Liability insurance policies account for about 5% of insurance firms' annual premium income and experts believe that the category has the potential to play a bigger role in insurers' portfolios if they are able to promote it and reduce costs.
Bimeh Dari Novin, a local magazine specializing in the insurance industry in Iran, recently discussed the state of the liability insurance category with experts and representatives from insurance companies.
Ahmad Safarzadeh, Iran Insurance Company's deputy head for technical affairs, said liability insurance policies could have a 12% share in the sector’s premium income.
"As people become aware of their rights the more they will see the need for insuring their businesses against unforeseen challenges and failures."
Medrik Pirsaheb, head of liability insurance working group at Iranian Insurers Syndicate, referred to the annual premium income from liability insurance last year -- 38 trillion rials -- and said "Given the infancy of liability insurance in Iran, this income level indeed shows potential for growth."
Liability insurance is a broad term that describes types of coverage to help protect individuals or businesses if a lawsuit is filed against them. Employers' liability is the most popular type of liability insurance in Iran, accounting for about 60% of liability insurance policies sold each year.
Liability insurance was first introduced in Iran in the 1990s. Back then regulators set brokers' commission at around 30% to help boost sales and promote this particular segment.
Commission-Driven Growth
"The measure helped as it encouraged brokers to get more involved in selling liability insurance," Pirsaheb said. "However, at the moment the high commissions are the main cause of growth in the unfair competition in the market, such as underselling policies.
Data from the Central Insurance company of Iran shows that the payout ratio of the sector was 50% in the last fiscal year (ended March 2021). However, experts believe the real percentage is considerably higher.
"The CII calculated the ratio by dividing the payout by generated premium in a specific period. However, after deducting agents' commission and insurance companies' expenses, the ratio should be in the region of 110%," Pirsaheb said.
Safarzadeh pointed out that for maximizing profitability of the liability insurance category, insurance firms “need to improve the efficiency of their risk assessment and cut costs instead of unsettling the market.”
Iranian insurance companies generated 817.3 trillion rials ($3.43 billion) in premium income in the last fiscal year posting 37.8% growth compared to the year before. Liability insurance accounted for 4.7% of the total premium income, up 40% y/y.
Insurers sold 1.85 million liability insurance policies during the period, which was 6.8% higher on an annualized basis. CII data also indicates a growth of 47% in payouts of the category in the last fiscal year.
Third-party vehicle insurance still tops the list alone generating one-third of the premium income, followed by medical insurance and life insurance.
