Economy, Business And Markets

Two Faces of Insurance

Two Faces of Insurance
Two Faces of Insurance

The Iranian insurance industry will face challenges in the next few years that would hinder its growth, as the market is heavily controlled by the state through the regulator Bimeh Markazi or the Central Insurance and liberalization has been slow.

There are two sides to the profitability of the insurers, premiums and claims. Premiums are set to grow in single digits, as structural problems and financial sanctions impede their growth. Claims on the other hand have been on the rise in recent years, but are on a course of stabilization, according to Business Monitor International’s October report on the industry.


Sanctions and structurally high inflation have impeded the development of the insurance sector in Iran. However, with gross premiums estimated to reach $9 billion in 2015, the industry presents a substantial opportunity in the Middle East.

Financial sanctions emplaced by the UN, US and EU to curb Iran’s nuclear energy program, have limited local insurers’ access to global markets. This has adversely affected retention ratios – proportion of earnings kept as retained earnings – and insurers’ profitability levels.

Furthermore, the chronic hyperinflation that has plagued Iran in the past decade is a huge disincentive for households that might otherwise enter into a long-term contract with life insurance companies.

As a result of the uncertainty over the ongoing nuclear talks between Iran and the P5+1 and economic instability, BMI has revised down its expectations for the insurance sector from 2016 until the end of 2018, with growth unlikely to exceed 8 percent in dollar terms.

The insurance industry’s growth outlook is somewhat more positive when measured in rial, where the data has been skewered by currency fluctuations.

Net premiums for the entire insurance sector should grow in line with gross premiums, in the next few years. Retention ratios are low in both life and non-life segments. In the non-life insurance segment, this is probably because of the need to reinsure covered risks outside the important motor vehicle insurance and medical insurance subsectors. In the life insurance segment, it is probably because of the insurers’ need to achieve protection against the erosion by inflation of the real value of premiums.

Moreover, the insurers are cut off from global reinsurance markets due to international sanctions. This has “stifled competition” in the market, BMI reports. Currently, most local insurers rely on Bimeh Iran, the main state-backed domestic reinsurer.

An improvement in future retention ratios – net premiums written relative to gross premiums – will depend on market liberalization and the ability of local insurers to access global reinsurance markets.

Thus, the rate of growth in premiums depends on the outcome of the current talks between Iran and the six world powers (P5+1), set to end on Nov. 24. The probable outcome is the extension of the negotiations, many analysts believe. This has “suppressed” BMI’s forecasts. Growth is set to remain in the single digits in the foreseeable future.


Around 95 percent of the claims and payments of the entire Iranian insurance sector come from the non-life segment. The general trend of insurance claims has been one of rapid increase, partly due to the structurally high inflation.

Life insurance claims were broadly unchanged until 2008, but have since grown rapidly. This is probably because of a focus on short tail products by Iranian insurers. Also, the tiny share of life insurance claims relative to non-life claims is because of the life segment’s low development and a lack of scale of life insurers in the country. Thus, if the life segment matures in the next couple of years, claims growth will fall.

Moreover, the heavy imbalance of claims towards the life segment can in part be explained by the market’s embryonic stage of development and a lack of scale among the segment’s insurers.

In 2015 and beyond, year-on-year growth in insurance claims will stabilize. Though, continued macroeconomic volatility and currency fluctuations will partially undermine the stabilization of claims.

The market’s competitive landscape is unlikely to change. Any developments in the insurance industry will happen “tentatively”. As such, insurance claims will remain high, relative to overall premiums, as local insurers struggle to significantly boost their overall profitability levels.