Performance of Iran’s Insurance Industry in 2017-18

The Majlis Research Center in a report has looked into the performance of Iran’s gradually expanding insurance industry. 

In terms of insurance penetration, which is the ratio of premiums underwritten in a year to the GDP, the indicator was 2.33% in 2017-18. This is while the penetration rate was barely 0.53% in the 1970s.

According to a report on the performance of key economic sectors in the previous fiscal, the Plan and Budget Organization (in charge of drafting annual budget and overseeing spending) Iran was 57th in the world and 4th in the region with regard to insurance penetration in fiscal 2017-18.  

Regarding total insurance premium income and premium per capita, the MRC said in 2011-2012 the premium income was 2,130 billion rials ($177 million at the forex rate of the time) and shot up to 3,147 billion rials ($24.2 million at current open market rates ) in 2017-18.  Adjusted for inflation, MRC says the figure was 197 billion rials in 1979. 

As for premium per capita, the indicator soared from 5,800 rials in 1979 (adjusted for inflation) to 28,500 rials in 2011-2012. The figure rose to 45,000 rials in the previous fiscal. 

The claim ratio in 1979 was 46% and jumped to 61% in the previous fiscal. The upward trend shows that insurance firms, both public and private, paid customers’ claims at a higher ratio. This means that they either made less profit from policy holders or cut expenses. In general, increase in the insurance claim ratio is conspicuous of the efficiency of the insurance sector. 

Claim ratio is the ratio of paid claims to insurance premium. The indicator provides data on the profit of insurance companies.  In short, within a steady economic trend, higher claims ratio means lower cost on policy holders for insurance services. 

The MRC said in the previous fiscal there were 32 insurance companies in the country which was three times the number before 1979 revolution when there were only three state-owned insurance companies and  10 private and foreign companies. 

Private Sector Share 

Presence of the private sector in the insurance industry is obvious especially after implementing policies enshrined in Article 44 of the Constitution that calls for promoting privatization and divesture of public holdings to private firms. 

As for employment and contribution of the industry to the job market, MRC refers to existing data to say that the number of workers in insurance companies has shot up from 700 in 1979 to about 19,000. 

In terms of sales networks and companies’ branches, the number of branches shot up from 41 in 1979 to nearly 1,200 in the previous fiscal. In addition, the number of insurance company agencies increased from 60 in 1979 to 54,600 agencies in the previous fiscal.  

Fitch, the global ratings agency has predicted that Iran's insurance sector will record an average 15% growth a year over the next five years. It ascribed the growth partially to easing of sanctions against the market in early 2016. 

According to a Fitch report on the fourth quarter of 2018, high inflation and low household income have constrained the development of the life insurance segment in Iran, while the lack of access of insurers to foreign capital and expertise were said to be an impediment to substantial growth of the non-life segment.

PBO’s Review 

In another report analyzing the performance of the insurance industry vis-à-vis goals enshrined in the Sixth Five-Year Economic Development Plan, the Plan and Budget Organization holds positive views toward the overall performance of the sector in the previous fiscal (March 2017- March 2018).

However, PBO, as the main government arm in charge of planning and drafting the budget,   maintains that the insurance industry is still far from reaching global standards.

The report points to objectives in the five-year plan, which the Central Insurance Company of Iran, as regulator of the insurance industry sector, should pursue. 

In general, the objectives include improving the financial role of insurance in public welfare and security, increasing its penetration and launching an electronic insurance monitoring system.  

Developing insurance coverage, promoting life insurance and specialization of the insurance companies are on the CII agenda. 

Domestic Performance 

The report says that there should be a closer relationship between insurance indicators and economic and social indicators because the scale of insurance coverage is normally considered as an indication of welfare and cultural development in a society. 

Therefore, economic constraints, people’s disposition toward the insurance sector, level of government support and public participation in insurance-based activities to a large extent determine the development or otherwise of the key insurance industry. 

Referring to the statistics, income from premium payments reached 335.9 trillion rials ($3 billion) in the previous Iranian fiscal. During the same period, the premium per capita was 4.2 million rials which placed Iran 67th on the global ranking list and 10th in the region. 

The premium per capita was $121 or 4.2 million rials in the previous fiscal. However, it should be noted that the report’s calculation is based on  currency rates at the time. As per the current forex rates, the premium per capita would be 14.5 million rials. 

In 2017-18, the insurance industry witnessed an increase in the number of branches and brokers. According to PBO, the number of branches reached 1,197 with 55,000 active agents, registering 34% growth compared to a year earlier. Also, there were 664 active insurance brokers in the previous fiscal which was 15% higher than the year before. 

Rankings 

In terms of premium income, the Iranian insurance industry ranked 42 in the world and 5th in the region (after Occupied Palestine (Israel), Turkey, UAE, and Saudi Arabia) in the previous fiscal.  

Insurance penetration rate, which is measured as the ratio of premiums underwritten in a particular year to the GDP, was 1.4% in 2011-12 to reach 2.3% in the previous fiscal, placing Iran 57th  in the world and 4th in the region. 

With regard to life insurance, Iran ranked 5th   in the region during the previous fiscal (repeating the record for 5 consecutive years) and 52nd  in the world. 

In assessing the overall performance of the insurance industry in 2017-18, the PBO says the industry was successful in meeting some of its objective. The private sector increased its share of the insurance market and performance of optional insurance coverage and life insurance was satisfactory. 

However, with regard to premium per capita and insurance penetration ratio, the industry was not successful in fully meeting expectations.  

The PBO ascribes the insurance successes to increase in the number of specialized agents in life insurance, changing marketing strategies and technical and cultural training. 

According to the PBO, third party motor insurance and health insurance together accounted for 60.7% of the insurance portfolio last year. This is while, life insurance accounts for 14.4% of the portfolio, despite its growth in the previous year. 

Third party vehicle insurance and health insurance were loss-making last year as both didn’t increase their tariffs proportionate to their expenses. The PBO says companies that direct their investment toward life insurance are more likely to get a better share of the insurance market in the future. 

On the flip side, the PBO reckons insurance overreliance on the capital market and incompatibility of life insurance with bank interest rates as well as lack of specialized agents for the life insurance sector. 

For better performance of the insurance industry, PBO proposed the followings: 

- increasing the share of life insurance coverage

- securitizing insurance risks for natural disaster

- offering new insurance coverage for hedging investment, production, and banking risks

- employing information technology in the insurance industry

- Increasing risk hedging capacity.