Iran is home to an insurance sector that writes over US$4,000mn in premiums annually – equal to around 1.5% of GDP – and several of the largest non-life companies in the Middle East, indicating that there is widespread understanding of the general concept of insurance among its citizens and companies. However, the challenges that must be overcome if Iran’s insurance sector is to reach its full potential are both large and numerous. They would also be large and numerous even if Iran were not the object of international sanctions. In one of the few developments reported in the trade media outside Iran over the last six months or so, both Allianz SE and Munich Reinsurance said that they would suspend their business in Iran. This decision will have very little impact on Allianz, but may cost Munich Re around EUR10mn in annual reinsurance premiums.
Arguably the main problem is the conduct of monetary and fiscal policy. In spite of substantial revenues from oil production, the government has for a long time run substantial fiscal deficits, which have been monetised. As we explain in this report, the structural deficits are mainly the result of subsidies (for instance in relation to the price of gasoline). The consequence is that, for much of the last decade, Iran has experienced inflation of 12-15% a year, although the rate rose 27% in 2008/09.
High inflation distorts the impact of prices and complicates competition by companies (and insurers) on the basis of price. Furthermore, it shortens the perspective of economic actors. For Iran, one consequence has been the non-development of life insurance, which by its nature involves long-term relationships between underwriters and their clients. The history of persistent high inflation sets Iran apart from all other countries in the Middle East whose insurance sectors are profiled by BMI.
As we have discussed in previous reports, Iran is moving gradually towards the liberalisation of financial services. About 75% of the market (in terms of gross written premiums) is accounted for by the four large, state-owned insurers – Bimeh Iran, Bimeh Asia, Bimeh Alborz and Bimeh Dana. The remainder includes 16 relatively new private sector companies, including Bimeh Moallem, Bimeh Parsian, Bimeh Karafarin and Bimeh Razi. Over the course of this year, Bimeh Asia and Bimeh Alborz have been privatised, and are now listed companies. Bimeh Dana is due to be privatised in the next few months. By the end of next year, private sector companies should account for around 40% of gross written premiums. As yet, there are no plans for the privatisation of Bimeh Iran.
In this report we continue to provide a breakdown of the insurance sector by line from the point of view of the regulator or trade association. In Iran in 2008 comprehensive motor insurance (presumably compulsory motor third party liability, or CMTPL) was the largest line in the non-life segment, accounting for about half of gross written premiums. Other major lines included motor (CASCO), health, fire and liability insurance.
We have been able to ensure that the report includes actual data for the year to March 2010. (This coincides with the Iranian year 1388.) For purposes of comparison with data from other countries, we have generally described the period as ‘2009’. In that year, total premiums amounted to IRR45,580,937mn. This included non-life premiums of IRR43,203,334mn and life premiums of IRR2,377,603mn. In the year to March 2015, the corresponding figures should be IRR90,231,697mn, IRR84,483,784mn and IRR5,747,913mn. In terms of the key drivers that underpin our forecasts, we are looking for non-life penetration to rise from 1.33% of GDP to 1.40%. We are looking for a doubling of life penetration, from US$3 per capita to US$6.