UNDERSTANDING OPERATING ENVIRONMENT

2.1 Macro Environment Assessment

PESTEL model assessment model is applied for understanding the environment impact on insurance
industry.

2.1.1 Political factors

Political environment assessment shows that the aftermath of the instability could adversely affect the
Country’s economy as well as performance of the Insurance industry. Particularly, sanction from
developed nation, exclusion from AGOA, tendency to open for international market and political
instability are expected to continue its adverse effect in this strategic period.

2.1.2 Economic factors

The economy is highly affected due to civil war, reduced foreign direct investment, shift of government
focus from mega investment to rehabilitation activities, continuous galloping of inflation and lack of
foreign currency are some of the factors that adversely affect the insurance industry where as the
government privatization initiatives in public enterprise and home grown economic reform will have
positive impact on the insurance industry.

2.1.3 Social factors

The country’s population estimated at 116.5. Million in 2021(annual growth rate 2.53 %), which the
youthful population dominated the total number. This has a positive impact on insurance demand
particularly long term insurance. Likewise, the Muslim community is estimated to be around 40% of the
total population, which is an indicative of the potential for Takaful window operation. Nevertheless,
population instability and lack of awareness to utilize insurance as risk management tool are negatively
affecting insurance demand.

2.1.4 Technology factors

Ethiopian ICT infrastructure development and advancement, increment of information technology users
and semi privatization of telecom operation are some of the factors that change insurance business
operation systems.

2.1.5 Ecological factors

Unpredicted climatic conditions due to global warming will have negative impact on Country’s economy,
which is predominantly agrarian. On the other hand, the overall climatic factors can be considered as
suitable for mechanized agricultural farms that attract agribusiness projects which intensively use
mechanized machineries, engage in import-export and create mass employment are opportunities for
the insurance industry.

2.1.6 Legal factors

2.2 Micro / Industry Environment Assessment

Porters five forces model was applied to understand the industry environment

2.2.7 New entrants

In recent times, it becomes familiar to see many new banks joining the financial sector. From past
trends, it can be concluded that those banks may establish affiliated insurance companies. In addition to
this, there is a possibility to open the financial market for foreign companies to engage in insurance
industry that makes the competition very challenging and stiff. Moreover, the emergence of composite
insurers might threaten the fair share of existing life business operators.

2.1.7 Industry Rivalries

Eighteen insurance companies competing for the same insurance market and labor force having
different learning curve, financial strength, fixed asset, economies of scale, investment profile, market
accessibility, service quality, pricing rate, customer base and related factors. The industry rivals are
exercising price cutting (struggling strategy), business affiliation and malpractice business application will
cause negative outcome for growth of insurance industry.

2.1.8 Bargaining Power of Buyers

The customer has high negotiation power due the presence of similar products and negligible switching
costs in the industry. The competition in the insurance industry is highly dependent on rate cutting than
service excellence. Hence, the Company should develop core competencies to reduce negotiation power
of buyers.

2.1.9 Bargaining power of Suppliers

The supplier negotiation power has minimal impact to determine the price of insurance product.

2.1.10 Substitutes products

Government’s health insurance policy, micro insurance, edire, and other social security scheme are
some of the substituent products that affect negatively on insurance demand. Accordingly, the
Company should develop other affordable packages that suit the customers’ preference and make them
switch from substitute products to conventional one.

2.3 Internal Environment

Resource model (R-3 C’s model) is used to assess the internal environment. It is an inside -out view to
ask why organization success and fail in the market place. The capability to identify available resources
to add value in customer value chain, develop new product features and expand in new market are
some of the issues to bring competencies and competitive advantage.

2.3.1 Resource availability

The company’s resource includes human resource, physical resource, financial resource and other
intangible resource. All these resources should be mobilized in an optimal point to create efficiency and
effectiveness.

2.3.2 Financial resource

The company’s ability to execute its functions is heavily dependent on the financial resources. The
financial resources of Nile are mainly generated from premium income, return on various investments
and capital injection. It is envisioned that the strong financial base of the Company currently will support
successful implementation of the plan.

2.3.3 Human Resources

Nile considers human resource as the most valuable asset of all resources. The Company has various
skilled professionals to spearhead its operations. The company needs to revitalize human resource
capability in all areas in general and marketing and information technology in particular.

2.3.4 Physical resource

The company has real estate, vehicles, operating equipments, furniture and fixtures. However; the
company has only one old crane which has negative impact on the quality of customer service and
image of the Company. The Company should purchase quality crane or should use outsourced crane
services in the second year of the strategic period by thoroughly conducting cost benefit analysis.

2.3.5 Intangible resources

2.3.5.1 Information Technology

The Company has invested in information technology to achieve the objectives of decreasing paper
consumption, improving efficiency of service delivery, increasing quality of data and reducing customer
waiting time and ensuring work place flexibility. However; the above objectives are not effectively
achieved. Thus, the company has to exert at most effort to bring overall efficiency in all functions by
exhaustively utilizing the system and finalizing the rest of the modules of the project before the
beginning of the strategic period.

2.3.5.2 Goodwill / Image

2.3.5.3 Capability to mobilize resources

The company should give special attention to build the capability of employees by training, experience
sharing with the best practice in the domestic and international companies.

2.3.5.3.1 Core competencies

The company has not identified core competency during the assessment. Thus, the company should
create core competencies in service or product features that differentiate from other competitors.

2.3.5.3.2 Competitive advantage

It is obvious that if there are no core competencies in resource and capability to mobilize those
resources, there will not be competitive advantage. The company should engage in innovative idea to
create core competency so as to get competitive advantage.