Foreign insurance companies could help promote healthy competition in the Iranian market and bring considerable benefit to the public, said the head of Insurance Research Institution.
“Even though foreigners are not familiar with Iran’s market, they would be able to perform better than domestic companies, especially if they have enough room to operate in the market,” Amir Safari also told ILNA on Sunday.
Safari urged domestic insurers to enhance their services on a par with global standards.
“I guess domestic firms [if they don’t improve themselves] will lose their market to foreigners,” he added.
As per the law, foreigners are allowed 49% equity in domestic insurance companies but can fully own or establish offshore insurance companies.
Foreign insurers are more powerful in terms of financial and human resources, “allowing them to offer diverse and high-quality services”, he said.
“Being more experienced and having access to advanced technology and greater capital are other advantages of foreigners compared with their Iranian peers.”
Safari underscored the need for domestic insurers to strengthen their management structure, risk management tools, corporate governance and pricing policy, if they want to survive in a competitive marker.
Insurance Research Institute, affiliated with the Central Insurance of Iran, is the body in charge of providing required knowledge for the development of the industry.
Earlier this month, CII urged IRI to focus on ways of enhancing corporate governance in insurance companies, in line with its policies for boosting the quality of services offered by the sector and eliminating questionable conduct in the market.
“Unfortunately, the insurers’ habit of underselling policies has increased their vulnerability and caused major damage to the industry in general,” he said.
“Policyholders are primary victims of unhealthy competition among insurance companies.”
Underselling PAPs, which in Iran provides coverage for damage or injury to third parties, had recently disrupted the insurance market prompting objections by smaller firms that could not keep up with the competition.
Iran Insurance Company, in particular, was criticized for offering substantial discounts, sometimes up to 35%, without even considering the policyholders’ Motor Vehicle Reports.
Safari drew a parallel to similar pernicious rivalry among banks in recent years to attract savings, leaving deposit rates to skyrocket.
“In a similar scenario, insurers began undercutting each other mainly to increase their market share and recoup the money they had earlier lost,” he said.
The Insurance industry’s loss ratio stood at 63.8% during the fiscal year that ended on March 19, marking a year-on-year increase of about 5%. Insurers paid a total 144.6 trillion rials ($4.18 billion) in indemnities, indicating a growth of 18.45% compared to a year ago.
Insurance industry’s earnings from premiums totaled 226 trillion rials ($6.5 billion) during the period, up by 6% from a year earlier.
PAP is the mainstay of Iran’s insurance industry that still remains underdeveloped. According to CII, PAPs accounted for 37.6% of insurance firms’ total premiums during the previous fiscal year that ended in March with insurers selling some 19.18 million PAPs in the period.
