 Assumed frames of reference Source: owns Survey (2016)

41
 CHAPTER THREE

RESEARCH METHODOLOGY
3.1 Introduction
This chapter talks about the methodology proposed for this research based on the research
problems and research questions. Moreover, this chapter includes discussion around the research
type /approach, strategy and design. Research methodology is a way to systematically solve the
research problems. It may be understood as a science of studying how research is done
scientifically (C.R.KOTHARI, 1990). The following section tries to outline it in detail.

3.2 Research Approach

The research approach is classified into two, as qualitative and quantitative. Both approaches
have their strengths and weaknesses and neither be held better than other. It's mainly depends on
the study’s research purpose and research questions.
 Quantitative research approach involves the generation of data in quantitative form
which can be subjected to rigorous quantitative analysis in a formal and rigid fashion as
stated by C.R.Kothari (1990). Quantitative research is often formalized and well
structured. It is usually associated with the natural science mode of research; data is
quantitative, obtained from samples and observations seeking for relationships and
patterns that can be expressed in numbers rather than words (Tull and Hawkins, 1990).
 Qualitative research approach is concerned with subjective assessment of attitudes,
opinions and behavior. Research in such a situation is a function of researcher’s insights
and impressions. Such an approach to research generates results either in non-
quantitative form or in the form which are not subjected to rigorous quantitative analysis
(C.R.Kothari, 1990).
Since the main objective of this research is to get a general picture of e-commerce application on
Ethiopian insurance industry, it’s applicable to cover a wider population through quantitative
method of research to find outputs on figures than behaviour. Hence, the researcher finds
quantitative research method as best approach to fulfil the requirements.

42
3.3 Research Type
Practically there are many ways to undertake a research. Most type of research can be classified
according to how much the researcher knows about the problem before starting the investigation
(Yin, 1994).
According to Zikmund (1994), there are three classification of research available as Exploratory,
Descriptive and Explanatory described in detail below:
 Exploratory research is done to clarify the nature of vague problems. This type of
research is meaningful in a situation where researcher does not have enough
understanding to proceed with the research project. It is in general done to give the
problem a more solid shape and identify which information that is being needed for
future research.
 Descriptive research describes market (population) characteristics or functions. When a
particular phenomenon of nature is under study, it is understandable, that research is
needed to describe it, to explain its properties and inner relationships. This type of
research is often used when problems are fairly well structured and there is no intention
to investigate cause/effect relations (Wiedershiem-Paul and Eriksson, 1999) and (Yin,
1994).
 Explanatory (causal) research identifies cause and effect relationships between
variables. It is valuable for understanding questions of efficiency and when the focus is
on cause and effect relationships, explains what causes produced what effects.
(Wiedershiem-Paul and Eriksson, 1999) and (Yin, 1994).

Hence, this research’s purpose and questions reveal that the research in this study is primarily
descriptive and somewhat explanatory, since it is my intention to describe the area of research
and draw some conclusion from the data findings and analysis. It is explanatory because the
researcher should try to explain the findings by answering the research questions.

43
3.4 Research strategy
The focus for research strategy identification is important while collecting data for the study. A
research strategy is a general plan of how the researcher will go to find answers to the research
objectives. There are five primary research categories in social science: experiments, surveys,
archival analysis, histories and case studies (Yin, 1994).

Considering the research questions of this study, what is the potential contribution of e-
commerce application in Ethiopian insurance companies be well answered by survey or field
study rather than the other research strategies mentioned above. Hence, the researcher
considering the fact proposes to use a survey as the research strategy that most fit with the
research approach, quantitative method.

3.5 Research Design

After deciding on the approach and type of research, the next step is to set up its design which
helps the researcher to find how to collect the data and its type he intended to use for this
purpose. According to Yin (1994), a research design is the topic that links the data to be
collected (conclusion to be drawn) to the initial questions of the study. Moreover, it clarifies the
methods and procedures for the collection, measurement and analysis of data. So that the next
section describes the data collection and data type: data collection instruments, sample selection
and sample size.

3.5.1 Data Collection and Data Type

As literature says there are two kinds of data normally used in research. These are primary data,
recognized as data that is gathered for a specific research especially in response to a particular
problem for the first time, and secondary data, data that already exists that has been previously
collected and assembled for some other studies. This work is done mainly based on primary data
through questionnaire and interview. The use of survey and observation is the most common
method to gather primary data. The detail about the kind of instruments used to collect data can
be noted in the next section.

44
3.5.1.1 Data Collection Instrument: Questionnaire
The survey method is often classified by the kind of instrument adopted. There are many
methods of collecting data such as observations, interviews or questionnaires. Regarding this
study, designing the questionnaire is the main task.

According to Zikmund (1994), there are two basic requirements for the questionnaire: relevancy
and accuracy. There are two kinds of questions based on the freedom of respondents: open-ended
(different alternatives) and closed-ended (fixed alternatives). Furthermore, according to Chisnall
(1997), as the Likert-scaled is regarded to have reliability and simple construct, it was found to
be suitable for the questions. In this research a 5-point Likert-scale (5=very much, 4=much,
3=satisfactory, 2=low and 1=very low) was used to answer to the question started with ―to what
extent‖.

The questionnaire is aimed to claim six different parts. The first part asks about demographic
questions concerning personal profile. The second part seeks the respondents to answer questions
about the attitudes and views of respondents towards e-commerce application. The third part
focused on potential requirements for e-commerce adoption. The forth part is about major factors
affecting the adoption of e-commerce. The fifth part seeks answer for potential areas of
application of e-commerce and insurance products’ suitabilityto adopt e-commerce. The last, but
not the least, question wants respondents to answer about the perceived benefits and advantages
of e-commerce application. And finally, the questionnaire ends with an open question asking
respondent’s free comment and suggestions on the readiness and the potential Contribution of e-
commerce application on Ethiopian insurance industry.
3.5.1.2 Sample selection
According to Saunders (2000), sampling techniques can be divided in to two types:
 Probability or representative sampling
 Non-probability or judgmental sampling
Probability sampling is most commonly associated with survey-based research where the
researcher needs to make inferences from the sample about a population to answer the research
questions as well as to meet research objectives.

45
Whereas, non-probability sampling enables to use researcher’s judgment to select cases that will
best to answer the research questions and objectives.
Taking in to account the research data collection methods, probability or representative sampling
is the most suitable type for the research. The target population (sampling frame) of this study is
the whole insurance companies in Ethiopia which includes 1-government and 16-private
insurance companies. All of the insurance companies’ head office is situated in the capital city
Addis Ababa. So the total population of the research would be all head offices of the companies
found in Addis Ababa.

In order to identify the similarities and differences in idea about the prospective Contribution of
e-commerce to the insurance industry from respondents, it is important to list down the insurance
companies in Ethiopia based on their existing capital contribution in a decreasing order.

According to the data from NBE (2015), So, from the total population or insurance companies,
EIC is having 643.2 million (22.5%) capital share from the total 2865.0 (100%) capital in the
insurance industry as stated in table 3.5. The selection of sample begins with selecting the
companies and then the respondents in the sample frame. As stated in the Table 3.1 there are
seventeen insurance companies in Ethiopia.

