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Javad Farshbaf Maheryan

IRAN - Finance

Level Playing Field

President, Bimeh Markazi Iran (Central Insurance of IR Iran)


Dr. Javad Farshbaf Maheryan is currently President of the Bimeh Markazi Iran (Central Insurance of IR Iran) andHead of the High Council of Insurance.

What are the structure and responsibilities of Bimeh Markazi? Bimeh Markazi was established around 40 years ago. Its primary responsibility is to regulate and harmonize the Iranian insurance market. The […]

What are the structure and responsibilities of Bimeh Markazi?

Bimeh Markazi was established around 40 years ago. Its primary responsibility is to regulate and harmonize the Iranian insurance market. The next concerns the culture of insurance in society. From the very beginning, we have been doing insurance according to the government’s policies, acting as the reinsurer and the regulator, supporting the insured and shareholders, and regulating the performance of insurance companies so as to benefit the insured. Given that our task is to support the insurance industry and the insured, part of all insurance premiums belong to Bimeh Markazi.

How much is the proportion of legal cession?

The legal cession requirement is 25% for non-life insurance and 50% for life insurance. There is a five-year plan that will start in 2011, which means we aim at decreasing these levels as we want to improve the level of resources that insurance companies have access to.

What are your future goals regarding the local insurance market?

Over the past three years, the insurance industry has undergone a reform plan based on a long-term strategy to make the industry more competitive and improve the quality of management standards. It’s not only privatization, but the aim is to provide good coverage for both households and industry. At the end of the five-year plan, which will start in 2011, we aim to be the largest insurance market in the region. We are presently ranked third after Turkey and the UAE.

The insurance penetration rate in Iran is very low. What are the cornerstones of this five-year plan? How will you increase penetration rates?

The penetration rate in Iran is around 1.4%, and at the end of the five-year plan it will go upward to around 2%. Premiums will increase as GDP grows, though it is difficult to make the ratio increase more rapidly. However, we have a number of strategies to achieve that goal. The first strategy is to improve household insurance coverage in the fields of fire, liability and property, and to deliver this to the market at lower prices, maybe 50% below the prevailing rate in the past. It is part of a program that concerns the revision of the insurance tariffs system, which we have split up into seven steps. Up to now, three steps have been taken in the fields of fire, liability, engineering, and motor, hull, and marine cargo. Other steps concern health and third party liability (TPL). In addition, we will improve our financial supervision of the established insurance institutions to ensure the adequacy of their investments in our role as the regulatory body of the insurance industry. We also want to provide internal auditing within insurance companies through on-site supervision.

Is education also needed to increase public awareness about the value and use of insurance? What are you doing in this regard?

Two important tasks are being done. The first is to let society know about the potential of insurance. The other task is to professionalize the insurance market. Professional education is important in order to improve the risk management practices of insurance companies. We’re also training entities such as actuaries and those involved in marketing. We need to publicize the abilities of the insurance industry through advertising and providing good services. Through these means we can increase the public trust in insurance. These two aspects together will help increase the industry’s penetration rate.

Is your focus more on individuals or on factories, industry, and corporate sector entities?

There are two strategies that, in fact, run parallel with one another. The first is to develop the penetration rate across the country and at all levels of society with fair prices in order to improve overall nationwide insurance coverage. The second strategy is to expand the coverage for economic agencies and corporate entities.

Where do you see the biggest potential for growth in Iranian Insurance Industry?

We think that, primarily, we have to focus on those services in which the penetration rate is between 10 and 20%. In TPL motor insurance, the penetration rate is around 46% because it is compulsory and the service is general. For other classes of insurance, the penetration rate is around 10 or 20%. For example, we are trying to increase fire insurance from 15 to 25%. According to the research we have carried out in fire insurance, just 10 to 15% of the potential of our economy and the industry is insured. This indicates there is definitely a need to increase the penetration rate for fire insurance, and our program is looking at ways to increase it to 25%.

In addition, to improve overall penetration rates, we are currently working on implementing insurance policies for municipalities. We have received several requests from municipalities to encourage companies that will specialize in issuing policies for their needs. Any municipality level insurance policy will most likely concentrate on fire, earthquake, and liability. We are also working on developing policies for the oil and gas industry, as well as expanding the accessibility of life insurance. A by-law concerning life insurance coverage is under review by the High Council of Insurance, and it is hoped that after its introduction, the penetration rate for life insurance will rise from 7 to 15%.

