Insurance Fund for Natural Disasters

The Majlis approved the establishment of the long-awaited fund last year to cover homes against natural disasters. The law was approved by the Guardian Council earlier this month, YJC.ir reported.

As per the articles, the government will give the fund 500 billion rials ($1.7 million) as initial capital. The fund's income will include premium, investment returns and donations.  

Homes linked to the national power grid will be covered by the fund and purchasing home insurance against natural disasters is mandatory while the premium is added to the electricity bills.

In the first phase it will only cover homes but is to be expanded gradually to other types of property.

Homeowners will pay half the premium and the other half will be paid by the government. The fund's board will in charge of assessing risks and setting premium rates subject to the geographical area of the residences.

Reza Kazemi, head of the fund, recently said that the Central Insurance company of Iran's proposal for charging homeowners with a monthly premium of 100,000 rials was not approved by the Majlis. "The premium rate now is 100,000 rials for one year."

As per law, excess resources of the fund at the end of each year should be deposited with state-owned banks or be used for purchasing risk-free bonds.

Of the 20 million residential units barely 20% are insured against natural disasters, according to the Disaster Management Organization.

Iran has suffered from 125 natural disasters in the past 25 years resulting in 73,000 deaths, 145,000 injuries and affected 41 million lives. The calamities spread death and destruction far and wide and cost $20 billion.

An IMF report on "Macroeconomic Outcome in Disaster-Prone Countries" published in October 2019 categorized Iran among the first quartile (0%-25%) of the annual probability distribution of natural disasters in non-disaster-prone countries.

Iran’s economic cost of natural disasters was equivalent to 0.27% on average and a maximum of 2.9% of the country’s GDP during 1998-2017.

The macroeconomic impact of natural disasters has three stages. The first involves direct loss from the destruction of infrastructure and property, the second is indirect loss accumulated from foregone output and income plus costs incurred as individuals and businesses work around the disruptions.

Finally, as the recovery starts, rebuilding of infrastructure and replacement of damaged goods leads to a temporary boost in activity and employment in the affected area. It also gives rise to opportunities to upgrade infrastructure.