Insurance Corporate Governance Rules Unveiled

Insurance Research Center, a think-tank affiliated with the Central Insurance of Iran, has finalized the draft version of “corporate governance principles” for domestic insurance companies. 

CII is set to attach the guideline as amendment to the current regulations. 

Earlier in July, the Iranian insurance regulator had tasked the think tank to come up with a set of measures to update corporate governance standards among Iranian insurance firms. 

Compelling insurers to uphold rules of transparency, management structure and auditing and risk management principles are among the main issues pursued by CII. By promoting corporate governance, CII aims to create conditions in which the CEOs can independently make informed choices and decisions.

At present, insurers only follow Trade Law and Insurance Law. Both are old and fail to clearly define the roles and responsibilities of executives and board members. 

Amir Safari, director of IRC, said his colleagues had studied a number of similar documents in the process, including those developed by the Organization for Economic Cooperation and Development and the International Association of Insurance Supervisors, to prepare the most efficient rules for domestic insurers.

“We also surveyed several experts, academics, insurers, journalists and policymakers,” he said.

Safari said the main objective of the guideline is to boost transparency and responsiveness of insurance companies.

“It is also meant to enhance insurers’ operations in accordance with the interest of beneficiaries, including shareholders, policyholders and managers,” he said.

"The precepts define new principles for insurers’ internal issues, including appointment of directors and board members, audition, claims payments and investments."

The official noted that much emphasis has been laid on using special bodies, especially for monitoring insurers’ investments, risk management, claims payments and auditing.

Insurance experts believe that corporate governance should be accompanied by employing experts in risk assessment, which is not readily available in the local insurance market. 

 “Insurers need to properly respond to policyholders’ demands,” he said, adding that corporate governance rules are set to improve insurers’ relations with policyholders by making directors and board members responsible for actions taken by the company.

Safari said insurers will also be provided with efficient mechanisms for assessing directors’ performance as well as solutions for promoting the independence of managers and providing access to financial information. 

Lack of written regulations specifically addressing the structure of insurance companies has been mentioned in the past as the main barrier to implementing governance standards in the industry.

Plasco Inferno 

Improving insurance regulations is not the only obstacle to promoting the sector in Iran. Raising public awareness about the importance of covering risks, especially in commercial categories, is another major challenge for the industry. 

Lack of risk coverage has repeatedly caused huge losses to business owners. The collapse of the Plasco building in central Tehran is the latest example.

"Only 25% of businesses located in the commercial high-rise were insured against losses, even though owners were repeatedly warned about possible risks threatening the 56-year-old building," said Abdolnasser Hemmati, president of Central Insurance of Iran, on Saturday.

The 17-floor commercial high-rise in downtown Tehran with about 560 production units and sales outlets producing apparel, shoes and sportswear caught fire on Thursday morning and collapsed after a few hours.

Losses caused by the recent inferno are estimated at 15 trillion rials (over $390 million), whereas “insurers’ commitments for Plasco businesses amount to 400 billion rials ($10.5 million),” according to Hemmati.

“Even those who purchased insurance policies refrained from proving real info about their assets in order to pay lower premiums,” he said, noting that the loss coverage of most policies is not sufficient to compensate all the incurred losses.

Each business unit in the building is estimated to have held goods worth 2-3 billion rials ($52,500-78,700.) 

Almost all the insurance companies started calculating the losses on Saturday. The majority of businesses were insured by two major firms: Iran Insurance Company and Alborz Insurance.

Mohsen Pourkiani, IIC’s chief executive, announced that his company will compensate the losses of some 100 units in the wrecked building.