Iran has a large insurance market, but the market is undeveloped based on international standards. Insurers rely on selling the most basic products for their revenue, and are barred from global reinsurance markets by various financial sanctions imposed due to dispute over the scope of Iran’s nuclear energy program. Thus, Business Monitor International has revised down its forecast for Iran’s insurance market.
Iranian insurers saw marked growth during 2014. But, the insurance industry is likely to grow at a slower pace than previously expected this year. The slowdown in growth is due to a weaker than expected economy, and continued international sanctions. Nonetheless, the sector should achieve strong single-digit growth in 2015, the report predicts.
Skewered Growth
Iran has a developed insurance market, when assessed with regional standards. Non-life insurance will be the main source of growth in the industry as it dominates the sector’s make up.
Iran’s non-life insurance sector is dominated by compulsory motor third party liability insurance (CMTPL) and health insurance. Together the two lines make up nearly 90 percent of non-life premiums. So, growth in premiums in this sector will come from these two lines over 2015, and, “recent information suggests that total premiums are growing strongly,” BMI writes.
One of the main issues faced by the publication for analyzing Iran’s insurance market is partial data. The regulator, Central Insurance of Iran, and leading insurers continue to provide only limited data to the public.
Challenges
“High inflation is likely to pose the greatest barrier to expansion in the life segment in 2015, by discouraging Iranians from utilizing life products as a conduit for savings,” according to the publication. Iran’s inflation has been staggeringly high. It is estimated to be over 17 percent for last year, down from over 40 percent 18 months ago. Though on the decline, structural inflation is likely to remain an issue over the foreseeable future. This will mainly be due to political decisions about the economy. Because, the government will prefer to monetize its deficit rather than implement unpopular, sweeping subsidies cuts.
In addition, sustained western sanctions will continue to hurt the country’s macroeconomic performance. Iran is under severe economic sanctions over its nuclear program.
Upward Potential
Despite downgrading its expectations for the market over 2015 and beyond, the report says in the long-run there will exist considerable upside potential in Iran’s insurance sector.
Bimeh Iran, the large state-owned company, possesses significant scale. As one of the largest insures in the Middle East, it would rank as medium-large in most countries. It would benefit from greater access to international markets. However, heavy handed state involvement has given Bimeh Iran the substantial advantage of dominating the local reinsurance market, which in turn pushes up reinsurance premiums due to a lack of competition.
Putting it All Together
Long-term challenges aside from international sanctions will also continue to curtail growth, ensuring that the market operates below its capacity. An opaque regulatory system, heavy government intervention and a lack of public awareness of the benefits of many insurance solutions show little signs of improving over the forecast period. As such, BMI believes that growth will mainly be driven by an increase in the volume of policyholders for basic compulsory lines.
The report predicts that it is unlikely that the market breakdown for each sub-sector will change greatly. The same can be said for the market’s competitive landscape, with Bimeh Iran likely to maintain its dominant position, in part because the government views it as a strategic asset.
A lack of market consolidation or any meaningful change to the sector’s competitive structure will hinder the sector’s development. It will prevent many insurers acquiring scale, which would allow them to boost their profitability by absorbing some risk rather than seeking recourse ton outwards reinsurance. As such, the market will continue to be characterized by its fragmented nature, made up of many sub-scale players.
These only operate across basic lines and compete almost exclusively in terms of price. This in turn discourages product innovation or investment in non-compulsory lines.
