Mandatory Disaster Insurance Law Coming

The parliament will soon make a final decision about establishment of a special fund for covering losses caused by natural disasters as part of the law for mandatory natural disaster insurance, said the head of the Central insurance of Iran, Abdolnasser Hemmati on Saturday.

“Once passed, the law would be a turning point for the category, especially in earthquake insurance coverage, as it would be offered jointly by the government, insurers and the public,” he was quoted as saying by CII’s website on the sidelines of the 7th conference on Integrated Disaster Risk Management in Isfahan.

The proposed law for natural disaster insurance includes basic coverage and complimentary coverage, according to the insurance chief. “The fund for natural disaster insurance will set the premium rate for basic policies in the category, without conserving property specifications.”

This would allow insurers to offer complimentary coverage to policyholders, he added.

Earlier on May, the Majlis passed a law requiring all houses to be insured against natural disasters. It also approved a proposal for establishing a special fund specializing in covering damage caused by natural disasters.

Property owners would pay 5,000 rials to 10,000 rials monthly in premium (based on their location) once the plan is launched. “The government would pay the remaining portion of the premium.”

“Property owners’ share of premiums would gradually increase over a 10-year period” Hemmati added.

Noting that most Iranians lack knowledge about various types of insurance policies, he said: “Past experience shows that making it obligatory for the public to purchase insurance policies can make a significant contribution in promoting the category.”

“Compulsory insurance categories, such as auto policies, now account for more than 70 % of insurers’ portfolio.”

From the 20 million residential units in Iran, barely 20% are insured against natural disaster, according to the Disaster Management Organization. The figure is expected to reach 50% by next March.

Mandatory property insurance will apparently push shoddy buildings out of the market, as builders would have to raise construction standards or they will face higher premiums which almost certainly they will not be able to afford.

Iran has suffered almost 125 natural disasters over the past 25 years, resulting in 73,000 fatalities, 145,000 injuries, and more than 41 million lives affected. The disasters cost close to $20 billion, according to data published by the CII.