What are the regulations for foreign companies looking to participate in the industry? Are they allowed to establish branches here or collaborate with local firms?

As you know, Parliament is currently working on Iran’s Fifth Five-Year Development Plan. One of the articles in that program has given foreign companies the permission to participate in the market. Based on the laws of Bimeh Markazi, there is no limitation on the presence of foreign companies. When the market expands in size, foreign companies will be interested in working here. Up to now, we have received 12 requests from new local companies to engage in general insurance, life, and non-life insurance. This shows that the insurance companies are profitable and their shareholders have high hopes of continued success.

How many companies are currently operating in the market?

There are 22 insurance companies on the mainland and in the Free Trade Zones. Three large state-owned companies were privatized and only one, Iran Insurance, has remained a state-owned enterprise.

Does Iran Insurance deal with special kinds of insurance, such as for government buildings?

Not any more. There used to be a law that gave it this unique position in the market, but it has been repealed. Iran Insurance will stay as a state-owned company, dealing with mega-projects and larger policies. It works as a supporter of the private insurance industry and tries to keep resources in the country, though it remains governmental and follows state policies. We think this is mostly for society’s benefit. In addition, one of its primary goals is to support the other insurance companies in the country. There is not much competition between Iran Insurance and the other insurance companies as the areas in which they operate are different. Yet, as the national penetration rate increases and the market gets larger in the short term, Iran Insurance will lose market share to private companies. Its share was around 55%, and it has already fallen to around 47%.

You said a foreign company could enter the Iranian insurance market. Does Iran issue licenses for foreign companies, and, if so, under what circumstances?

The requirements to obtain a license are the same as those that Iranian insurance companies have to follow. Any company must have the necessary minimum capital based on what the government determines.

What is the minimum capital that a company must have?

It is $28 million for life, non-life, or for a company that aims to be a composite company. Considering reinsurance activities, they must increase that amount to $40 million. If a company has $40 million capital and comes to the market with its own specialists in reinsurance, they can only accept reinsurance from local companies, from other private insurance companies or Iran Insurance, but not from abroad.

So they have to partner with local companies if they want to do reinsurance?

No, they can only accept business from local insurance companies. For example, Iran Insurance issues a policy for a very large project. Iran Insurance can offer a percentage of that business to Karafarin Insurance, Sina Insurance, or any other company that has obtained permission from Bimeh Markazi. When they come to Bimeh Markazi to receive permission for local reinsurance, they must prove that they have a sufficient amount of capital. Presently, the minimum limit is $40 million.

Is it only Bimeh Markazi Iran that is able to perform international reinsurance?

Bimeh Markazi, the Iranian Reinsurance Company, and Amin Re have permission to engage in international reinsurance. Amin Re is a reinsurance company located in the Free Trade Zone of Kish Island, but it also has an office in Tehran. The Iranian Reinsurance Company is the first and only company doing private reinsurance that was established on the mainland. It was established in 2010 at the start of the second quarter.

Does this mean Bimeh Markazi is losing its monopoly in the realm of international reinsurance?

All the monopolies will be gradually removed, which is also part of the Five-Year Development Plan. In order to enhance the reinsurance capacity of the country, we will provide licenses to companies that have technical abilities for reinsurance in addition to the license they have for general policies. Also, we’ve tried to create a common market in the insurance industry with the help of all insurance companies.

So many promising changes are happening. What do you think potential foreign investors need to understand about the market?

First of all, our actions and the changes that have occurred are based on the policies we announced in our program. We are amending the by-laws that are hindering a more competitive environment, and we want society to make better use of insurance and for the shareholders in insurance companies to receive several benefits as well. As a regulatory body, we have a win-win rule, so that both society and the insurers mutually benefit. Our market is increasing substantially and we have many unknown and undiscovered markets. This is a good business environment for foreign insurance companies to participate in, even for those who just favor profits from their shareholders.

Since there are many private companies in Iran, I really expect a higher level of professional participation among foreign and Iranian insurance companies will happen, and that Bimeh Markazi as a reinsurer and regulator will play its role well in the region.



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