There are 19 commercial insurance companies including four state-owned,14 private and a reinsurance entity in Iran all of which are supervised by Bimeh Markazi Iran.

 The companies deal with all types of insurance under write product such as property, owned and liability. Among the insurers, Bimeh Mellat has an outstanding position. Coming from different economic sectors, the senior managers of the company staged their activities with a strong statistical background. Bimeh Mellat launched the first electronic policy of auto and life insurance.

 Assistant managing director Gholamreza Masnavi took part in an interview with the economic daily Donyaye Eqtesad as follows:

Question: What is your opinion about the necessity of development of insurance industry? Is it needed and what factors drive the move?

Answer: I appreciate your effort for creating an atmosphere of discussion to raise knowledge of experts, decision makers and people. Development of insurance industry is not only essential but it should have happened much sooner. I would like to acknowledge the presidential command for the implementation of the issue. The reasons which necessitate reform can be divided into external developments including new state decisions and internal developments of insurance industry including challenges.

The insurance industry has had numerous challenges in recent decades hampering the sector from fulfilling its primary duties. But the main problem is that the industry offers limited products which don’t fulfill the entire demands of the public.

 Whereas there are hundreds of insurance products in the world, the Iranian insurance industry offers very few products. Failure of offering suitable coverage by insurance companies has made the people to undertake the majority of risks that may be transferred to insurance firms for proper management. The issue has caused public discomfort.

Question: How can the development of insurance industry affect macro economy?

Answer: As for macro developments, the most important change is in strategy and system policies. Over the past two decades, privatization has been on the agenda of our politicians and government officials. Even a law in this regards has been ratified at the parliament and is to be approved by the Guardian Council. These policies emphasize the change of state ownership with administration and supervision.

 The law will change several structures that have been formed in Iran for over half a century and the economic units would need to modify their policies and regulations accordingly. The insurance industry needs to follow the macro strategy and the executive regulations of principle 44 to overhaul its structure.

The answer to your first question on whether this methodology can lead to a document for reform in the insurance industry can be both positive and negative. It can be a yes since insurance managers and experts are definitely among the best groups who can recognize the challenges faced by the industry so that officials can draw up the necessary policies and strategies for reform in the insurance industry. However, many more people can be helpful in this respect. Should the collective opinions of these groups be considered a document of reform or development for the insurance industry, the important issue would be the contents of the document which should offer suitable solutions for solving the problems of  the insurance sector and suggest future guidelines and policies.

It should also prepare the appropriate basis for reforms in insurance regulations. This way, the document can be effective: otherwise, no, because many similar documents have been drawn up but failed to have the necessary effectiveness for fundamental reforms.

My suggestion to these committees is that the root cause of the problem is the different from the problem itself. in other words, we should separate the cause from challenge. Experts should focus on the causes of the insurance industry’s problems rather than the effects. As long as the main causes haven’t been eliminated, we cannot create lasting changes by merely correcting the effects. Take the example of a person whose leg has been badly injured in an accident but the wound doesn’t heal no matter how much you bandage it. You do further tests and realize that this person is diabetic and may lose his leg, but should the blood sugar be controlled, the wound would heal much faster and without much intervention.

To have a more accurate analysis of solutions, I refer to the situation of Iran’s insurance market:

1- Based on 2006 figures, the total value of Iran’s insurance market stood at 26, 560 billion rials or 2.8 billion dollars at an exchange rate of 9,350 rials.

2- In 2006,Iran’s risk acceptance capacity which is calculated based on the capitals and reserves of insurance companies amounted to 22,000 billion rials or 2.4 billion dollars for direct insurance companies. Including Amin Reinsurance firm and Bimeh Markazi Iran, the amount topped almost 2.8 billion dollars. State-owned companies accounted for 75 percent of this amount and Bimeh Iran made up more than 55 percent of it. if we compare the capacity and written risks of the market, we’ll notice that given the international norms of market volume, our insurance industry enjoys an acceptable capacity.

3- More than 60 percent of policies in Iran on automobile insurance, over 75 percent on life and medical, and more than 95 percent don’t need foreign reinsurance. Our rules and regulations need to be reformed in a way that risks are distributed properly inside the country and related by laws should be corrected to facilitate the issue. Currently for instance, private insurance firms are limited in using their full capacities in reinsurance.

4- Iran’s reinsurance market is valued at around 9,350 billion rials or one billion dollars composed of 7,250 billion rials of compulsory reinsurance and 250 billion rials reinsurance held by Amin Re and a maximum of 1,850 billion rials of foreign reinsurance.Although the figures of Amin Re and foreing reinsurance are estimates, the end result is the same and their deviation range is less than 10 percent. This volume of reinsurance market is due to compulsory reinsurance, half of which is obligated by the law and not due to incapacity of direct insurers. It can be termed as some sort of tax or levy.

5- Risk distribution between insurer and compulsory reinsurance transfer isn’t merely because of insufficient capital rather based on technical and professional principles and the law of large numbers. The world’s largest reinsurance companies such as Swiss Re and Munich Re with over six billion dollars of assets hold less than five percent of their capitals in major risks which are as large as their own value.