46
Table 3.1 Regional distribution and Capital of insurance companies in Ethiopia

Capital in millions of Birr

Sr. Insurance Companies Branch Capital Capital

No. Percentage
2014/15 2014/15
(%)
A.A Region Total Total
1 Ethiopian Insurance corporation 18 48 66 643.2 22.5
2 Nyala Insurance Company S.C 13 10 23 286.3 10.0
3 Nib Insurance Company S.C 19 9 28 263.6 9.2
4 United Insurance Company S.C 18 10 28 258.4 9.0
5 Nile Insurance Company S.C 14 17 31 232.6 8.1
6 Awash Insurance Company S.C 22 14 36 219.0 7.6
7 Africa Insurance Company S.C 9 9 18 211.5 7.4
8 Oromia Insurance Company S.C 17 12 29 138.1 4.8
9 Abay Insurance Company S.C 8 9 17 108.3 3.8
10 Lion Insurance Company S.C 15 10 25 96.6 3.4
11 Global Insurance Company S.C 6 6 12 95.8 3.3
12 National Insurance Company S.C 9 13 22 80.8 2.8
13 Lucy Insurance Company S.C 3 2 5 64.7 2.3
14 Tsehay Insurance Company S.C 6 2 8 48.7 1.7
15 Birhan Insurance Company S.C 6 1 7 46.9 1.6
16 Bunna Insurance Company S.C 8 2 10 38.8 1.4
17 Ethio-Life Insurance Company 8 4 12 31.8 1.1

Total 199 178 377 2,865 100.0

Source: NBE, 2014/15 Annual report

47
3.5.1.2.1 Selection of Company
According to NBE annual report, currently there are sixteen private-owned and one government-
owned insurance companies in Ethiopia. As stated in table 4.5 above, the total number of
insurance companies’ branches they have reached to three hundred seventy seven (including
Addis Ababa and Regional branches).

The state-owned, Ethiopian Insurance Corporation (EIC), have been old enough and is one of the
widely distributed insurance company in the country i.e. having 66 branches and 643.2 million
Birr capital (which is 17.5% and 22.5% respectively) of the total insurance companies in Addis
Ababa as well as in regions. Moreover, EIC covers the wider range in the market that makes it
enable to have huge market share. As mentioned in the above table the other private insurance
companies have a lesser capital compared to EIC.

Hence, the researcher decided to use stratified random sampling based on company’s ownership
and proportional sampling method according to the level of capital contribution to define the
sample frame. Considering sample selection this study preferred to collect data proportionately
i.e 22% from government insurance company whereas 78% from the private insurance
companies. This will be discussed in detail in section for sample size determination.

The reason why theresearcheronly focused on the head office is because all strategic and major
decision be made here at head office by the top managers though branches and district
supervisors and managers have due contribution in the implementation of such tools.Therefore,
the researcher assumes that using those quarter offices of insurance companies in this researchas
a population is more representative and genuine for the total insurance industry in Ethiopia. And
those companies were assumed and promised to give due emphasis towards the sensitivity of
information system or digital technology to the industry through the pilot study undertaken.

48
3.5.1.2.2 Selection of Respondents
The next step in the research methodology is selection of respondents from the sample frame.
The respondents’ to the questionnaire is based on the exposer and decision power of the
managers in the insurance companies. The reason why those only managers selected is from the
insurance company is that the application of e-commerce needs decisive decisions by the head
office managers and also needs potential investment as well as brings strategic changes in the
company. That means application of e-commerce may lead to shuffling of work and manpower,
may seek recruitment of professional staffs and training or may lead to product/service
modification. The reason for covering the whole departments and fields of study is to have
holistic view over what e-commerce can affect the operation and total aspects of the business
process (value-chain) of the insurance industry.

Because of the limitations in time and cost the researcher distributed questionnairesonly to
departments/sections from company structure based on the sample size obtained with respondent
determination method by Taro Yamane.
The researcher tried to contact key and right people mainly located in the head office of the
seventeen insurance companies which are often regarded as decision makers and who have direct
interaction with the information technology (IT). So the researcher believes that they can provide
fruitful representative ideas about the objectives of the research.

3.5.1.3 Sample Size

The other important step in conducting a survey is selecting the sample size, i.e. the size of the
population that is to be studied. Despite the fact that, the larger the sample size, the greater its
precision and reliability, there are constraints that hinder from applying the fact. These are time,
staff and cost. Subsequently the main objective of this study is to get a general picture, using a
larger research sample is important.

The researcher collected the total population of respondents from their company structure. And
found out 100 respondents from the total insurance companies. The top managers i.e directors
and managers are only included in the sample frame.The researcher aims to take proportional
samples from the EIC, which has the wider market share and has forty years’ experience

49
compared to the other sixteen insurance companies. Moreover, this company is more equipped to
and is in a way to implement the IT system by adopting some customer-centered software that
helps most internal and external partners to communicate without any extra cost of paper work,
transportation and the like.
Most of information transfer activities were being done through the applied software like claim
reporting and request for immediate works to subordinate employees by the managers. And it is
obvious that each section is entitled to a limited power to access the software for controlling
purpose.

According to table 3.2, the researcher filtered out the whole insurance companies based on their
capital on an ascending order starting from the huge EIC to the last Ethio-life insurance company
particularly to the data presentation and analysis of this research. Considering those lists
mentioned below, the total sample frame is 100.
Therefore, from different methods of sample size determination, a simplified formula of Yamane
Taro (1967) Sample size determination was used to calculate the sample. Accordingly, the
sample size for the research would be 100 by using 0.05 sampling error and 95% confidence
level. Taro Yamane formula for sample size determination:

n = ___ N__________

1 + N (e)2

Where n= Sample size

N= Total population

e= Sampling error (which is 0.05 sampling error and 95% confidence level)
Therefore, the sample size would be:-

n=100 / 1+100 (0.05)2

n=100/1.25

n=80 (Sample Size)

50
Since the Ethiopian Insurance Company (EIC) had the highest market share and huge capital
utilization compared to the sixteen private insurance companies, the researcher decided to choose
proportionately the respondents from the government and private insurance companies as
stipulated in the following diagram.

Insurance Companies

Government Private

Directors Managers Directors Managers

Source: Own Survey Sample size

Figure 3.5 Number of respondents from the total sample fame

After determination of sample size, deciding on the questionnaire distribution is vital. In order to
make vigorous decision on the number the participants in each insurance company, the
researcher made proportionate distribution based on their potential capability of adopting online
transaction. That is their capital strength at present. As mentioned in the previous section the
government owned insurance company had the capital of 643.2 million(22.5%) and the private
owned insurance company collectively had a capital of 2,221.8 million(77.5%).

