The insurance sector has grown strongly in Iran over recent decades and has reacted well to the introduction of private sector players and the privatization of the formerly state-owned insurance giants. In 1994, the rate of premiums to GDP was only 0.4%, while by 2005 the rate had improved dramatically to 1.28%. According to the latest available figures released by Bimeh Markazi Iran (Central Insurance of the Islamic Republic of Iran), it rose further to 1.39% in 2009. The share of the Iranian insurance industry in global and regional markets is also increasing. In 2005, the Iranian share of direct premiums was just 0.07% of the world market and 14.8% in the Middle East. In 2009, these figures had nudged upwards to 0.12% and 16.2%, respectively.
All of these can be considered indicators of the huge growth potential of the Iranian insurance industry, which has a considerably lower penetration rate than its regional comparatives, but is catching up fast. The other unique aspect of the Iranian insurance sector is that its activities are sharia-compliant, with takaful-style products being the mainstay of the market.
In 2009, the sector produced total direct premiums of IR46,459 billion (approximately $4.7 billion), which indicates a growth rate of 20% over the previous year in which total direct premiums of IR40,561 billion ($4.3 billion) were collected by the sector. Total earned premiums in the market were IR41,808 billion ($ 4.2 billion) with incurred losses of IR31,223 billion reported, which corresponds to a loss ratio of 74.7%. The loss ratio was considerably higher in 2005 at almost 79%, thus demonstrating that the insurance industry is becoming more and more profitable and better at assessing claims each year.
Both in terms of earned premium and incurred loss, motor third-party liability (TPL) insurance continues to be the largest segment in the sector. In 2008, 46.5% of the earned premiums of the sector were coming from the motor segment. In 2009, the ratio stagnated at 46.4%. The second largest segment is motor property damage (PD), which produced 12.4% of earned premiums in 2009. This means that approximately 60% of all insurance premiums are generated from auto-related insurance policies.
Health, accident, and fire insurance policies follow motor insurances in terms of dominating the segment. In addition to these general insurance contracts, life insurance is growing fast in Iran, and it managed to increase its share of earned premiums from 1.4% in 2008 to 2.6% in 2009.
Similar to previous years, in terms of the share of losses paid, motor TPL was the leading contributor in 2009. According to Bimeh Markazi, this is attributable to the upward trend in court-ordered compensation (dieh claim) paid to the relatives of car accident victims. Almost two-thirds of total paid losses belong to motor TPL and motor PD combined.
The health and life insurance segments also showed comparatively high loss ratios. In the health segment, the loss ratio was 121% as opposed to 95% in the previous year. Unlike health insurance, the loss ratio in life insurance has decreased in 2009 to 124% from almost 200% in 2008.
In Iran, state-owned companies have been dominant players in the insurance sector. The big four state-owned insurance companies are Iran, Asia, Alborz, and Dana, and together they generated 86% of all direct premiums. In 2008, this figure had already decreased to 75%, indicating the success of private companies in penetrating the market. In 2009, Asia Insurance and Alborz Insurance were privatized through the Tehran Stock Exchange (TSE), further decreasing the market share of state-owned companies to 52%. This trend will arguably continue as Dana Insurance has joined Asia and Alborz in obtaining a public listing on the TSE.
Investor interest in the privatization of the big four has been strong. Asia Insurance offered 10% of its shares to the market in December 2009, and the entire offering was snapped up in just 35 seconds. The offering price, at IR1,486 per share, gave Asia Insurance a market capitalization of $67 million. In August 2010, Dana Insurance offered a 5% stake on the TSE, and investor interest was even more intense. Although the smallest of the three giants to have stakes sold off publicly, the market capitalization it achieved valued the company at $275 million. This strong interest overflowed into the stocks of both Alborz Insurance and Asia Insurance, and the insurance segment showed a healthy 90.63% return for investors at the end of 3Q 2010 on YE2009 levels.
Moreover, the share of private companies in the paid loss metric has always been lower than that of state-owned companies, indicating their higher efficiency and discernment in providing policy coverage. Karafarin Insurance, for example, has sought to eschew the dominance of motor TPL on its balance sheet and has pioneered the use of new life insurance products. At present, life insurance policies represent some 37% of all written premiums for the company, as A. M. Zarrabieh, the Managing Director of the company, told TBY.
There are 20 companies in total, both private and state-owned, active in the Iranian insurance industry. As of 2009 they operated through 288 brokers and 15,221 agents. The growth in agent numbers has been particularly noticeable, as they have been rising by around one-third on the count for 2008 (11,530).
Other privately owned insurance companies in the market include Moellem Insurance, Parsian Insurance, Mellat Insurance, Tose’e Insurance, Saman Insurance, Razi Insurance, Day Insurance, Novin Insurance, Sina Insurance, Pasargad Insurance, Omid Insurance, Amin Reinsurance, Hafez Insurance, Iran Reinsurance, and Mihan Insurance.
Bimeh Markazi Iran is in charge of regulating the insurance sector. As a result of the ongoing economic reforms in Iran, Bimeh Markazi is also implementing a successful plan towards an orderly and rule-based liberalization of the sector, which includes the deregulation and removal of set prices, structural reform, the promotion of fair competition, and the development of an institutional framework for the participation of the private sector. The High Council of Insurance is the responsible body within Bimeh Markazi Iran for the regulatory process, and it is chaired by the President of Bimeh Markazi and attended by high-level statesmen such as the Vice-Ministers of Economic Affairs and Finance, Labor and Social Affairs, Commerce and Cooperatives, together with the Iranian Underwriters Representative of Legal Affairs and senior experts from the Iranian insurance market.
Bimeh Markazi is also the main reinsurer in the Iranian market. However, the body has already devised the necessary regulations to remove this monopoly and create a competitive market in this segment of the sector as well, and other reinsurers are beginning to emerge in the market.
In Iran’s six free trade zones—Kish, Gheshm, Chabahar, Arvand, Aras, and Anzali—special regulations remain valid for insurance activities. The insurance and reinsurance institutions authorized to operate in these zones are not permitted to provide policies for companies and individuals outside of these zones, though reinsurance transactions are allowed. Four private insurance and reinsurance companies have been registered for operation: Amin Re, Omid Insurance, Hafez Insurance, and Iran Moein Insurance.
Insurance and reinsurance companies established in free trade zones are permitted to have legal and/or real foreign shareholders. On the mainland, foreign insurance companies are permitted to set up contact offices that may liaise between their mother companies and Iranian insurance institutions to follow up on reinsurance affairs, offer technical services, and provide technical insurance know-how. However, they are not permitted to offer insurance. However, this is set to change. Dr. Javad Farshbaf, Head of Bimeh Markazi, told TBY that one of the articles of the Fifth Five-Year Development Plan currently under debate in the Parliament would give foreign companies the right to set up shop in the Iranian insurance industry.
© The Business Year