As the rules of the Central Bank of Iran prohibit lenders from offering high deposit rates to lure more savings, some banks have come up with alternative methods to get ahead in the race to attract savings, both big and small.
While most are already offering fixed returns (higher than the CBI’s 18% ceiling) on mutual investment funds, a handful of private lenders have taken the liberty to offer inciting free or cheap insurance policies to account holders.
On a visit to the branches of notable private lenders such as ENbank, Bank Pasargad Iran, Parsian Bank, Day Bank, Saman Bank and Bank Mellat, one will see a desk dedicated to the bank’s affiliated insurance company, offering special packages to customers and prospective depositors.
Novin Insurance, a subsidiary to ENbank, is offering free insurance policies to those who have regular one-year accounts with the bank at 18% interest.
However, the bank has set some conditions for the special privilege: for a property insurance coverage you need to at least have 100 million rials ($3,290) in your account. For coverage against natural disasters and accidents you need to have 500 million rials and if you can boast 1 billion rials in your account you will be eligible for a free supplementary health insurance!
Parsian Insurance offers clients of its parent company – Bank Parsian – a 25% discount on its third-party vehicle policies and at the same time allows them to pay the premiums in installments (without asking for collateral).
Saman Insurance, however, offers a 60% discount on third party auto insurance requiring 35 million rials in a Saman Bank account, its parent company. Moreover, Saman clients may also purchase life insurance policy and supplementary health insurance with large incentives.. Saman is also open to its depositors’ other insurance needs.
A Win-Win-Win Game
‘Bancassurance’ appears to be a shot in the arm both for the banks and the frail insurance industry at large. But for the average folks things are obviously not so plain and simple. Ali Hadavand, a 55-year-old truck driver says he was offered with considerable discounts on his third-party vehicle policy when he went to Saman Bank. But nevertheless says he still prefers buying insurance from the state-owned Iran Insurance Company.
“I guess there must be some hidden charges, and at the same time I’m not sure if they would pay for certain claims,” he said.
Mehrdad Moghadam, a businessman at Tehran’s Grand Bazaar, said that he only cares for higher interest rates when it comes to banks and that insurance policies are among the least of his concerns.
Except for Pasargad and Parsian, other bank-affiliated insurance firms are not doing well. Day Insurance was once on the verge of bankruptcy according to the former head of Central Insurance company of Iran, Mohammad Ibrahim Amin, though it was reborn after gaining access to a part of its reserves insurers must keep at the CII.
Mellat Insurance, a subsidiary of Bank Mellat, recorded a loss ratio of 104% by the end of the last fiscal year that ended in March, registering the worst performance in the market. Ma Insurance, another insurance company of Mellat, is in the same boat as Mellat Insurance.
This is while other banks are preparing to enter the market. Sarmad Insurance, subsidiary to Bank Saderat Iran, is planning special packages for BSI clients. Tejarat’s newly-founded insurance firm, Tejarat Now, is already promoting its business although no specific package has been offered yet. Middle East bank is also about to establish an insurance company catering specifically to life insurance.
The enthusiasm for insurance business is apparently unprecedented among banks in recent Iranian banking history. Time will tell whether this urge is a new-found goodwill gesture for the good of the industry or the demand of economic expediency when times are bad, incomes are of the descending order and banks are saddled with billions of dollars in soured loans and stressed assets.
