Economy Minister Ehsan Khandouzi has called on policymakers to come up with workable roadmaps to expand growth of the key insurance sector and boost its role in the economy.
In a meeting with officials from the Central Insurance company of Iran (CII) and CEOs of insurance companies, Khandouzi stressed the need for more support from policymakers and the need for creating of a strong legal framework to support the industry.
"The industry has not seen much progress in terms of governance and legislation. Yes, some measures were taken in the past, such as including insurance-related clauses in five-year economic development plans and annual budgets, but there is need for a comprehensive legal agenda," Risknews quoted him as saying.
"Past measures were indeed not enough to address the industry's needs and help it keep pace with its international peers.”
The minister emphasized the importance of key performance indicators in the industry, such as the insurance penetration rate, which has not increased significantly in recent years. He cited the lack of growth in production insurance and claims paid index, which has remained relatively stagnant compared to the consumer price index (CPI).
"The low penetration rate is one [main] reason for the industry's underdevelopment…if the penetration rate does not increase, the industry's share in the economy will also lag behin, leading to problems such as unhealthy competition and underselling," he warned.
The Sixth Five-Year Economic Development Plan had called for 21% annual growth in investments in the insurance industry, but data show that the average annual investment sank to 3%.
The sector was supposed to increase the share of life insurance premium income by 50%. This segment barely accounted for 15.3% of premium income by the end of the FYDP. Data also show the share of life insurance in the industry’s collective portfolio increased barely 0.4% on average.
A key goal of the national plan was to boost the sustainability of insurance income and improve their financial clout. The FYDP obliged insurance authorities to “take appropriate measures to expand the penetration rate by 7% in five years”.
Average annual growth was a tiny 0.2% in the penetration rate and 2.52% by the end of the plan period. The industry regulator says it has taken measures to meet the targets, namely promoting specialized life insurance companies and giving more leeway to insurers to raise investment by expanding the life insurance segment.
The meeting, attended by the CII boss, the president of the Iranian Insurance Syndicate and other industry stakeholders, discussed the challenges the industry is grappling with and proposed solutions.
Iran's insurance market logged decent growth in the first 11 months of the calendar year (ended Feb 19) with total insurance premium reaching 1,546 trillion ($3.09 billion). The y/y growth was 54.5%, according to the data published by the CII.
Total claims paid by the insurers during the period was 845.7 trillion rials ($1.69 billion), with the medical segment accounting for the largest share at 38.41%.
Ranking System
Khandozi called for revising the ranking system for insurance companies to help promote bigger players and establishment of base prices to ensure fair competition.
So far, solvency ratio was the only criterion for ranking insurance companies. However, this seems to be not enough for assessing their performance in its entirety.
The CII has compartmentalized insurance firms into different levels. Rankings (levels) are set subject to the key metric, the Solvency Margin Ratio (SMR). The metric is the capability to cover exposed risks.
Most insurance companies reportedly climbed to Level 1 in fiscal 2020-2021, which makes the metric irrelevant for customers wanting to decide the most suitable insurer.
Except for Asmari Insurance Company and Sarmad Insurance Company, with Level 2, all others were elevated to Level 1 for fiscal year to March 2022, which means the companies were capable of meeting their financial commitments.
Pasargad Insurance Company, affiliated to Bank Pasargad, topped the list of general insurers, with a solvency ratio of 304. Karafarin Insurance, affiliated to Karafarin Bank, was second at 262 while Arman Insurance, Saman Insurance and Razi Insurance followed.
The ratio was 519 for Baran Life Insurance Company, and 308 for Middles East Life insurance Company, a subsidiary of Middle East Bank.
The CII list also ranked reinsurance companies based on their SMR. Amin Re was at the top with 917, followed by Iranian Re 308, and Iran Moein Reinsurance 278.
Last year, the CII said it was working to rank insurance companies based on new criteria to help promote competition in the growing market.
CII officials then said they had developed 20 new indexes for measuring insurers' performance. The basis for the new ranking has yet not been publicly released.
It was announced that one key element of the rewriting the ranking system was to improve supervision of insurance companies, though it will also help policyholders compare insurers and make informed choices about which company to work with.
The need for ranking insurance companies has gained further importance due to the entry of new players.
So far 35 insurance companies operate in Iran including offshore firms and reinsurance companies. The number, including reinsurance, life insurance and general insurance companies, is expected to reach 46 with the regulator saying that 11 new firms are in the pipeline.
