Crunch Time for Iran’s Insurance Industry

With its massive oil and gas resources and a large, talented youth community, Iran is the second largest economy in the Middle East and North Africa region.

However, in the post-sanctions era, the country’s $8 billion insurance industry should attract further attention.

Despite its low penetration rate, the Iranian insurance industry has great potential for development. The restoration of ties between Iranian insurance industry with reinsurance providers and the settlement of sanctions-era international debts to Iranian insurance providers are among the outstanding results of the nuclear deal between Iran and global powers, though connection to international markets still needs internal and external improvements.  

The value of Iranian insurance market hit $8.298 billion in 2016. It is now only 0.18% of the global insurance market, placing Iran 42nd in the world in terms of insurance. Life business accounts for $1.004 billion, with 8.1 % nominal and 5.3% inflation adjusted growth in 2016, versus non-life business that hit $7.293 billion in the same year with nominal and inflation adjusted growth at 7.6 % and 4.9%, respectively.

Insurance penetration rate stands at 2.07% and for life policies it is 25%. The penetration rate is reported at 1.82% for non-life business, according to Sigma, a research firm.

In terms of geographical distribution of premium, Iran stands at fourth place, from among 14 countries in the MENA region, after Turkey (20%), the UAE (19%) and Saudi Arabia (18%), by representing 14% of the insurance premium in the region.

Based on a report by the Central Insurance of Iran on insurance in 2016, a total of 58.6 million insurance policies were issued in Iran and 32.5 million damage claims were compensated. The share of the private sector from the premium made and the damage paid were 62.6% and 57.3%, respectively.

Foreign Investment

According to Article 33 of the “Establishment of the Central Insurance of Iran and Insuring” law, it is permissible to allocate up to 20% of the shares of Iranian private insurance companies to foreign individuals or legal entities, and beyond this figure, the recommendation of CII and the approval of the High Council of Insurance and Cabinet ministers are required.  

Based on a note to Article 35, it is absolutely forbidden to transfer the shares of Iranian insurance companies to foreign governments or transfer over 49% of their shares to foreign individuals or legal entities under any circumstances. However, in free trade zones, there is no limit to foreign ownership.

Despite the potentialities for attracting foreign investment, the performance of insurance industry in this area indicates major weaknesses.

This is of particular consideration since, in its strategic objectives document, the CII cites “attracting the presence of foreign individuals in the country’s insurance market” and “improving cooperation with foreign insurance companies” as its strategic goals; or the fact that in Article 113 of Iran’s Fifth Five-Year Development Plan approved in 2010, foreign investors, complying with the General Policies of Article 44 of the Constitution of the Islamic Republic of Iran, can enter the Iranian insurance market through different channels.

Therefore, the alignment of policymaking and executive plans is an important issue at the present juncture, meaning that if we are perusing the issue of attracting foreign investment, our executive plans should be in line with them.

Another important issue is to expect less from the nuclear deal and boost efforts in recreating trust. Although beneficial, the nuclear deal was not a remedy for the many weaknesses we face in attracting foreign investment.   

Nonetheless, the recent remarks by Iran's Economy Minister Masoud Karbasian in the 23rd Conference on Insurance and Development on the government's determination in dealing with the issue of attracting foreign investment for the Iranian insurance industry with the cooperation of Iran’s Insurers’ Syndicate can be well perceived as the start of a new era in the insurance industry.  

In this respect, attention should be paid to the following issues:

Alignment With Global Regulations

In order to make use of the potential opportunities following the removal of sanctions, the Iranian insurance industry has no option but to align itself with the international regulations; something that gives foreign investors a better understanding of the trade environment and regulations for cooperation with Iran's insurance industry, as well as reducing cooperation costs for Iranian insurance companies.

In aligning different international regulations, perhaps it is fair to say that the framework introduced by Basel banking supervision committee for the banking industry, known as Basel II, is the most important framework that has been agreed upon.

 This framework has three principles that include “quality requirements”, “supervisory assessment”, and “financial reporting”.  In implementing the third principle of insurance, regulators of the insurance industry shall develop their supervisory regime based on further reporting of insurance companies’ information, in a way that they would facilitate comparison, contribute to market discipline and shall comply with international accounting standards.

It should be noted that Basel II does not merely attend to requirements regarding capital, and risk management and company ownership are also other issues within this framework, which have recently drawn attention to Iran’s insurance regulations.

In Iran's insurance industry, a passage from a tariff-based system to a non- tariff-based system and creating regulations such as “calculating and supervising the financial solvency of insurance institutes”, “supporting the rights of the insured, insurer and their right holders”, “reporting and releasing information of insurance companies” indicate the resolve of CII to make use of international regulations.

Credit Rating

When we talk about connecting to international markets, either we are seeking foreign investments for assigning or accepting reinsurance, or about opening a new office. We should know that credit rating is an integral part of assessing insurance companies.

Credit rating has numerous benefits for entities that use them, e.g. facilitating financial provision conditions, boosting the variety of financial resources, reducing marketing costs for plans and projects and insurance companies, possibility of reinsurance acceptance, activity in foreign markets and taking on big projects.

Updating Know-How

Perhaps one of the direct consequences of the sanctions era we just went through was our limited access to the latest know-how and technologies. In this regard, it is imperative that professional entities in the insurance industry be activated and do their utmost to fill the gap between the prevailing and ideal conditions.