51
Table 3.2) Proportional random sample selection for each insurance company

Capital in millions of Birr

Sr. Sample companies Respondents

No.
Capital Capital No. of
(2014/2015) in responders
percent
(%)
1 Ethiopian Insurance corporation S.C 643.2 22.5 18
2 Nyala Insurance Company S.C 286.3 10.0 8
3 Nib Insurance Company S.C 263.6 9.2 7
4 United Insurance Company S.C 258.4 9.0 7
5 Nile Insurance Company S.C 232.6 8.1 7
6 Awash Insurance Company S.C 219.0 7.6 6
7 Africa Insurance Company S.C 211.5 7.4 6
8 Oromia Insurance Company S.C 138.1 4.8 4
9 Abay Insurance Company S.C 108.3 3.8 3
10 Lion Insurance Company S.C 96.6 3.4 3
11 Global Insurance Company S.C 95.8 3.3 3
12 National Insurance Company S.C 80.8 2.8 2
13 Lucy Insurance Company S.C 64.7 2.3 2
14 Tsehay Insurance Company S.C 48.7 1.7 1
15 Birhan Insurance Company S.C 46.9 1.6 1
16 Bunna Insurance Company S.C 38.8 1.4 1
17 Ethio-Life Insurance Company S.C 31.8 1.1 1

Total sample size 2865.00 100 80

Source: Compiled from NBE, annual report (2014/15)

Hence, the researcher prorated accordingly based on their percentage capital contribution in the
market as stated on table 3.2 above.

52
3.5.1.4 Data Analysis and Analytical Framework

The ultimate goal of analyzing data is to treat the evidence fairly, to produce compelling
analytical conclusions and to rule out alternative interpretations.

According to Denscombe (2003), data analysis means that the researcher is deciding what and
which meaning can be attributed to the collected data; and what are the implications to that
effect, and how does it relate to the topic being investigated.

Data analysis consists of three concurrent flows of activity: data reduction, data display
(presentation), and conclusion drawing and verification (Miles and Huberman, 1994).

Based on the above stages of data analysis, the data reduction, display/presentation and
conclusion are produced in chapter 4, 5 and 6 respectively.

On the other hand, the researcher undertaken the analysis based on the nature of the research
questions in a descriptive statistics by determining the ―Mean‖ and ―Standard Deviation‖ to
know what values occurs most often? What ranges of values is likely to see?, and to check the
quality of the data. After collecting data, the data is loaded into SPSS for further analysis.

To identify the quality of the research, attentions were given to two important concepts:
reliability-the degree of accuracy of the collected data, and validity-to what extent the study
object is measured as it was intended to be (Denscombe, 2003).

3.6 Summary of Research Methodology

The methodology chapter specified how the researcher goes about finding out what was required
to fulfill the purpose of the study and deal with the research problem, based on the background
information provided in the first two chapters.

After introduction, this chapter, began with further discussion about the research approach to
come up with the quantitative research approach was appropriate to this study. The next section
discussed about the research type and strategy; descriptive research type and the survey method
as research strategy. In the fifth section, the research design is presented which includes data
collection and type of data, and also, data analysis and analytical framework. The data type is
primary and the questionnaire is used as data collection instrument. Based on non-probability

53
sampling method, a sample size of 80 respondents is defined considering proportion from the
total sample frame based on their current capital status.

Finally, data analysis will be analyzed quantitatively, mainly through descriptive statistics and
the last section devoted to determination of research quality standards: reliability and validity.

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 CHAPTER FOUR

EMPERICAL FINDINGS AND DATA ANALYSIS

4.1) Introduction

The main focus of this chapter is on data presentation of research findings and data analysis of
the survey on the potential contribution of e-commerce application on Ethiopian insurance
industry. The structure of this chapter is based on the sequential order of the questionnaire, in
order to present the data and provide the empirical results of the survey plus the analysis based
on the findings. Tables and figures will be mostly used to make them easy to understand.

4.2) Response Rate and Non-Responses

To fulfill the objectives of this research, the researcher conducted a survey (field study) on head
offices of all insurance companies in Ethiopia. As discussed in chapter 3, a questionnaire was
printed and distributed to 80 respondents as a data collection instrument. They are distributed to
one state-owned (EIC) and sixteen private (Nyala, Nib, United, Nile, Awash, Africa, Oromia,
Abay, Lion, Ethio-life, Oromia, Abay, Birhan, Tsehay, Lucy and Bunna) insurance companies.
The top managers (directors and department managers) and IT experts in the head quarter were
targeted to fill the questionnaire. The response rate of this survey was 77 answers, which is 96%
(77/80) that out-weights the reliability of the responses. And non-response was there by about
4% (3/80) which was not returned the questionnaire by the respondents due various reasons.

4.3) Respondents’ personal profile

In order to simplify the variables in the first question, i.e age, year of experience, and field of
study, the researcher formulated the following table for further clarity and discussion. This
section focuses on the socio-demographic information of respondents to identify their status of
eligibility for the response.

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Table 4.1) Recoded variables of age, year of experience and field of study

Age of respondent Year of Field of study

experience
Less than 30 years of age Less than one Computer science ( IT & network)
year
30-35 year olds Two years Finance (Accounting & banking)
35-40 year olds 3- 5 years Communication and Admin (HRM, political
science, psychology, R&D..
40-45 year olds 6-10 years Management (project, strategic and marketing
mgt.
45-50 year olds 11-20 years Economics and mathematics
More than 50 year olds More than 21 Engineering (industrial, mechanical or
years chemical..)
Source: Own Survey (2016)

The insurance companies are also recoded as private (16) and government-owned (1).

4.3.1 Age and Year of Experience

In this part, the distribution of respondents’ age over the sample is shown in Figure 4.1 below.
Most private insurance company respondents were between 30-35 years old.

Table 4.1- Categorical age distribution of respondent

Age Category Insurance companies Total

Gov’t Owned Private Owned

F Percent F Percent F Percent

Less than 30 years 1 12.5% 7 87.5% 8 100%
30-35 years 3 10.7% 25 89.3% 28 100%
35-40 years 8 36.4% 14 63.6% 22 100%
40-45 years 5 50% 5 50.0% 10 100%
45-50 years 1 20.0% 4 80.0% 5 100%
Greater than 50 years 4 100% . 0.0% 4 100%

Total 18 23.4% 59 76.6% 77 100%

Source: Own survey (2016)

56
The median age of respondents from the total participants was 36 years old (which lies in the
range of 35-40 years) with a minimum age of 30 and a maximum age of 58. Regardless of
insurance companies recruited younger staffs, the extremity of age is high in government owned
insurance company, which means that they have more aged and experienced employees. Table
4.2 shows more on the median age of respondents with in the insurance companies

Table 4.2 Median age of respondents

Insurance Group Median (in years) N Minimum Maximum

Gov’t Owned 38 18 30 58
Private Owned 35 59 30 49

Total 36 77 30 58

Source: Own Survey (April 5 to May 1/2016)

The working experience, or the employment record, in insurance is the next area of concern in
this section to be focused. According to figure 4.2 below, the private owned insurance
companies have employed younger personnel. Thus working experience of these personnel are
low and about 72.7% of total respondents are having working experience of less than 10 years.
Similar to the variations in age difference, there is also employment record variation which
ranges from 4 years to 21 years which has a direct relation with the age disparity in both group of
insurance companies. Many of the respondents are around the age of 9 years old, which is the
same as the median value of the total participants’ work experience. Figure 4.1 shows the
distribution of this variable/question of insurer in detail.

