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Iran’s insurance market, risks and rewards

Business Materials 9 December 2016 20:48 (UTC +04:00)

By Mehdi Sepahvand

As Iran economically opened to the world in 2016 in the wake of the removal of sanctions, its insurance market has turned into one of the points of interest to foreign investors.

According to Iran Central Insurance, in the Iranian fiscal year 1394 (which ended March 20) 140 foreign delegations, including 250 insurers and senior managers of foreign insurance companies, visited Iran.

Foreign insurance companies are allowed to invest in Iran in either of four ways: joint venture, opening branch, launching agency, opening liaison offices.

A foreign entity, natural or legal, can acquire a maximum share of 20 percent of the joint venture. Also, the maximum share allowed to be owned by foreigners is 49 percent.

Many believe that the coming of foreign insurance companies will diversify the competitors and will help revitalize the industry in Iran.

However, a concern with some Iranian insurance companies is that foreign companies may overtake the market. Some also say foreign companies may destabilize the market. Some Iranian companies believe once here, foreign investors will act in a selective way in a fashion that best suits their interest, therefore leaving some insurance areas neglected. They also believe foreign companies would not fully recognize the needs of the Iranian market.

The opponents of foreign investors in Iran also hold the idea that the foreign investors will play no role in Iran’s economy. They also say Iran’s legal system is not prepared to handle foreign investors in a way that national interests are not damaged.

But, the Iranian insurance industry is surely in need of foreign investment. The industry also needs technological and technical improvement.

A point about the Iranian market is the high investment risk, according to some sources. Also, an uneven financial market distribution is a point to consider. The country relies too much on the banking system, which has hampered the growth of other financial systems such as the capital market which is of more interest to foreigners.

A lack of clear agenda is one of the negative things foreign investors can face when coming to Iran. As there is no final agreement on how to receive foreign investors, foreign companies coming to Iran sometimes are left up in the air as to which organization to enter talks with and how to complete the stages needed to start a business.

As for the sum of money foreign investors need to bring to Iran, according to a cabinet legislation passed in 2012, fforeign investors willing to offer property insurance in Iran should bring an initial investment of at least 1.6 trillion rials (about $50 million at 23,175 rials per USD).

Those interested in offering life, pension, or health insurances should bring a minimum of 1.5 trillion rials. For liability insurance, a minimum of 1.4 trillion rials investment is required. Also, a minimum of 1.3 trillion rials investment is required for vehicle insurance.

The sums required for launching private insurance companies in Iran may seem high at the first glance when compared to the requirements of other countries. However, according to the Iranian law, the companies are required to pay no more than 50 percent of the stated sum upon launching their business in Iran.

Follow the author on Twitter: @mehdisepahvand

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