The Central Insurance of the Islamic Republic (CIIR) has recently published official statistics on the insurance industry for the fiscal year ending March 20, 2014 (1392). The industry is considered not only a risk management tool for all economic actors but also an integral part of the infrastructure for the financial sector. So, a closer look at the figures can be informative as to how the overall financial sector in the Iranian economy is moving forward amid highly constrained economic environment.
Total underwritten premiums for the year was $5.40 billion (based on a conversion rate of 30,000 rials per US dollar), out of which $3.5 billion was covered as losses. This translates into a loss ratio of about 65% for that year for the whole industry. Declared income of all insurance companies from premiums or collected premium fees for the same period is $4.6 billion, which means that about 85% of the premiums underwritten were actually collected by these companies and were available to them. Considering this figure, the year’s loss ratio is about 76% in cash terms.
Privatization in the Iranian insurance industry started about five years ago. Alborz Insurance Co., the third largest Iranian insurance company, was the first of the state-owned companies to be offered in the Iranian capital market. Soon after Asia Insurance Co., the second largest insurance company, was also privatized. Parsian Insurance Company was established as a private entity from the start and is currently only slightly behind Alborz company in market share. The companies along with Dana Insurance Co. are the four major and well established private insurance companies operating in the Iranian market. The government holds 20% of shares in Alborz Insurance Co. and Asia Insurance Co.
It is worth mentioning that almost 70% of the insurance premiums for the year was earned from auto insurance, while another almost 20% was earned from health insurance coverage.
Life insurance in Iran is not a large portion of the national insurance portfolio, mostly due to the economics governing this line of insurance for both the insurers and the insured. By recently licensing a dedicated life insurance company, CIIR hopes to energize this line of insurance in the near future.
As for the overall market shares, Iran Insurance Co. (IIC), wholly owned and operated by the government, had close to 45% market share. IIC market share was supposed to be lowered to 20% when privatization program was implemented. This has not materialized due to a multitude of different legal, economic and regulatory limitations.
Close to 30% of the market was controlled by the four major private companies. The rest went to 24 other small and mostly newly-formed companies. Direct employment by all insurance companies for the year was 18,252 persons.
There were close to 33,000 agents providing sales services to 28 companies in the sector. Almost half of these agents were working for the small companies, while close to a quarter of them were directly working for Iran Insurance Co. and another quarter directly with the four major private companies. These agents are sole agents and can only sell insurance products from a single company. Almost 80% of the premiums earned by the insurance companies are produced by these agents.
Added to these are sole life insurance agents operating in the sector and numbering a bit more than 4,000. Also, 501 insurance brokers and 187 loss adjusters must be considered an integral part of the Iranian insurance industry.
New Trends
Another recent phenomenon in the insurance sector in Iran is the combination of bank-insurance. Many Iranian banks such as Karafarin and Mellat have invested in insurance companies. Some of these investments are by direct investments in newly-formed insurance companies such as Karafarin Insurance and Ma Insurance (owned by Bank Mellat). Recently, Bank Tejarat has joined this bandwagon and their independent insurance company, Tejarat Insurance, was licensed by CIIR. Other investments by the banks are in the form of equity participation in established insurance companies such as Alborz Insurance Co.
Using independent loss adjusters in evaluating losses by the insured is a relatively new phenomenon in the Iranian insurance industry. It is expected that by the order of the CIIR, these loss adjusters takeover this highly important function in all loss evaluations shortly. When this comes about, insurance companies in Iran will face a dilemma as they have employees dedicated to loss evaluation and under the new circumstance these employees would have to be moved into underwriting positions and other activities. This is more of a dilemma for the major insurance companies which have a more established workforce.
As for reinsurance; due to the international economic sanctions imposed on Iran, purchasing reinsurance coverage from the international players has been very limited for the Iranian insurance companies. There are currently two domestic reinsurance companies operating in Iran while another one was recently licensed by the CIIR. These reinsurance companies are limited in terms of the coverage they can provide, as retrocession placement is not available to them from the international market.
The government of Iran has allocated a $1 billion fund to manage the risks, which remain domestically, and the losses, which must be paid in hard currency.
With all these limitations, the insurance industry in Iran has been able to provide sufficient insurance coverage for most major risks and has been able to cover losses in a timely fashion completely, while still making a profit (diminishing, yet, still possible) and moving forward while expanding the market continuously. The insurance market is so attractive that there is a high demand for licensing of new insurance companies from CIIR.
Insurance business in Iran is currently a competitive business and is expected to remain so in the foreseeable future. High level of competition has kept the insurance premiums at a very reasonable and affordable level for the consumers (amid high inflation rates and diminishing per-capita disposable income) and is a witness to the effectiveness of open market and free competition even under highly constrained economic environment.