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Figure 4.1 Distribution of working experience in insurance

Source: Own Survey (April 5 to May 1/2016)

The working experience (employment record in years) in insurance for the respondents from
private sector is less than the correspondent value for the state-owned insurers on average.

4.3.2 Education and Field of study of respondents

The other pocus area of this topic is to see the educational level and field of study of the
respondents. Generally the level of education ranges from BA/BSC to MA/PhD. About
58(75.3%) of the respondents are BSC and BA holders and more than 19 (24.7%) are post
graduates, both in private and state-owned companies. This clearly shows that the insurance
companies are deploying an educated staffs since the sector by itself needs professional
candidates. Figure 4.2 shows the level of education in the sample.

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Figure 4.2- Distribution of educational level of respondents

Source: Own Survey (April 5 to May 1/2016)

Beside this part, the differences in field of studies between respondents are presented below.

Table 4.3- Cross- tabulation of field of study in each group of insurance companies

Field of study Insurance company Total

Government Private
Information Technology(IT, Computer 2(18.2%) 9(81.8%) 11(100%)
Science)
Economics 3(33.3%) 6(66.7%) 9(100%)
Management 3(25%) 19(75%) 22(100%)
Marketing 3(17.6%) 14(82.4%) 17(100%)
Finance( Accounting) 1(25%) 3(75%) 4(100%)
Engineering 2(50%) 2(50%) 4(100%)
Human Resource Management(HRM) 2(33.3%) 4(66.7%) 6(100%)
Foreign Language 2(50%) 2(50%) 4(100%)
Total 18(23.4%) 59(76.6%) 77(100%)

Source: Own Survey (April 5 to May 1/2016)

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According to the cross-tabulation stipulated in Table 4.3, the dominant field of study for the
respondents in both groups of insurers are management, Marketing and information technology.
And field of study in economics ranks 4th next to the first three study course.

4.3.3 Occupation and Department they belong

The respondents are working in various departments from the selected insurance companies.
Their occupation or working position, as clearly mentioned in the previous chapter, is as
directors and managers of the main value-chain in the company. i.e the marketing and sales,
product and service development, strategic management, claim management, finance and the
information systems development experts. Figure 4.3 shows the distribution of respondent’s
occupations with in the targeted insurance companies. From the total respondents 5(6.5%)
directors, 13(16.9%) marketing managers and 11(14.3%) underwriting managers ranked the top
three, whereas the remaining 48(37.7%) are human resource managers, strategic managers and
finance managers accordingly.

Figure 4.3 Occupations of respondents in the insurance companies

Source: Own survey (2016)

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When summarized, the general view of respondents’ socio-demographic information is found to
be 75.3% of respondents’ age is below 40years both in government and private insurance
companies. This implicitly shows that most of the managers working in the insurance company (
in both government and private) are in the age range of young personnel. The educational level
of respondents’ is 75.3%% for BA/BSC holders and 24.7% for MA holders both in private and
government owned insurance companies. Regarding their working experience 72.5% of the
respondents’, in both groups, is between 4 and 10. And the other 27.5% are having year of
experience of above 10 years up to 21 years.

4.4 Attitudes and Views of Respondents towards E-commerce

In this part four closed-ended and one open-ended question were included. In fact, the researcher
asked the respondents to forward their attitudes and views toward e-commerce and its
application in insurance industry. How respondents are acquainted with e-commerce? How e-
commerce affects the insurance sector?, what is the perception and importance of e-commerce to
insurance?, are the questions raised in this section. And finally the views of respondents on the
IT tools their company adopted to utilize the service effectively. The following section will
further discuss about each questions.

The average familiarity of respondents to e-commerce is 2.78(Std deviation of 1.034) which

shows lower awareness compared to their perception on affects and importance of e-commerce
to insurance industry having mean of 3.27(Std. deviation of 1.210) and 4.03(Std. deviation of
.932).
This shows that dispersion of respondents’ attitudes and views on acquaintance and effects of e-
commerce is high compared to the view on importance of e-commerce according to table 4.4.

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Table 4.4 The average level of awareness, effects and importance of e-commerce

Respondents’ Attitudes and Views N Mean Std. Std error

Deviation of mean
Awareness with the concept of e- 77 2.78 1.034 .118
commerce
Extent of affect by e-commerce 77 3.27 1.210 .138
application
Importance of e-commerce 77 4.03 .932 .106
implementation

(Scale: 5-very much, 4-much, 3-satisfactory, 2-low and 1-very low)

Considering the strategic planning and flexibility of a business is the main issue while adopting a
new technological output. It could be a threat or challenge to the business, or in contrast it could
be benefit-forwarding matter to the business. Hence, digging the perception of personnel about
the new application is important. The focus of this question is how respondents perceive about
application of e-commerce. Do they assume it as an opportunity, challenge or threat or do they
are not sure about it? This question is answered in the following figure 4.4.

Ambiguous
16%

Threat
5%
Challenge
5%

Opportunity
74%

Figure 4.4 The perception of respondents to e-commerce application

Source: Owen survey: April 5 to May 1/2016

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According to figure 4.4, 74.03% of the respondents think that e-commerce application as an
opportunity to the insurance industry. Around 15.58% of the respondents are not sure about it
whether it’s an opportunity, challenge or threat to their company. Whereas about 5.19% of the
respondents perceive e-commerce as a challenge and threat to the industry.

What IT tools /soft wares are your company adopted?

The last section of this part subjected to know the status of insurance companies towards the
utilization of information technology tools or soft wares to facilitate the work process. This
question obviously shows and leads to the next question about basic requirements to e-commerce
application in the insurance industry.

To this end the state-owned (EIC) respondents said that they adopted softwares like INSIS and
AGRESSO simplify the internal works of interlinked or interrelateddepartments. In addition this
software enabled customers to report their renewal and infer claim notification to insurance
branches as well as premieres from anywhere in the country where a branch office situated.
Moreover, it enabled restricted staffs to execute and report everyday activities without being
online and usable for controlling purpose by the finance and human resource departments.

Other private companies adopted prima software and other accounting softwares to create
favourable working condition to everyday activity.

To summarize part two of the above four questions, the first response on familiarity of
respondents on the application e-commerce is presented. Respondent’s acquaintance on e-
commerce is almost satisfactory, which of nearest to 75%. Therefore, the majority of respondents
assume that their company will be beneficial and application of e-commerce is an opportunity for
the sector in general. However, some of the respondents are not aware of the concept due to their
unrelated field of study and due to their exposure to IT is minimal. In contrast, this less aware
respondents also assume that the adoption of e-commerce is an opportunity and highly important
to the insurance industry. And they believe that e-commerce highly affects the insurance sector.

