Factors that create risk for insurers

According to the report of financial financial news, quoted by Kherd and Kalan news website, Maryam Salmasi, the director of risk and organizational excellence development of Cooperative Insurance Company, who is a doctorate in human resources management, discussed the issue of maintaining risks in the country and also the non-receipt of claims. Significant risks the insurance industry knows that all insurance companies must take action to control.

You can read his interview with Khard and Kalan news base below.

Insureds transfer their risks to insurance companies, but it seems that insurance companies themselves also face risks that sometimes cannot be transferred. In your opinion, what risks threaten insurance companies now?

One of the most important categories of risks that threaten Iranian insurance companies are financial and credit risks, the most important of which is the risk of non-payment of claims. Of course, any institution can face financial risk, but the risk of not collecting claims is very important in insurance companies that need liquidity to pay claims and also invest.

What is the root of such a risk?

The current economic conditions can be considered as one of the most important factors of such a risk. In the current situation, many small and large customers are interested in buying their insurance policy in installments, but they face problems in repaying the installments. This issue is very serious, especially in the case of large legal clients, and the continuation of such a trend will make insurance companies face a liquidity crisis. _­­turns

In such a situation, the insurance company also faces the problem of lack of liquidity in paying claims, and as a result, it is forced to either reduce its long-term investments or use other methods to compensate for the lack of liquidity, all of which are detrimental. The insurance industry.

The issue of collecting insurers’ claims from insurers, especially large insurers, becomes a serious issue in the insurance industry from time to time. Recently, the issue of collecting claims from car manufacturers became hot again.

Of course, the amount of claims from large insurers and especially car manufacturers is different in each company and the nature of these claims is not the same. Some companies have improved their receivables receipt and cash flow budgeting and receivables collection process by interacting and following up on their claims.

Another point is that some debtors, such as car manufacturers, have the characteristic that sooner or later, they are committed and pay their debt, but there is another problem and it arises when some debtors, for example, after the end of the insurance period, They never pay their debt to the insurer.

Are there really such cases?

Yes, it is and it is dangerous. For example, in fire insurance, a policyholder buys the policy and does not pay the premium until the policy expires. In such cases, basically the policyholder will no longer pay his insurance premium, and even though the insurance company is obligated to it during the entire period of the insurance policy, he has not received an insurance premium. These cases are more dangerous in cargo insurances that depend on transportation and third party insurances that cannot be canceled due to non-payment of insurance premiums. In medical insurance, it often happens that the legal insurer deducts the insurance premium from the employee’s salary, but does not pay it to the insurer due to liquidity problems.

By the way, the insurance premium of such insurance policies is included in the financial statements of the companies, but after the end of several insurance periods, the insurance premium is calculated as burned claims.

Insurance companies do not have a solution to deal with this problem?

This issue depends on the vigilance of the insurance company. If the company is careful, it will cancel such an insurance policy before the end of its term, which will at least eliminate its obligation to the policyholder, or it will set up a regular claims tracking system. What is worse is when the insurer is well aware from the beginning of issuing the insurance policy that the insurance premium will never be collected, but only to show its performance in one or more fields of insurance, it issues that insurance policy. .

Violation and fraud are also one of the things that seriously threaten insurance companies. It has been said that up to 20% of the damages paid by insurance companies are fake, and this number is very significant.

Violation and fraud are operational risks. Violation can occur by the customer and by causing false damage. It may also occur by the insurance company’s employees or by the damage appraiser. On the other hand, other beneficiaries of the insurance industry, such as doctors, increase the loss ratio by causing unnecessary losses and expenses for the insured. These cases bring additional costs to the insurance company, and each of these violations and frauds have thousands of different methods that challenge the insurance companies.

Can the type of operation of an insurance company create a risk for another company?

Yes! Systemic risks are of the same type. For example, what happened in Development Insurance Company also faced other companies with challenges, although it did not lead to the occurrence of systemic risk, but it had consequences. At that time, Development Insurance was a wealthy company with many assets, while it lacked the necessary liquidity and was unable to meet its obligations.

The 2008 financial crisis that occurred in the world was a systemic crisis that affected many industries and countries. Insurers are the components of a large system as the insurance industry, which happens to be tightly tied together due to sanctions, and therefore, a crisis in one company may also cause problems in others.

In which sector is this risk more significant?

Undoubtedly, now in the field of reliance, this risk can exist. Iran’s insurance industry has no connection with the outside of the country and has distributed all its risks internally. Central Insurance accepts a part of this risk and the rest of it is distributed among several reinsurance companies or insurers who have a license to accept reinsurance.

The question is, if a catastrophic loss, like the earthquake that happened in Turkey, happens in our country, will the country’s insurance industry face a serious challenge or not, and the effect will be domino-like on the entire industry. Will it enter or not? This issue requires work, investigation and calculations.

Consider that non-compulsory insurance coverage is not very high in our country.

Yes! It is said that in the world, about 30% of catastrophic natural damages that have occurred were covered by insurance, but it seems that in Iran, this figure is much smaller, but the volume of activity and the ability of our insurance companies are also the same. Figures are proportional. On the other hand, although the penetration rate of fire insurance in our country is low, our studies show that in earthquake-prone areas of the country, those who have fire insurance have also purchased earthquake coverage. Of course, as I mentioned, the matter needs a macro examination.

Another issue that the country’s insurance industry is facing today is the lack of expert human resources. Can this also be considered a risk for insurers?

Considering the dependence of the insurance industry on human resources, the risk of losing expert human resources has always been a serious threat to the insurance industry and cannot be ignored. Previously, our main problem in the field of human resources was the transfer of people between different companies, but the nature of this risk has changed today. What threatens the insurance industry today is the departure of expert human resources and their migration abroad. This is a threat that will continue in the not-so-distant future, causing problems for insurance companies.

Apart from these cases, are there other risks for insurance companies?

The so-called competitive pricing method of insurance can be considered as one of the risk factors that lead to an increase in the loss factor. Considering the market situation and the formation of competition in the insurance industry, this risk reduces the profit margin of insurance companies every day, and the continuation of this trend can be considered risky.

Also, the issue of inflation and its rate of increase has greatly affected the increase in damage costs, so that this issue also increases the severity of the risk of increasing the damage factor. Unfortunately, even if the pricing is done properly, from the time of receipt of the insurance premium to the time of occurrence and payment of the damage, the effect of inflation in the increase in costs has become very significant, and this issue is in the areas of increasing the cost of car repairs and increasing medical costs in general. The industry is quite tangible and can get worse.