If price undercutting and unhealthy competition persists in the insurance sector, Central Insurance company of Iran and the Supreme Council of Insurance will intervene to regulate insurance premium, said CII head Abdolnaser Hemmati.
Hemmati, who was attending his first meeting with the CEOs of insurance companies after taking over as CII president last month, said by decree of the SCI, the CII (the industry’s regulator) has the authority to impose price floors, but has so far refrained from doing so.
“However, if insurers continue to undercut rivals and engage in unhealthy competition, [the CII] will intervene,” he said.
Hemmati took over as CII president when the former boss of the regulating body resigned in the aftermath of a salary scandal involving a top executive. He has extensive previous experience at the CII, having led it for 12 years (1994-2006).
He also is a former CEO of Bank Melli Iran and has also played a key role in launching private insurance companies and privatizing major insurance firms such as Alborz, Dana and Asia.
Hemmati warned the insurance executives to proceed with caution when setting the premiums, acknowledging that the regulatory body he leads does not “regulate the premium rates and terms and conditions of Personal Auto Policies (PAPs), but we can exercise our risk management policies in other categories.”
Detariffication Shock
Discussing the insurance sector’s recent past, Hemmati identified the hasty price deregulations–by scrapping the insurance tariffs– and capital increases of two companies as notable examples of things that went wrong.
“Detariffication was a plan that could become operational gradually, but was thrust in haste and therefore jolted the insurance market,” he said.
“The other decision was to increase the capital of insurance firms to 2.5 trillion rials ($81.9 million) and reinsurance companies to 4 trillion rials ($131.1 million) which I opposed at the time, because this would effectively take the reins of the insurance industry away from experts and put them in the hands of wealthy businesses.”
Corporate Governance
Hemmati stressed the importance of adopting corporate governance in the insurance sector, saying: “We need to move in a direction in which we can ease the pressure of shareholders on CEOs and board members of insurance companies.”
“We need to create an atmosphere in which the CEOs can independently make the right decisions to manage their companies.”
He noted that the presence of independent non-executive members on the insurance companies’ boards can work toward that goal.
Expressing his disapproval of insurance premium tax, the CII head said: “to promote the influence of the insurance sector we need to protect it, not damage it through IPT.”
He also referred to life insurance policies, adding that they must be more widespread in the country. “Life insurance policy rates need to be proportionate to bank interest rates.”
A report by the Business Monitor International suggests that Iran has significant long term growth potential in the insurance industry. Having a large population in which unemployment is expected to gradually decrease and household income increase, BMI predicts levels of expenditure on insurable products to rise and demand for various life savings or protection products to improve.