Even though the current status of the insurance sector in adopting information technology tools
and soft wares is less striving, their understanding and awareness on the concept by itself would
be one step forward to readiness to apply e-commerce in the near future.

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4.5 Potential Requirements for e-commerce

In this part, level of basic requirements which are needed in implementation of e-commerce on
the insurance industry will be evaluated based on two categories. i.e infrastructure and
manpower requirement. Average level of respondents view to these requirements is showed in
Table 4.5 below.

Table 4.5-Average level of Potential requirement for e-commerce

Potential Requirement N Mean Std. Deviation

Hardware & Networking 75 3.09 0.738
Software 75 2.75 0.840
IT experts 77 3.29 0.792
Skilled professionals 77 3.04 0.818

(Scale: 5-very Much, 4-much, 3-satisfactory, 2-low and 1-very low)

On the other hand, the potential requirements can also presented in percentage in table 4.6.

Table 4.6- Valid percentage potential requirement for e-commerce deployment

Potential Very Much Average Low Very Total

Requirement much Low
Hardware & Networking 0% 24(32.0%) 34(45.3%) 17(22.7%) 0% 75(100%)

Software 0% 11(14.7%) 42(56.0%) 14(18.7%) 8(10.7%) 75(100%)

IT experts 8(10.4%) 14(18.2%) 47(61.0%) 8(10.4%) 0% 77(100%)

Skilled professionals 4(5.2%) 11(14.3%) 50(64.9%) 8(10.4%) 4(5.2%) 77(100%)

Source: Own survey (2016)

The very execution of basic infrastructure and manpower is crucial to the adoption of e-
commerce in the insurance company. According to table 4.6, from the total valid participants

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more than half of the respondents ranked it as averagely fulfilled almost all requirements, i.e
hardware and networking, software, IT experts and Skilled staffs.
According to the prevailing response by the participants in the study, most of the insurance
companies in Ethiopia are better equipped with Specialized/ skilled staffs and IT experts than
hardware and software availability. Even though, there is some better installation of
infrastructure in some companies.

To summarize this part, the requirements on adoption of e-commerce are infrastructure and
skilled manpower. Since this application definitely needs major structural amendments in the
business. Hence, according to the study, only average fulfillment of requirements might not be
enough to undertake e-commerce in to the business. And it is revealed that further work need to
be addressed in order to grasp the benefit from e-commerce.

4.6 Factor Affecting Deployment of E-commerce

In this section, major barriers and affecting factors for insurers in e-commerce implementation
were questioned. The critical factors are broadly categorized in to two. These are internal and
external factors. Each factor has seven lists.

Based on table 4.7 which shows respondents answer to the degree of hindering factors on
application of e-commerce, in the case of internal factors: inflexible organization structure and
resistance to change ranked first having average of 3.65 (Std. deviation 1.275) of the total
respondents. Security issue is another concerning concept while thinking about e-commerce.
About 74% of the respondents critically addressed the issue of security should be guaranteed
before adopting it since its failure lead to unforeseen loss to the business as a whole.

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Table 4.7 Major affecting factors on application of e-commerce

Major affecting factors N Very Much Avera Low Very Mean Std.
much ge Low Deviati
on
Internal Factors
Inflexible organizational 73 28.6% 28.6% 22.1% 5.2% 10.4% 3.63 1.275
structure and resistance to
change
Security Reservation 77 19.5% 32.5% 22.1% 10.4% 15.6% 3.30 1.328
Expensive & complicated 77 10.4% 32.5% 36.4% 5.2% 15.6% 3.17 1.185
technologies of e-commerce
Product complexity and low 77 10.4% 40.3% 28.6% 15.6% 5.2% 3.35 1.036
interest products
Non-conformity of current 77 9.1% 39.0% 31.2% 5.2% 15.6% 3.21 1.185
products and services to online
offers
Traditional attitudes and views 77 3.9% 62.3% 23.4% 5.2% 5.2% 3.55 0.867
over insurance service
Scarcity of skilled staffs 77 0% 29.9% 39.0% 26.0% 5.2% 2.94 0.879
External Factors
Lack of appropriate legislation 77 27.3% 14.3% 26.0% 27.3% 5.2% 4.44 1.280
and regulations by governing
body
Low internet usage and fewer 77 14.3% 42.9% 32.5% 10.4% 0% 3.61 0.861
users
Volatile feature of digital world 77 14.3% 42.9% 32.5% 5.2% 5.2% 3.56 0.980
Lagging of other supportive 77 14.3% 39.0% 46.8% 0% 0% 3.68 0.715
sectors (banks ,tax offices,
telecommunication)
IT security problem: hacking, 77 14.3% 32.5% 20.8% 16.9% 15.6% 3.13 1.301
spy and malwares
Internal conflicts & negative 77 9.1% 32.5% 42.9% 10.4% 5.2% 3.30 0.961
reactions from intermediaries,
agents, brokers
Customers' low intention to buy 77 9.1% 37.7% 42.9% 10.4% 0% 3.45 0.804
online
Source: Own survey (2016)

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Expensiveness and complicatedness of the technology, conformity of insurance product to e-
commerce, fixation by the traditional attitudes and scarcity of skilled staffs are the remaining
major affecting factors to adoption of e-commerce.

In the case of external factors: lack of appropriate legislation and regulation by the concerned
body (i.e National bank of Ethiopia, ministry of information and technology) holds behind the
little courage of insurance companies by average of 4.44( Std. deviation of 1.280). And low
internet usage as well as poor internet access to customers became the primary hindering factor
for application of e-commerce have an average response of 3.61 (Std. deviation of .861)
according to table 4.9 above. Moreover, lagging of supportive sectors like banks,
telecommunication and concerned tax authorities play another decisive role for successes of the
electronic form of transaction. Customers’ awareness on purchasing online products/services and
concern on safety issue have strong influence on deciding the implementation of electronic
marketing.

To summarize about the major affecting factors to deployment of e-commerce in Ethiopian

insurance industry, respondents addressed that both factors have great impact on the deployment.
Due consideration should be taken, as shown in table 4.9 above, to inflexible organizational
structure, security matters and its non-conformity to insurance products or services.
4.7 Potential Areas of E-commerce Application

This part of the research question focuses on two areas where application of e-commerce is
suitable. The first part talks about the very sensitive areas in insurance service value-chain, i.e
departments in the business where whole insurance process is undertaken. The other part is about
which product would be suitable for adoption of e-commerce considering basic factors not to be
forgotten like risk of fraud, physical assessment and so on.

4.7.1 Potential areas of application in terms of department

In this question, respondents are required to give their view on which one of the departments of
insurance business processes are more vulnerable to e-commerce application. As discussed in
chapter 2, Product and service development, business development and strategic management,
finance and inventory management, marketing and sales, human resource management, asset &
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claims management and information systems management are the basic area in insurance
company value-chain where the tasks of insurance are undertaken. According to table 4.8, the
extent of each department’s involvement in execution of e-commerce can be described.

