Investigating the structure of the insurance market and its effect on insurance penetration

Authors: Leili Niakan, Saeede Rajaee Harandi, Mojgan Javanmard

Coordinator: Insurance Research Center

Abstract
The amount of effective competition in any market is a function of the market structure. Using the concept of concentration, the market structure, in other words, the degree of competition and monopoly in individual markets or in the economy can be examined. Therefore, quantifying the degree of focus in a market will play a very important role in understanding the structure of that market. In the insurance industry, the competitive structure affects the productivity of companies operating in this market and imposes pressures on new policies in this area. On the other hand, one of the common tools used to measure the development and performance of the insurance market is the insurance penetration rate. Therefore, it is expected that there is a relationship between the structure of the insurance market and its performance, which is reflected in the penetration rate. In other words, the less concentrated the insurance market, the higher its penetration rate should be. In recent years, measures such as the establishment of specialized companies, separation of life insurance activities from non-life, increasing the share of the non-governmental sector in the insurance market, facilitating the business environment and privatization have been done to affect the structure of the insurance market and improve its rehabilitation. However, the penetration rate of industrial insurance still has a significant gap with the global average and even the leading countries in the region.

In this study, while examining the market structure in terms of concentration, the effect of this index on the insurance penetration rate in Iran and selected countries has been investigated and the hypothesis of this effect has been tested.

Keywords: competition, insurance penetration, privatization, insurance market

Proposal of Instructions Related to the Establishment and Framework of Activities of Surety Institutions

Authors: Dr. Asma Hamzah and Amin Afshari

Coordinator: Fatemeh Atatalab

The changing economic conditions with the orientation towards globalization have caused price instability and imbalance in the market of goods and services. The result of these rapid changes and developments and the impact they have on the domestic and international markets, in addition to creating a lack of trust and confidence in economic decisions, has severely affected the obligations of individuals and institutions towards each other.

Surety bond is a common tool in the world. This tool is provided to reassure project owners and is actually a risk transfer tool based on which the project owner's risk is transferred to the surety. The widespread use of insurance policies and sureties, as well as their high flexibility, has made these two tools play a very important and effective role in covering all kinds of civil and commercial risks in the economic life of individuals.

In Iran, the provision of surety services has been the monopoly of banks since the beginning and mostly in the form of independent or on-demand guarantees, but due to the recent sanctions, the activity of Iranian banking institutions in issuing international bank guarantees with prohibitions. Therefore, regardless of the fact that the surety bond by companies or surety institutions around the world is considered one of the important indicators of the development of countries, currently, in order to provide international guarantee services, the country of Iran needs an institution that replaces banks. On the other hand, the use of bank guarantees in most levels and economic activities inside the country has not been fulfilled in many cases, and in addition to implying a volume of legal and criminal cases with various issues in the courts between employers and contractors and the guarantor bank. It also reduces the speed of the physical progress of the work and does not facilitate the implementation of project-oriented contracts.

In Paragraph (A) of Article 9 of the Law "Maximum Use of the Production and Service Capacity of the Country and Protection of Iranian Goods", which was recently approved by the Guardian Council, in order to provide all kinds of guarantee tools needed by the country's production and service sector, the government is required to provide the necessary legal frameworks. It provided non-governmental guarantees for the establishment and formation of the activity of non-governmental institutions after this law came into force. In this regard, the implementation of the research project "proposal of instructions related to the establishment and framework of activities of surety institutions" by the Central Insurance of Islamic Republic of Iran was included in the agenda of the Insurance Research Center.

This study is organized in five general parts of the research, the review of the activity framework of surety companies, the experience of other countries in the field of surety bond, and a review of the domestic experience of the country in the field of issuing various types of sureties, and summarizing and proposing guidelines related to the establishment of surety companies.

Keywords: Surety, Guarantee, Insurance, Instruction.

Requierements for Determining Technical Interest Rate in Iranian Life insurance Industry

Authors:  Dr. Aziz Ahmadzadeh, Dr. Hassan Heydari, Dr. Mojtabi Abed, Dr. Mitra Qanbarzadeh, Dr. Mojtabi Yousefi Dindarlou

Coordinator: Personal Insurance Research Group

Abstract
The mechanism of determining the technical interest rate and how supervising it has been one of the issues and challenges of the life insurance industry. This issue is important for insurance companies because of its impact on profitability and competitiveness. It is also important for the regulator because of its impact on the observance of policyholders' rights. Therefore, the purpose of this study is to explore all the necessary issues in determining the technical interest rate. The research method was documentary and questionnaire based.

Thus, the analysis of the roots of technical interest rates, types of models for determining technical interest rates and identification of variables that should be considered in determining it and how and quality of monitoring it, has been done using the documentary method to the governing frameworks. Then, based on the results, a questionnaire was designed to confirm and complete the framework and sent to relevant experts. The results of the study show that based on the reviewed studies, the use of time series models is the main method of determining the technical interest rate in insurance companies, but in some cases, structural models have also been used.

But in Iran, the use of time series models for determination of technical interest rates are not mentioned by experts and the majority of experts support structural models that taking into account the economic variables including inflation, interest rates, exchange rates and gold respectively (in order of importance) to determine technical interest rates. In the field of supervision, although there are different patterns, but the use of interest rates on long-term bonds with the highest credit rating, has been the common denominator of all countries to determine the maximum technical interest rate. It seems that the high weighting of experts on the variables of inflation, exchange rate and gold in Iran is due to the sharp fluctuations in the value of the national currency, which is the outstanding difference between Iran and other countries under study. Finally, based on the research findings, some policy recommendations are provided.

Keywords: Technical interest rate, Guaranted interest rate, Life insurance, Discount rate, financial supervision