Country Focus, Iran

The ‘Wildcard’ Of The Region

IRANIAN PRESIDENT MAHMOUD AHMADINEJAD

While the political spotlight remains firmly on Iran, the long-awaited liberalisation of one of the region’s largest insurance markets appears unlikely. Although limited privatisation is taking place, the market remains illusive to foreign players.

With a population of more than 70 million people – more than double that of all the GCC countries combined – continued private-sector expansion and an increase in premiums by over 20 per cent per annum (fuelled mainly by the growth in energy risks), Iran would appear to be the most promising of the Mena insurance markets for the future. In fact, it accounts for more than 10 per cent of the Mena’s market premiums and has a penetration rate of 1.3 per cent, which is high compared with many of the Mena countries.

However, it is also the only Mena country where the present and future are dominated by political issues, instability and unrest. Trade and investment sanctions against Iran, which have been advocated by the US government, mean that cross-border insurers are unlikely to engage in the Iranian market any time in the near future.

US pressure
Ahead of a meeting in Geneva to focus on diplomacy and to rein in Iran’s nuclear programme, the White House is considering sanctions targeting Iran’s dependence on gasoline imports. This is nothing new, but what is new is their insistence that high on their list of targets are the insurance firms that underwrite the gasoline import trade.

President Barack Obama warned Iran last week to come clean about the nuclear programme, which Washington fears is a cover to build atomic weapons, or face “sanctions that bite”. His warning followed the disclosure of a secret uranium enrichment facility near the holy Iranian city of Qom.

According to Reuters, US officials are considering ways to discourage big financial firms from providing insurance for shipments to Iran. Such moves could affect European companies such as Lloyd’s of London and Munich Re. The dependence of Iran on European reinsurers is historical but increased significantly after the US markets could no longer provide capacity to Iran following sanctions.

“The key fulcrum is the insurance and reinsurance companies,” said Mark Dubowitz, of the Foundation for Defence of Democracies policy institute. “It’s difficult to ship without insurance and reinsurance.” This is putting insurance right in the spotlight with regards to sanctions against Iran.

The UN Security Council has already imposed three sets of sanctions on Iran for refusing to freeze uranium enrichment, but they have had only a limited impact and Tehran continues to insist that it be allowed to pursue its nuclear programme.

Many US lawmakers believe gasoline sanctions could be particularly effective against Iran, which imports 40 per cent of its gasoline. They hope that the ensuing economic hardship could drive a wedge between the Iranian people and their leaders, who they believe have been weakened by a recent disputed election.

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