Rates in the insurance industry and its consequences

Before entering into the discussion of rate-breaking in the insurance industry, it is necessary to get acquainted with the term rate-breaking and similar terms such as dumping and aggressive pricing, because in some cases in the insurance industry, these terms are used instead of each other due to their proximity to each other. They use, if each of them has its own semantic burden, the term rate breaker means reducing the rate of insurance policies from the level of monopoly balance to competitive equilibrium. Su is a complex product in terms of pricing due to features such as non-physical, mental, intangible and intangible and its proportionality to the risk of the insurer. On the other hand, suppliers of this product compete with each other using price tools and complexity. Given this complexity, the phenomenon of rate-breaking in the insurance industry is a natural result of the nature of this market and is generally not destructive, strange and contrary to the economic logic of this market. In fact, competition means providing quality insurance services. And the desired quantity to insurers, including breaking the rates of competitors provided that it is not lower than the technical rate Otherwise, it will cause losses to the insurance companies and will lead to the supervision of the supervisor according to the legal rules and regulations, as well as the losses of the insurer due to financial problems and the impossibility of performing. The actual obligations will be borne by the insurance company.
But the concept of dumping means that a country or company offers its products in export markets at a price lower than its domestic market or lower than the customary international price, sometimes dumping with the aim of creating heavy competitive pressure by offering below price. The cost goes to domestic competitors and the destruction of the competitor. Equivalent to dumping behavior if it occurs by domestic companies in the domestic market is called aggressive pricing. In this case, an insurance company that has lower costs, larger size and financial resources and a higher tolerance threshold than competitors, offers its products. It costs less than the cost, the continuation of which reduces the market price of the product, resulting in the merger or bankruptcy of other companies and ultimately the monopoly of a particular insurance company.
Looking at the proposed concepts and their implementation with the regulations of the Supreme Insurance Council and domestic laws and regulations, it can be easily concluded that aggressive pricing is prohibited and is considered as a cunning and unhealthy competition.
In this article, when we talk about the implication of rate-breaking, we mean rate-breaking in the sense of aggressive pricing and applying non-technical rates in the insurance market, because competitive rates and technical rates are not only implicit but also make markets more competitive and creative. Form in the insurance industry, as a result of which insurance companies are forced to reduce costs and improve the quality of products and services, and this is in the interest of both insurers and insurers. But in the case of non-technical rate breaks, which unfortunately has taken over the insurance industry and has become the main concern of insurers, there are undesirable consequences for both insurers and all insurers. Briefly examine the reasons for non-technical rate breaks in the insurance industry according to the studies and field research
Among the common and important reasons for non-technical rate breaks in the insurance industry are:
– The desire of insurance companies to acquire a larger share of the existing market, by reducing the premium rate instead of increasing the quality of services or offering new insurance products
– The insistence of the shareholders of the companies and their emphasis on the executive managers of the respective company to invade the existing market and competitors in any possible way
– Some insurance companies are not interested in creating new insurance products due to the high cost of production and the long process of designing new insurance products and the uncertainty of the results.
– Failure to conduct scientific studies in some insurance companies and neglect of the research and development unit, as well as failure to adopt a specific strategy and detailed market studies
Failure to bear the costs of expertise and actual risk assessment, assuming that competitors have assessed the risk and extracted the rate expertly.
Lack of technical and electronic rating using the insurer’s statistical history of the past several years and reviewing the insurer’s claims with other insurance companies.
– And the weak insurance culture in society and the focus of insurers on lower premiums as the most important indicator of decision-making and choice of insurer.
In any case, unfortunately, the prevalence of non-technical rate breakdown in the insurance industry has unfavorable consequences and consequences and can have irreparable consequences for the insurance industry, which in the long run poses a serious challenge to both insurers and insurers.
Among the most important consequences that can be imagined for this issue are:
Bankruptcy of weak companies and weakening of strong insurance companies in the not too distant future.
– Reducing the financial strength of insurance companies and as a result, the insurers’ uncertainty about the possibility of real compensation of possible damages
– Directing the demand of insurers to buy cheap insurance products and ultimately reduce the insurers’ trust in the insurance industry
– Reducing financial wealth and reducing interest rates and interests of insurance companies and their shareholders.
– Prolongation of the process of paying compensation to insurers due to lack of financial resources and lack of real compensation due to lack of liquidity of insurance companies and as a result of serious damage to the position of the insurance industry in society.
In view of the above, the insurance industry should find a solution to the non-technical rate-breaking challenges as soon as possible by establishing and creating an executive guarantee for the implementation of trade agreements and understandings and informing the community and insurance. Those who claim that premiums are not an indicator of the quality and desirability of the insurer should realize the important fact that the tariff system is obsolete in the world and insisting on going back and applying the tariff system does not beautify the Iranian insurance industry. Trade union convergence and emphasis on market development and demand creation through the production and creation of new products, as well as a real understanding of the concept of competition that competition is not just a reduction of rates or changes in insurance conditions but also in services when issuing and paying damages. Dealing honestly with the customer, creating a culture, providing insurance advice and providing distinctive services, and competing with each other, so we must join hands and trust the extensive sales network, including agents, brokers and online startups from It prevented the continuation of rate breaks and further damage to the insurance industry.

Vice President of the official direct insurance brokerage company on the oil and energy line

Source_Publication Financial News