TBY talks to A.M. Zarrabi, Managing Director of Karafarin Insurance.
TBY With so many large state-owned insurance firms dominating the insurance landscape in Iran, what was the opportunity you saw for this company?
A.M. ZARRABI I was involved in the insurance industry for over 35 years in state-owned companies. Altogether, I worked for seven different state-owned insurance companies, so I was pretty much familiar with the insurance industry in Iran. Along with some others who cared about the insurance industry, we found no way other than to privatize this industry in order to improve it. It was not to make a profit out of it—just to improve it. We went to the Parliament for many years lobbying for the industry, ever since Hashemi Rafsanjani was the President. Finally, we got a license and the provisional approval of the government to establish the first private insurance company in the country. That was back in 1382 in our calendar (2003/04). We were the first private insurance company to be founded in Iran.
What is your company’s relationship with Bank Karafarin? Are there group policies you have to follow?
There are four different Karafarins: Karafarin Bank, Karafarin Insurance, Karafarin Leasing Company, and Karafarin Investment Company. The name was chosen three years ago by myself and the other founders of the Karafarin Group. The relationship between Karafarin Insurance and Karafarin Bank is that it has a 10% stake in the insurance company, and we are a 10% shareholder of the bank. Two-thirds of the board members are the same.
Karafarin Bank mainly focuses on corporate clients. Does Karafarin Insurance have a similar policy?
No, we don’t. We do have a general strategy, but the market is so competitive we cannot be as selective. At the same time, we have to be very cautious because we have to evaluate our risks and be very competitive. Since private companies entered the market—there are 16 already—the level of competition has become much higher. We are naturally careful about the people and clients we do business with. If you are not, you are not going to make a profit consistently. When the economy is very bad the situation becomes bad. Theft and fraud are increasing every day, and that is a risk for the insurance industry.
What products you are focusing on? What is your strategy and target market?
Our insurance company offers one particular product that was not present in Iran: universal life insurance. We pioneered the use of this product. Universal life insurance, or in other words, life and investment insurance, has existed in the West for over 70 years and we brought this product here.
One of the main targets for all insurance companies around the world is to improve the take up rate of life insurance and personal accident insurance policies. This was not so widespread in Iran and in this regard we increased the share of life insurance to some 50% of our portfolio. In other companies this figure is less than 10%.
How did you persuade customers to purchase life insurance policies?
Two main factors made this product very popular. First, this product was already well known, used, and tested for over 50-60 years in the West. In this product two main factors are united: life insurance and investment. By insuring yourself you are also investing in the economic growth of Iran as well. It is more beneficial and profitable.
When people see that they can insure themselves and, in the meanwhile, mitigate the risks of inflation, this makes them much more interested in this product. They receive the equivalent of 15% interest on this type of policy, which is a similar rate to what they would be getting from a bank. We also have a very professional sales force and management who run this division, and all this helped make this product 50% of our portfolio.
Do you plan to expand the portion of your business generated from life insurance?
In just five years we have already signed 200,000 life insurance policies. The average validity of the contracts is for 10 years and the average sum insured is from $50,000 to $100,000. We have 25 head branches around Iran in the main cities for everything we offer, not just for life insurance. We also have many agencies. For example, the Esfahan branch has more than 500 brokers and agents. We have around 1,400 agents and brokers, out of which 200 are specialized in life insurance.
You are different from the other companies in Iran because they focus more on car and motor insurance.
We avoid car insurance. We try to control it as far as we can because these products are very short term and risky. There are many accidents, and they decrease your profit.
What is the future for the life insurance industry now that new companies are beginning to offer their policies?
By law you cannot monopolize this product, though as we were the pioneers of it we received exclusive rights over it for a short period. Many customers come to Karafarin looking only for life insurance. This product is a part of the Karafarin brand.
Now that all the main state-owned insurance companies are being privatized, what changes do you expect in the sector and how will the country benefit from this transition?
Before the Revolution, we had only 11 private insurance companies and one state-owned insurer. But afterwards it took something like 20 years to have 22 state-owned and privatized companies in the market. There were only three state-owned companies left initially, and they were returned to the private sector during 2010. The only one left in state hands is Iran Insurance. The main purpose in privatizing the insurance industry is to improve the economy. Since we did not have any private insurance companies or banks until a couple of years ago, we did not have enough well-trained young managers familiar with the insurance culture or the intricacies of the industry at first. Now the number of well-trained staff is expanding rapidly. The main hope is that private insurance companies will provide a better variety of insurance products and services to the Iranian people. After all, banking and insurance are the two main wings of the economy in any country.
What products became more widespread in use after privatization?
Construction quality insurance had not existed before the advent of the private insurance industry. Credit insurance has also improved after privatization. That was also new for Iran, but since the private sector entered the market the availability of these kinds of products has expanded.
One particular type that I am working on and am completing now is a pension plan for individuals and organizations. Pensions are something that we do not have. Everyone has a government pension, but an individual pension that will supplement the government pension was not available. I did have a working plan that I introduced to the market, and I realized after a couple of years that it was welcome but needed certain adjustments because it was based on the French pension model, and all the technical formulas for the business were based on 1988-1990 French actuarial tables. We are waiting for the right market conditions to release this product.
What helps to differentiate Karafarin Insurance from its rivals in the industry?
We keep our edge not with products or prizes, not with the selection of agents or pampering, and not by advertising. We really go to the core of the insurance concept, which is service. A person who buys insurance buys it with the idea that if something goes wrong, we are there to help. And if nothing happens, there should also be something there for them. On both issues, we have been up front with the agents and brokers and they trust us.
They know that if they have a claim it is taken care of immediately. Some companies accept an application, issue a policy, and if a claim comes in and they discover evidence of prior knowledge of illness in the person’s history, then they refuse to pay because they say the claimant did not provide the correct information. I consider that very picky.
We perform proper underwriting, conduct tests, send a potential policy holder for physical exams, and the end result is that our claim to premium ratio has been less than 30% for the last six years. It is profitable for us, but at the same time our customers are happy because when they make a claim, they know we will pay. The agents feel good, and they know that we mean well and do well. We stand behind our work, and for that reason everyone comes to us—even the agents of other insurance companies—to buy our life insurance policies. λ
© The Business Year