Table 4.8 Descriptive Statistics for each department listed in the value-chain

Insurance Value Chain N Mean Std. Std. error

deviation mean
Product and Service Development 77 3.87 .951 .108
Business development and strategic Management 77 3.83 .965 .110
Finance and Inventory Management 77 3.95 .902 .103
Marketing and Sales 77 4.18 1.121 .128
Human Resource Management 77 3.23 .902 .103
Assets and Claims Management 77 3.34 .868 .099
Information Systems Management 77 4.32 .751 .086
(Scale: 5-Very much, 4-Much, 3-Average, 2-Low, and 1-very low)

Source: own Survey (2016)

From the descriptive statistics shown on table 4.8, the average of 4.18(std. Dev. 1.121) from the
total participants assume that marketing and sales department is the most critical areas for
deployment of electronic way of transaction. Secondly, the work process in the information
systems management department, obviously it’s the center for formulating a platform in the
adoption of the current digital plain, have an average of 4.32 (Std.dev.751) from the total
respondents said that it’s one of the potential areas in the insurance value-chain.

4.7.2 Potential areas of application in terms of product suitability

This part of the research question focuses to distinguish which products is more appropriate to
sale online. Commonly used insurance policies in Ethiopia are identified and given to
respondents to give ranks based on their understandings and experiences. Eight products were
selected from insurance companies’ portfolio. Table 4.9 shows the answers by the respondents to
the question.

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Table 4.9 The Mean values for the suitability of insurance products to offer online

Insurance products/services N Mean Std. Std. Error

Deviation mean

General Insurance Policies

Motor Insurance 77 3.00 .062 .121
Fire, earth quack and flood 77 3.74 .992 .113
Personal insurance (Health & Accident) 77 3.40 .987 .112
Liability insurance, bond, performance guarantee 77 3.57 1.093 .125
Marin & Aviation insurance 77 3.82 1.097 .125
Engineering Insurance 77 3.74 .818 .093
Long-term Insurance policies
Whole life insurance 73 3.73 1.158 .136
Endowment, Term, medical… 73 3.78 1.044 .122

(Scale: 5-very much, 4-much, 3-average and 1-very low) There were some mission values in the responses.

On the other hand, percentage answers were presented below.

Table 4.10 The appropriateness of insurance products to online sales

Insurance products Very Much Average Low Very

much low
Motor Insurance 15.9% 19.5% 27.3% 37.3% 0%
Fire, earth quack and flood 28.6% 27.3% 33.8% 10.4% 0%
Personal insurance (Health & Accident) 37.7% 35.1% 16.9% 10.4% 0%
Liability insurance, bond, performance 26.0% 20.8% 42.9% 5.2% 5.2%
guarantee
Marine& Aviation insurance 31.2% 35.1% 23.4% 5.2% 5.2%
Engineering Insurance 13.0% 26.5% 18.2% 68.1% 10.4%
Whole life insurance 34.2% 20.5% 34.2% 6.2% 5.5%
Endowment, Term, medical… 34.2% 20.5% 34.2% 11.1% 0%
Source: own survey (2016)
As shown in the table above, primarily marine & aviation, personal insurance, whole life
insurance, endowment insurance and liability insurance are strongly more suitable to application

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of e-commerce. However, motor, fire, earthquake and flood, and engineering insurance are the
least suitable for adoption of e-commerce.
4.8 Benefits of E-commerce to the Insurance Industry

Major benefits were listed under this question to respondents to give their answers. Table 4.11
visualizes the perceived benefits of e-commerce implementation for insurance sector.

As mentioned on table 4.11 above, the average respondents expressed that the core benefits
described in the review literature meets the contribution of e-commerce to the best level. Almost
all respondents assumed that implementation of e-commerce fulfills the gap that existed between
insurers and customers in addition to the promoting the companies brand and image in the global
market. In general, the benefit listed above in turn makes the stride high to the competitive
market and keep the insurance industry to hold its competitive advantage.

Table 4.11 Average perceived benefits of e-commerce by respondents

Perceived benefits for insurance N Mean Std. Std. error
Deviation of mean
Brand and image promotion to the global market 77 4.39 .905 .103
Lower investment for establishing the sales and after 77 3.99 .993 .113
sales service
Decentralization and boundary less transactions 77 3.92 1.061 .121
Cost reduction in value-chain mgt.(product/service 77 3.90 .882 .101
development)
Increase of sales volume (premium) 77 4.19 .779 .089
Mass customization and innovation 77 3.95 .902 .103
Encourages low cost promotion 77 3.95 .841 .096
More transparency and claims management 77 3.69 .847 .097
Desired CRM through continuous service (24/7 service) 77 4.27 .898 .102
& fast response
Job enrichment and high productivity 77 3.74 .894 .102
Extended cooperation with partners (with reinsurance 77 4.26 .715 .081
companies)
Good knowledge management and better stakeholder 77 4.03 .858 .098
relationship
Better networking with e-insurance applying companies 77 4.08 1.048 .119
Enhances prompt and cost effective claim 77 3.57 .802 .091
settlement/order accepting mechanism

Source: Owen survey: April 5 to May 1/2016

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To summarize, the existing traditional way of insurance service should be hold behind so as to
meet those benefits. In the presenting competitive market, market penetration and market
distribution are important for a business to meet customer satisfaction.

Finally, insurance companies readiness to implement e-commerce

The last question to part is all about the final responses from the participants to give their views
about their company’s readiness to implement electronics way of marketing. In this question,
respondents gave an average extent of readiness to be 3.21(Std. Deviation .767).

According to figure 6.2, about 41(53.25%) of the total respondents assumed that their company
is averagely ready to embrace e-commerce. And around 20(26%) of the total respondents
perceive that their company is much ready for implementation of e-commerce. But 12(16%) of
the respondents hesitate on their company’s readiness to implement e-commerce.

Very Much Low

5% 16%
Much
26%
Average
53%

Figure 4.5 Visualizes the readiness of insurer to implement e-commerce.

Source: Owen survey: (2016)

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 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1) Introduction

In the previous chapter the researcher analysed the data collected by questionnaire in this study.
The main structure used in chapter 4, was the structure in the last section of the research
methodology which centred on the analysis of the five research questions.

This chapter summarizes the analytical findings and present the conclusions drawn from the
survey conducted in this study. Findings will be presented in a general discussion, dealing with
the areas of the fifth research question. That means five research questions will be answered and
then general conclusion will be drawn. And finally, the end of this chapter will also give and
point out further suggestions and recommendations for future research.

5.2) Summary of key findings

This part of the study tries to summarize the key research findings presented in chapter 4
accordingly to the research objectives.

 Regarding the attitudes and views of insurers on e-commerce:- according to table 4.1,
since most respondents are at younger age (of between 30-40 years old) around 71% of
the total respondents have satisfactory awareness about the concept of e-commerce. And
only about 29% of the respondents say that they have no acquaintance with the concept.
However, more than 65% of the respondents perceive that adoption of it would be an
opportunity to the insurance industry and it’s important for the business as a whole.

