Economy, Business And Markets

Steady Growth Predicted for Insurance Sector

Steady Growth Predicted for Insurance SectorSteady Growth Predicted for Insurance Sector

Over the course of 2015, Iran’s insurance sector will post steady, double-digit growth, analysts predict.

In its December report, Business Monitor International predicts that in 2015, total premiums will rise by 14.4% to $9.02 billion. In the meantime, life insurance premiums should grow by 17.1% to $0.88 billion, while non-life premiums are expected to register 14.1% growth to $8.14bn in 2015.

Within the non-life segment, motor vehicle-related premiums will grow by 14.7% to 4.9 billion. And health insurance premiums should increase by 13.7% to $1.93bn in 2015.

Much of the growth, however, depends on an increase in the volume of policy holders across basic lines which should be driven by an expanding economy. This in turn requires both domestic reforms and lifting of western sanctions, according to the report, which remains “cautiously optimistic” about such a progress.

Over the forecast period the market will operate below capacity; however, the Iranian insurance sector remains large and by regional standards quite developed, the report said.

In the meantime, the large size of the non-life segment which includes compulsory motorists’ third party insurance (CMPTL) and health insurance against its life counterpart makes it the key source of growth for the sector as a whole.

A lack of recent data from the regulator, Bimeh Markazi, has made it difficult for BMI to provide an accurate market analysis. However, referring to the latest full year reports, from the Iranian full year 1390 (ending March 20, 2012) and the half year ending August 2012, BMI has noted that total premiums are growing strongly. This growth is being primarily driven by two lines, Compulsory Motorist Third Party Liability and Health insurance, which together will account for around 87% of the non-life segment in 2015 and around 90% of total premiums.

The fact that growth is largely limited to two basic lines demonstrates that the market is in many ways underdeveloped. However, it suggests that there is some scope for growth in smaller subsectors over the long-term, albeit off a low base.

 Ups and Downs

The report highlights inflation as the main factor that has severely hindered the life segment, which is in early stages of development. It has discouraged Iranians from utilizing life products as a conduit for savings. This segment, in the future, has the ability to post high growth, admittedly coming off a very low base, if inflation levels can fall, however, “Structural inflation is likely to remain an issue over the forecast period.”

Bimeh Iran, as the largest state-owned company, has considerable scale and is one of the largest insurers in the Middle East. In the long run, this is considered as a significant upside potential for the sector, according to BMI.

The substantial capital will give it greater access to international markets. Moreover, the market as a whole has shown resilience to international sanctions. However, “heavy handed state involvement” has given Bimeh Iran the substantial advantage of dominating the local reinsurance market leading to lack of competition. As such, companies are forgoing large portions of their gross premiums, which in turn suppress profitability. Greater access to international markets would help boost local insurers’ profitability by providing greater competition to large state-owned entities.

According to the report, the entry of foreign reinsurers, through the alleviation of sanctions, would do much to boost the sector. The same is true of increased access to global capital markets as well as foreign investment in the sector, which would help to drive innovation.

However, slow progress of nuclear talks, and other long-term domestic challenges including an opaque regulatory system, heavy government intervention and a lack of public awareness of the benefits of many insurance solutions will also continue to curtail growth, ensuring that the market operates below its capacity. As such, BMI believes that growth will mainly be driven by an increase in the volume of policyholders. It is unlikely that the market breakdown for each sub-sector will change greatly. The same can be said for the market’s competitive landscape, with Bimeh Iran likely to maintain its dominant position in part because the government views it as a strategic asset.

 Recent Developments

Recent data from the regulator indicates that across the sector as a whole, CMPTL and health insurance are the main lines, accounting for over 60% of total premiums.

In mid-2014, the government announced plans to expand health coverage to five million low-income Iranians. In October 2014, western media reported that the European Union may seek to re-impose sanctions on Moallem Insurance Company (MIC), a major domestic maritime insurer, and other Iranian entities.

Recent data suggests that inflation is decreasing, albeit at a slower rate than the Iranian government forecast, and should reach 10% by mid 2017. This should prove a significant development, particularly for the life segment, the report predicts.