Government interference in price controls, levying value added taxes on premiums, and the misconception of government executives about insurance policies are some key issues insurers are facing.
These and other hurdles were discussed during a meeting of insurers with members of Tehran Chamber of Commerce Industries and Mining on Tuesday.
Ali Salahinejad, a member of the Professional Insurance Institute, pointed to the dominance of auto policies in insurance firms’ portfolios and said, “Personal Auto Policies account for almost half of the insurers’ premiums. However, prices are decided by the government,” the TCCIM website quoted him as saying.
“Claims for injuries leading to death in the PAP category has increased tenfold in the past seven years, whereas the premiums have increased by three times,” he added.
As per law, all motor vehicles must have insurance policies, but “the latest data released by the traffic police shows that from 19 million sedans in the country, 7 millions have no PAP.”
He believes that paying the huge amounts of claims in the auto category is something most insurers can simply not afford.
Insurers paid a total of 144.6 trillion rials ($4.18 billion) in indemnities in the year that ended in March -- a growth of 18.4% compared to a year ago, 43.7% belonging to the PAP category. According to data, the insurance industry’s earnings from premiums totaled 226 trillion rials ($6.5 billion) during the period, up 6% compared to a year earlier.
Charging value added tax (VAT) on premiums is also another key obstacle to business, the insurers say. According to Salahinejad, “The government had promised to exempt insurers from VAT, but so far it has failed to do so.”
Insurers claim that taxes eat away roughly 45% of their earned premiums.
Salahinejad criticized the fad of establishing insurance companies by banks. If this pattern continues “The insurance industry would be affected in case the banking sector gets into trouble.”
From the total 30 insurance companies, 13 are directly affiliated to or fully own by a bank, whereas banks also are among major shareholders of some other insurance companies.
He also complained about top managers of state-owned organizations not paying sufficient attention to insurance coverage, “They still consider insurance an [unwanted] extra expense.”
Cultural Issues
Abbas Ranjbar, head of Razi Insurance department for liabilities, said the importance of using insurance policies is not yet institutionalized among the public, especially in the life insurance category, where the “Insurers performance is not satisfactory.”
“Most businesses are not covered by insurance Lack of awareness is the reason why people are indifferent to insurance coverage.”
“Despite all these problems, there are still many applications for launching new insurance companies,” Ranjbar said without elaborating why investors should be keen on putting money in an apparently loss-making industry.
According to the Central Insurance company of Iran–the industry’s regulator, the loss ratio of the insurance industry stood at 63.8% during the previous fiscal year (ended in March).
Recently Bank Tejarat launched its affiliated insurance company, Tejarat-e No Insurance. Middle East Bank is also about to establish its insurance arm specializing in life insurance. Bank Hekmat Iranian has reportedly been authorized to do the same.
Hamid Moeini, head of Iran Insurance Company’s marketing council, also criticized the government for neglecting the industry. Iran Insurance Company is the only [fully] state-owned firm in the country.
Earlier in May, the Majlis revoked previous rules that required state organizations to buy their policies only from the IIC, in line with plans to increase the private sector’s share in the growing industry.
Insurance firms need to pay more attention to risk management, according to Moeini.
During the first quarter of the fiscal year that ended on June 20, IIC paid a daily average of 68.2 billion rials ($2.2 million) in claims in the auto category, according to an official.
Abbas Argon, a member of TCCIM’s commission for money and capital, said that international cooperation is also crucial for promoting the insurance industry.
Ali Sanginian, head of the same commission, noted that helping insurance firms is a priority for the chamber. “We will come up with a proposal for addressing the issues after holding talks with the IIC.”