 With respect to potential requirements for e-commerce implementation: as

mentioned in table 4.5 of previous chapter, almost all of the respondents assumed that
infrastructural and manpower requirements are equipped on average. Though, this does
not mean that it is sufficient for online marketing, the status seems good. At present
digital world, having fully manipulated infrastructure as well as manpower is vital in
order to undertake the system of IT based service. Hence, based on the results, insurance

72
 companies in Ethiopia should adequate infrastructure and try to produce training platform
for better productivity.

 With regard to major affecting factors which have due impact on e-commerce
application:- though in Ethiopia the deployment of e-commerce is almost zero, most
respondents believe that if those 12 internal and external factors corrected the future of
the insurance service seems brighter. In general, according to the ranks given by the
respondents, the following list is presented from the most affecting to the least affecting
factors.
 Inflexible organizational structure and resistance to change
 Lack of appropriate legislation and regulations by governing body
 Lagging of other supportive sectors (banks ,tax offices, telecommunication)
 Expensive & complicated technologies of e-commerce
 Security Reservation
 Low internet usage and fewer users
 IT security problem: hacking, spy and malwares
 Non-conformity of current products and services to online offers
 Internal conflicts & negative reactions from intermediaries, agents, brokers
 Traditional attitudes and views over insurance service
 Scarcity of skilled staffs
 Customers' low intention to buy online

 With regard to potential areas of business process and insurance products that are
susceptible to e-commerce: from the insurance value-chain the most concerned and very
much influenced section, with an average of 4.18 (Std. deviation of 1.121), is the
marketing and sales department since it’s here where products feasibility and
compatibility be investigated as previously stipulated in table 4.8. The deviation also
shows most respondents understanding about e-commerce. Next to the IT section
strategic business development section have a direct connection with crafting the policies
and procedures. It is obvious that structural changes and policy alteration might be
needed while a business want to adopt online sales. In general, the contribution of all

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 business processes is important, since the output will affect the whole, to create a
coherent system of transaction.

As to the insurance products concerned both categories, i.e general insurance and long-term
insurance policies, were given due emphasis. According to the research findings from
respondents, products suitability to e-commerce application is listed below.

Personal accident/health insurance

Marine and aviation insurance
Whole life, term, medical insurance
Fire, earth quack and flood insurance
Liability insurance (bond, guarantee)
Motor (auto) insurance and engineering insurance

 With regard to insurer’s perception on the benefit of e-commerce implementation:

according to table 4.11 presented in chapter 4, most respondents ranked the listed benefits
to highly beneficial to insurance. Their average response dispersion seems fluctuating.
The listing below shows the respondents’ result towards benefits of e-commerce
application.
Brand and image promotion to the global market
Lower investment for establishing the sales and after sales service
Decentralization and boundary less transactions
Cost reduction in value-chain mgt.(product/service development)
Increase of sales volume (premium)
Mass customization and innovation
Encourages low cost promotion
Encourages low cost promotion
More transparency and claims management
Desired CRM through continuous service (24/7 service) & fast response
Job enrichment and high productivity
Extended cooperation with partners (with reinsurance companies)

74
 Good knowledge management and better stakeholder relationship
Better networking with e-insurance applying companies
Enhances prompt and cost effective claim settlement/order accepting mechanism

Finally, based on the findings obtained the analysis it is possible to conclude that most
perception by the respondents lay on positive aspects of e-commerce on operation of insurance
service.

5.3) Conclusions

With no doubt all insurance companies along with their subsidiaries and agent have an internet
and they introduce their products and services. Their websites are more static than dynamic.
They just present a little information on their companies, no regularly updated information and a
few of them offer to visitors to contact them via e-mail. Though, it is worth while using all
existing networking mechanisms like website promotion: Facebook, LinkedIn and so on on order
to enhance their capability.

It is obvious that a sample of respondents only gave their responses on this study. But taking the
subject matter into account, saying the implementation of e-commerce brings wider benefits to
the insurance industry makes no doubt since reference company’s data from around the world
out weights for generalization.

As clearly stated in the first chapter of this thesis, the main purpose of this study was to clarify
the potential Contribution of e-commerce application on Ethiopian insurance industry. Despite
the fact that there is no actual implementation of e-commerce in Ethiopia, addressing the
prospective impact of it in reference to developed countries would reveal the existing gap in
Ethiopia.

This study has tried to propose an overview of the potential Contribution of e-commerce on the
insurance industry. According to the research findings, most of the managers who are involved in
the study proved that companies have had a positive and constructive attitude toward
implementation and deployment of e-commerce in insurance companies, and in general, most of
them have considered e-commerce as an opportunity (in contrast to threat or challenge), and
believe that applying e-commerce in their company is very important.

75
The most important challenges of insurance companies in applying e-commerce are related to
lagging of other supportive sectors (such as banks for electronic money, telecommunications
network, tax regulations for online transaction etc.).

And "lack of rules and regulations with respect to electronics insurance transaction, and a lack of
experts in ICT (information and communication technology) and inadequate skilled and
experienced personnel in the field of e-commerce that doing necessary action in this area is
essential. Departments related to the marketing and sales, as well as information systems, have
had the most potential in applying e-commerce and on the other hand, insurance of motor, life
and personal or individuals (health and accident) insurances are more compatible to online sell.

Furthermore, improving the company's reputation as a pioneer and new company, facilitating
cooperation and transferring knowledge among stakeholders (stockholders, banks, and tax
authorities) are benefits where e-commerce brings to the service sector. The boundary less
marketing, customer accessible service, speedy service (claim settlement), connected workforce
with countries from Africa and the world are the major and comprehensive benefits of e-
commerce application in Ethiopia.

To summarize, the existing traditional way of insurance service should be hold behind so as to
meet those benefits. In the presenting competitive market, market penetration and market
distribution are important for a business to meet the dynamic customer satisfaction and retain the
existing customers in a global context.
Hence, according to the general outputs collected from respondents, application of e-commerce
has potential contribution to the success of the insurance industry in Ethiopia.

5.4) Recommendations
5.4.1 Recommendations to the Insurer

As mentioned in the previous chapters, in Ethiopia no company had actually implemented e-

commerce so far. Far from the concept of e-commerce some insurance companies started to use,
if called, semi-online system of filling orders and insurance renewal on company’s web-site
policy formats. And some kind of premium settlement mechanisms through their partner bank
account. The concept of ―no premium no cover‖ rule is applicable and even best for the
application of efficient insurance service.

76
Hence the researcher would like to recommend the following for the better operation of the
insurance companies.

 Providing adequate hierarchical training to staffs about e-commerce application in

particular and information technology in general should be given.
 Capitalizing the infrastructural capabilities of companies are highly recommended since
its fulfilment plays paramount role in implementation of e-commerce.
 Product innovation and service facility positioning were the other recommendable issue
that should be given due consideration by the insurer since the insurance products or
services should be compatible to the existing online sales technology.
 Awareness creation to customers as well as staffs on insurance marketing on online sales
would have great role.
 Product and service development and innovation should be encouraged to reach the huge
market demand that still not reached.
5.4.2 Recommendations to Regulatory bodies and Partners

Supportive Partners like Ministry of Communication and Information Technology (MCIT),

Ethio-Telecom, and tax authorities are the grand offices in Ethiopia to pave the way for better
operation of business.