6- The consumption of foreign exchange in the insurance industry shouldn’t be evaluated like other industries where it is traded in return for definite goods. Purchased insurance coverage would return multiple its original value in case of damages. For instance, it was stated in annual session of an insurance that it had paid two major losses; 15 million dollars for a plane crash and 25 million dollars in the energy sector.

More than 60 percent of these damages were definitely reinsured and paid by foreign reinsurance firms. The premiums of these two insurance policies were certainly much less than the amounts mentioned in one insurance year. Therefore, the amount of foreing exchange used by the reinsurance sector should be calculated against possible losses and commissions in a period of 5-10 years, a consideration which would reduce the maximum payables of 200 million dollars against receivables by more than half.

7- The majority of insurance policies such as aviation and hulk, under international accords, require the existence of a leading reinsurer having credible and expert grades otherwise the domestic insurance policies don’t have the necessary credit due to not having been ranked.

Question: What measures need to be adopted against the transfer of reinsurance share of Bimeh Markazi?

Answer: Should the legal barrier be removed, the implementation of the issue wouldn’t be difficult. The policies reinsured by Bimeh Markazi as optional or compulsory fall into two main groups: under one-year term or over one-year term.

The first group, which consists of than 90 percent of the nationwide portfolio, will expire by this time next year. So, the BMI has to reinsure such policies. The outstanding damages of these policies can be settled under three years. However, the insurance policies holding terms of more than a year which mainly include engineering, life and savings insurance, the underwriting may be asked to return the corresponding commitments and reserves.

Should they accept the matter, there would be no problem such as life insurance which insurance companies can comfortably return. For engineering policies, the transferring firms may seek new reinsurance. If there were yet problems, all the commitments and reserves may be transferred to Bimeh Iran so that the insurance policy can be settled within the set period of time.

Question: What is your opinion about the action group for money and capital market?

Answer: Insurance industry can be active in the capital market but the present issue isn’t the sector at all. Let me explain. First of all, the capital market is made up of the insurance industry which provides long-term reserves, the stock market where corporate shares are traded, and bond market which is currently very limited in Iran. second, the insurance industry with its present structure, isn’t able to collect small and long-term resources in the form of life-insurance.

Therefore, due to its few resources and limitations of the investment by law, insurance firms cannot have a marked presence in the stock market. At this moment, the total reserves and resources of Iranian insurance firms amounts to three billion dollars; they accept annual risks of the same amount and have 2-2.5 billion dollars of damages and insurance costs. Given their outstanding losses, claims from the insured and the purchase of properties for offices and branches, insurance firms will be left with less than two billion dollars for investment.

Question: There is the same talk about the money market. For instance, lowering the banks’ interest rate poses a challenge for insurance companies and affects their short-and long-term revenues specifically for life insurance. what do you think?

Answer: The rates of interests paid by banks on deposits as the investor’s expected interest includes two main sections: one part is related to the real economic market and the other part follows the nominal market or inflation rate. In a market with a chronic inflation rate of 15 to 20 percent, the real interest, not the accounting interest paid by banks on deposits, is between one and five percent considering the deposit interest rate of 16 to 21 percent. The real interest rate of deposits hinges on the national value in investments and using human, physical, and technological resources.

Given the fact that more than 75 percent of the national economy is state-run and based on the studies of the plan(and Budget) organization, the return of investments and assets in Iranian economy especially in the state-run sector is less than two percent, which means out of 100 units a year, the government earns less than two percent. so first we should think of ways to optimize resources and have profitable long-term investment in these sectors.

Question: A few days ago, Bimeh Markazi Iran announced its ranking of insurance firms in Iran. What is your opinion?

Answer: This issue demands a lot of time and discussion. it is of course, commendable that BMI has recently taken steps to fill vacuum of ranking in the country. But what is important in ranking the companies is the goal and definition of criteria. In other words, what matters is the methodology of ranking. First of all, the criteria should be defined and experts decide whether the criteria are comprehensive or not. Then, it should be determined what each criterion states about an insurance company.

Second, the user should know the goals of the ranking and how each decisive factor belongs to these goals. Are these criteria used to give information to insurer, the insured or another group? Fortunately, this is a century-old business in the world and can be used easily. As long as there is no definition of financial ability, fulfillment of commitments, operational efficiency, capital market efficiency or financial transparency, the results of the ranking will not be of much use and may even mislead those active in this insurance market.

Question: What is your opinion about the standing of Bimeh Mellat in this ranking?

Answer: Well, based on our strategic program, our designated goals have been fortunately accomplished over the past four years. In 2006, Bimeh Mellat’s Market share was more than four percent which will increase to between five and six percent this year. Gaining this portion of the market share is a suitable goal for us given the company’s capital of around seven percent. All the company’s activities have been designed and performed according to web-based software. We have issued direct or indirect insurance policies in most major fields, transport, fire, aviation, hull and automobile in addition to accepting risk in all major areas. Bimeh Mellat has one of Iran’s biggest and most efficient vehicle loss assessments with sales agencies in almost all major towns and cities. We have paid the largest fire damage in Iran’s insurance history in just three months. In aviation insurance, too, we paid a relatively huge loss in less than a month. We have created a very suitable reinsurance network with domestic insurance firms and major international insurers.