In the last 15 years, Iran’s insurance marketplace has transformed from an entirely state-owned industry into a flourishing public-private environment that hosts more than 30 companies operating across many different sectors. These 30 companies reach their customers through approximately 1,037 branches, hosting 34,000 agents and 591 brokers. Though the public insurer Bimeh Markazi still controls roughly 50% of the market share, private firms have made steady progress. Additionally, with the lifting of international sanctions, the Iranian insurance market is poised to have a major impact on the global insurance industry. With an upper-middle income country classification from the World Bank and a population of nearly 78 million, Iran represents a significant opportunity for many international insurance and reinsurance firms. Though uncertainties remain, markets across the world are anticipating that Iran will continue to take steps that would strengthen its international economic position.
State of the market
In 2015, non-life insurance premiums could be broken down into 13 major categories accounting for 85% of all direct premiums. These include motor (PD) at 7%, motor (TPL) at 42%, accident at 6%, cargo at 1%, fire at 4%, life at 11%, oil and energy at 2%, credit at less than 1%, liability at 6%, engineering at 1%, aviation at 1%, hull at 1%, and health at 11%. In the first quarter of 2016, third-party liability, health insurance, life insurance, and auto body repair represented the sectors with the largest growth in new contracts issued, accounting for 36.9%, 25.5% 11.8%, and 5.7%, respectively. The average loss ratio was slightly over 60%. The sectors with the largest loss ratios were credit at 254.7%, health at 77.3%, third-party liability at 68.8%, and auto body repair at 66.3%. According to the Middle East Insurance Review (MENA), Iran’s property and casualty (P&C) insurance sector is expected to enjoy some of the largest annual growth rates in the world over the next 10 years. With a projected CAGR of 6.1%, Iran’s P&C market is expected to rank as the fifth-fastest growing sector in the world between 2016 and 2025.
According to Bimeh Markazi Iran (Central Insurance of IR Iran), a state-run insurer and regulator, underwritten premiums have seen impressive growth in the last five years, growing from USD5.7 billion to USD7.3 billion between 2010 and 2015, a CAGR of almost 28%. In 2016, premiums are expected to top USD8 billion. Between 2015 and 2020, gross life insurance premiums are forecast to expand by 53%, approaching USD1.3 billion by the end of the decade, and gross non-life premiums are expected to grow by 23% to almost USD9 billion by 2020, according to BMI Research. With penetration rates of only 1.9% in 2015, compared to a global average of 6.2%, there is room for significant growth across the insurance industry. This is especially true of life insurance, which saw penetration rates grow from 0.09% in 2009 to 0.20% in 2014.
Dynamism in the face of adversity
One unintended outcome of years of economic sanctions was the development of a dynamic domestic insurance market. With limited entry from foreign competitors, Iranian insurance companies have dominated the sector, stimulating price competition, better service offerings, creative coverage solutions, and high degrees of specialization.
In an exclusive interview with TBY, Seyed Rasool Tajdar, Managing Director & Vice Chairman of the Board of Alborz Insurance, the largest private insurance company in terms of capital, explained how domestic insurers adapted and grew despite international sanctions. “The situation forced us to develop a great list of expertise and abilities that made the domestic industry more powerful,” said Tajdar. “Due to the fact that international trade nearly stopped and the lack of foreign reinsurance companies, a price war was formed,” which, despite the heated competition, saw the addition of 22 new insurance companies over the last 10 years, according to Tajdar. Alborz now has 55 branches and plans to have nearly 2,000 agents by the end of the year. Additionally, Alborz has been at the forefront of developing products geared specifically towards Iranian life insurance consumers. Alborz’s Hope-Inspiring, a lifelong cancer insurance product that is coupled to other plans, is designed to circumvent a cultural barrier that stigmatizes general discussions about illness, indirectly dissuading consumers from purchasing insurance that admit the possibility of sickness. “We look at this product in the short term,” said Tajdar. “In order to break down the psychological barrier, we plan to include this coverage as an additional option in combination with life insurance bundles.” Firms like Alborz hope that by educating Iranians about the value of life insurance they can stimulate interest and increase coverage. A historically young population with unprecedented levels of education makes it likely that awareness campaigns will see some headway, opening up a relatively untapped cohort.
Non-life insurers in Iran account for an astounding 90% of the market, while life insurers represent the remainder. Regulators, however, are trying to address this imbalance. In an exclusive interview with TBY, Dr. Abdolnaser Hemmati, President and Head of High Council of Insurance of Bimeh Markazi Iran, described the strategies regulators have for encouraging life insurance, namely, requiring non-life and life insurers to operate as separate business entities. Hemmati hopes that by dividing insurance companies, Bimeh Markazi Iran “can boost the volume of the life insurance industry with the current economic stability.” Markazi anticipates that “lower inflation and increasing purchasing power from Iranian society will bring people to invest in life insurance.”
With the loosening of sanctions, particularly the lifting of European restrictions in reinsurance, the Iranian market is expected to benefit from sizable international investment. Iranian firms’ appetite for foreign partnerships is large, and every insurance company interviewed by TBY was excited by the prospect of developing, and in some cases redeveloping, profitable relationships with global companies. Though there was healthy interest from foreign companies when Iranian (re)insurance contracts were renewed in late March of this year, there was some uncertainty regarding a lack of globally recognized credit ratings.
In an effort to fix this, a number of Iranian firms have been in talks with ratings agencies in recent months, according to Reuters. Dr. Abdolnaser Hemmati of Bimeh Markazi Iran confirmed this in a recent TBY interview, noting that “we at Bimeh Markazi are doing our best to sort out the rating problem.” Bimeh Markazi even hosted the ratings agency Fitch last June, and the talks were so productive that Hemmati came away “very optimistic for the post-sanctions era.” As international firms begin to re-enter the Iranian market, analysts expect growth in the insurance market to quicken. Major firms from Japan, France, Germany, and Switzerland have already been in talks with Iranian officials, and expectations are high that major deals are on the way.