 MCIT have to facilitate information transmission and connectivity to the global

infrastructure by passing the necessary laws and regulations. And encouraging the
striving companies by assisting with staff training, infrastructure installation helps in
strengthening capacity and creation of working environment.
 The regulatory body, NBE, need to create a supportive external environment for
promoting the use of information technology and walk in advance with the existing
technology to make supportive partners, like banks, to be collaborator to e-commerce and
e-banking.
 Ethiopian tax authority should build a platform that facilitate tax related issue raised in
due adoption of electronic way of transaction. Moreover, addressing this technology
means directly increasing insurance company’s sales volume which in turn pulls up
county’s GDP in general.

77
  As the core element of e-commerce is internet and Web technology, the currently
governing Ethio- telecom should work hard to widen the accessibility and speed of
internet service, these desired improvements need to be pursued within the framework of
comprehensive national or sub-regional plans to link African countries to each other and
to the global information technology infrastructure.

Hence, those organizations are required to consider the creation of platforms to the accessibility
of information technology in the country so as to facilitate the potential of the finance sector as
well as the business operations as a whole.

5.4.3 Recommendations for Further Research

The researcher believes that the limitations of this study should be considered for further
research. As mentioned above this thesis tried to see the general understanding of insurers about
electronics way of marketing and their expected benefits as to it’s application. For further study
the following consideration should be taken in to account.

The other recommendation is, on doing similar research, to widen the scope of the research. In
this research, only the insurance companies were focused. But while studying due focus should
also be given to partner governmental as well as private organizations. There stakeholders are
insurance brokers and agents, Ethio- telecom, ministry of communication and information
technology and the customers. Because the effect will directly affects those actors too.

78
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81
 APPENDEX
QUESTIONNAIRE
Masters of Business Administration Specialized
In
Information Systems Management (MBA-ISM)
Introduction
Dear respondents,
I am a post graduate student of SRI SAI COLLEGE. I am conducting my master’s thesis with
the aim of investigating the ―POTENTIAL CONTRIBUTION OF E-COMMERCE
APPLICATION ON ETHIOPIAN INSURANCE INDUSTRY”. This study will help other
researchers as well as the service sector for future study on information technology. It will also
help the insurance industry to consider the importance and value of electronic commerce on the
new era of digital marketing environment.
Hence would you please complete the following questionnaire honestly as possible? Your
responses will be used exclusively for the research purpose and will be kept confidential. I am
very thankful for your cooperation in replying the questions genuinely.
Instructions
In the following questionnaire I would like to know your attitude and views towards the impact
and benefits on application of e-commerce on the insurance industry. Please respond to all the
questions and put a tick ( X ) mark on the appropriate box that best suits your answer.
This questionnaire is categorized in to six sections depending on the area of the research
objectives stipulated in the main body part of the research.

Part 1: Personal Profile

A) Age____ Years old B) Educational level____________ C) Field of Study__________
D) Occupation________________ E) Department/Section_________ F) Company________
G) Year of experience in insurance _____Years old

x
Part 2: Attitudes and Views
1) To what extent are you acquainted with the concept and application of e-commerce?
Very much Much satisfactory Low Very Low
2) To what extent will e-commerce affect insurance industry?
Very highly Highly Average Low Very Low
3) For your company e-commerce is a/an:
Opportunity Challenge Threat Ambiguous Not necessary
4) How important is the implementation of e-commerce to your company?
Very highly Highly Some Low Very Low
5) What IT tool/ software are your company applying?
1)___________________________________________________________
2)___________________________________________________________
3)___________________________________________________________
If so, mention some of its importance: ____________________________________________
___________________________________________________________________________.

Part 3: Potential Requirements

6) To what extent your company is equipped to implement e-commerce for each items listed
below?
Requirements Very Much Average Low Very
much low
Infrastructural
 Hardware and Networking
(Computers, internet,
Intra/Extranet, e-mail, Modem….)
 Software (Public and
Specialized/advanced packages,
standardized processes and
systems,…)
Human power
 IT experts and professionals

xi
  Skilled staff (in e-commerce,
computer software: finance,
marketing and so on)

Part 4: Major Affecting Factors

7) To what degree each of these items will hinder deployment of e-commerce to your
company?
Major Factors Very Much Average Low Very
much low
Internal Factors
 Expensive and complicated
technologies of e-commerce
 Non-conformity of current
products and services to
online offers
 Product complexity and low-
interest products
 Scarcity of skilled staffs
 Traditional attitudes and
views over the industry
 Inflexible organizational
chart and resistance to
change
 Security reservations
External Factors
 Lack of appropriate
legislation and regulation
(e.g. copy right, digital
signature….)
 Internal conflicts and

xii
 negative reactions from
intermediates, agents,
brokers …
 Lagging of other supportive
sectors (e.g. banks and
telecommunications, tax
authorities …)
 Customers’ low intention to
buy online
 Low internet usage and
fewer users
 Volatile feature of digital
world

Part 5: Potential Areas of Applications

8) To what extent each of the business processes below has the potential to embrace e-
commerce?

Business process Very Much Average Low Very

much low
 Product and Service
development (R&D)
 Business development and risk
management
 Finance and Inventory
management
 Marketing and Sales
 Human Resource management
 Assets & Claims Management
 Information systems

xiii
 development management
(ISDM)

9) Which of these insurance policies are suitable to online marketing?

Insurance products/services Very Much Average Low Very
much low
General Insurance policies
 Motor Insurance
 Fire, Earthquake and Flood
 Personal Insurance (Health &
Accidents)
 Liability insurance, bond,
performance guarantee
 Marine and aviation insurance
 Engineering insurance
Long term Insurance policies
 Whole life insurance
 Endowment, Term, Medical

Part 6: Perceived Benefits

10) How much benefit will your company obtain, in the case of implementing e-commerce?
Benefits Very Much Average Low Very
much low
Brand and image promotion to the
global market
Lower investment for establishing the
sales and after sales service/feedback
Decentralization and boundary less
transactions
Cost reduction in value chain

xiv
 management (e.g. product/service
development)
Increase of sales volumes (premium)
Mass-customization and innovation
Encourages low cost promotion
More transparency and speed of
claims management
Desired CRM through continuous
service (24 hours/ 7 days) and fast
response
Job enrichment and high productivity
Extended cooperation with partners (
especially in the reinsurance cases)
Good knowledge management and
better stakeholder relationship
Better networking with e-insurance
companies
Enhances prompt and cost effective
claim settlement/order accepting
mechanism

11) Totally, to what extent your company is ready to embrace e-commerce?

Very much Much Average Low Very Low

Any comments or suggestions?___________________________________________________

xv