"Insurers' collective premium income was expected to reach 1,000 trillion rials ($3.12 billion) in the current fiscal year (March 2020-21). However, given the financial hardships caused by the pandemic and the high inflation, the amount is not expected to exceed 800 trillion rials ($2.5 billion)," CII website quoted Gholamreza Soleimani as saying.
Insurers are suffering sharp declines in categories like travel and liability insurance, Soleimani said. "Inbound and outbound trips have decreased from eight million last year to less than a million…The persistent stagnation in business performance has further hurt demand for liability coverage."
Moreover, families are less likely to purchase non-compulsory insurance as they are already burdened by galloping consumer price inflation. "Demand for life insurance was expected to increase after the spread of the deadly virus. But that too is shrinking."
In his view, other investment options, namely the stock, gold and forex market, have gained more traction with the public as a result of which buying insurance has fallen from the priority list.
It needs mention that life insurance share in total income reached 14.67% in the last fiscal year. Premium from the category amounted to 86 trillion rials -- up 37.35% compared to a year ago. This category was the third main source of premium for insurance companies before the vicious virus spread.
Life insurance, however, posted a sharp increase in premium in the first two months of the current year (March-April 2020), reaching 15.4 trillion rials or up 37%. During the period life insurance accounted for 18% of the total premium income -- the highest ever since records were kept. The CII has not yet provide updated figures.
The mandatory third-party auto insurance has emerged as a more vital source of income for insurance companies, contrary to the industry's long and mid-term development agenda.
"This segment alone generates one-third of the total premiums...we have recorded growth in the category despite the above-mentioned challenges."
High Auto Prices
The unexpected development is mostly because of the unprecedented increase in car prices, which means car owners have to pay much higher premium for comprehensive and collision insurance.
Unsurprisingly, insurers are also grappling with considerable increase in medical insurance payouts. The CII chief said that the payout ratio in this category could increase 140% in the coming months, mainly due to the "higher costs of [Covid] medical care and surge in infections."
In mid-March insurance companies in Iran gave 4.5 trillion rials ($28 million) to medical centers affiliated to the Ministry of Health to help them meet financial commitments during the ongoing covid crisis.
As per law, insurance companies are obliged to pay 10% of their revenue from a third-party auto insurance policy - the category with the highest share in insurance companies' portfolio -- to the Health Ministry. Insurers have always been reluctant to pay and say they have no practical way to check how the money is used.
All said, there are some venues for insurance companies to salvage their covid-hit business. Experts say insurers can and should diversify their portfolio and shift towards innovation.
Insurers can also offer special packages for online businesses, SMEs, and low-risk investments to survive the growing virus challenges that spare nobody and are devastating lives and livelihoods across continents.