IRAQ’S INSURANCE MARKET: general personal remarks Misbah G A Kamal Senior Research Consultant, UIB, London The writer asserts that the views expressed in this article are personal and do not reflect in any way the views and policies of UIB. Arabic readers can refer to the writer’s blog Iraq Insurance Review for more information and analysis: http://misbahkamal.blogspot.com/2009/04/328-2008-67-76.html
This essay was first published in the Dubai-based journal Policy, Vol 06, Issue 03, May/June 2009, pp 38-40, under the title Iraq’s Difficult Journey. Although the origins of insurance are traced to Iraq’s ancient codes, the Hammurabi Code being the most famous (circa 1760 BC), the insurance sector of Iraq today has nothing to boast about save its survival under the most difficult conditions of wars, sanctions, invasion and occupation and lack of security. The first privately owned Iraqi insurance company was established in 1946 followed in 1950 by the formation of the state owned National Insurance Company. Prior to these dates, the market was made up of Arab and foreign insurance companies and agencies. In 1958, the second privately owned insurance company was established. By 1964, all insurance companies were nationalised and reconstituted into three specialist companies: life, general and reinsurance. In its heydays, Iraq’s insurance market was a pioneering market in the Arab world. Though state-owned, it had first class insurance and reinsurance professionals at management level with a growing number of mid-tier staff developed through regular training programmes that also benefited other Arab insurance markets. Those were the days when research for post-graduate diplomas was undertaken at Iraqi universities. Many of the practitioners in the market ended up managing Arab insurance companies or assuming important leading positions – a move that began in the 1970s. But the years of wars (1980-1988), the invasion of Kuwait (1990) and the harsh UN sanctions (1990-2003) have devastated the insurance sector in terms of manpower loss, isolation from international developments, loss of treaty protection, falling effective demand for insurance protection. The sector has a lot of catching up to do to but that is not easy under conditions marked by legal discrimination against Iraqi insurers, the slow improvement in the security conditions and the relegation of insurance to the bottom of the insured’s quest for financial security against risk. The Iraqi insurance market, up until 1997, was made up of three state-owned companies: National Insurance Co (NIC), Iraq Life Insurance Co (ILIC) and Iraq Reinsurance Co (Iraq Re). The restriction of the activities of NIC to non-life business and ILIC to life business was ended in 1988 (ILIC’s name was changed to Iraq Insurance Co). Both companies were permitted to transact all classes of insurance thereby a measure of competition was introduced to the market. 1988 also witnessed the compulsory cession to Iraq Re. A year earlier, the State Insurance Organisation, the supervisory body, was abolished. Between 1988 and 1997 the companies were attached to the Ministry of Finance and the office of Insurance Supervisor was set up at the ministry The nationalisation era ended in 1997 when a law was passed to ‘commercialise’ the state-owned companies and simultaneously permit the formation of private insurance companies. The first private insurance company was formed in 2000. Thereafter many others were formed. Today, the market is made of the three public companies (including a specialist reinsurance company) and fourteen private companies (all very small at this stage). Three of these companies operate in Iraqi Kurdistan. More companies are planned. In 1990, following Iraq’s invasion of Kuwait and the comprehensive UN economic sanctions the three state-owned companies lost their treaty protections. The long sanctions regime (1990-2003) undermined the insurance sector and to date the sector is still weak. During the sanction’s regime, the market utilised its own local resources to provide limited treaty protection. In effect, business was retained by the insurers and Iraq Re. Almost immediately after the US invasion of Iraq (March 2003), a crash privatisation scheme of the state owned insurance companies was hastily put together (Summer of 2003) by the US occupation administration (illegal under international law). This was part of the project for the total restructuring of the Iraqi economy. The scheme entailed the splitting of the companies to four specialist risk carriers: motor, marine and aviation, non-marine and lie & pensions. (for a critique see my article in MEES (Middle East Economic Survey) Vol. 47. No. 19 (10 May 2004) pp D1-D5). The scheme was not implemented and its documents were shelved at the Ministry of Finance. Thereafter, the focus was shifted to writing a new insurance law. Like the failed privatisation programme, a draft was hastily prepared and subjected to scant review by Iraqi insurance practitioners. The weakness of the insurance sector was not helped by the hasty enactment of the Insurance Regulatory Act 2005, drafted by a US insurance commissioner based on the Jordanian Insurance Law 1999. Lately, the Association of Iraqi Insurance & Reinsurance Companies had made representations to the competent authorities to have certain provisions of the regulatory law amended as they run counter to the interests of domestic companies. This new law follows international standards including the core principles advocated by the International Association of Insurance Supervisors (IAIS). It has many positive features including provisions for the creation of the Insurance Diwan (the insurance supervisory commission) and the Association of Iraqi Insurance & Reinsurance Companies. While the latter has began to show some activity, the Diwan, so far, has not been able to discharge its function. It is poorly staffed and has no enforcement power. Regrettably, the act was drafted to favour foreign interests. This was not accidental. By being silent on the issue of non-admitted insurance, it has provided legal cover for siphoning premiums worth millions of dollars to Arab and foreign insurers that should have been written by Iraqi insurance companies. If those who drafted the law can make provisions for cut through arrangements surely they would have been in a position to regulate non-admitted insurance. There is no specific requirement that insurance should be purchased from insurance companies registered in Iraq and licensed by the Diwan. Iraqi insurance companies are also disadvantaged by the directives issued by the Ministry of Planning thereby denying them the opportunity of insuring imported assets. Other ministries ignore the presence of Iraqi insurance companies as happened in the agreement between Iraq and Jordan on the concessionary sale of Iraqi crude to Jordan. UN organs and NGOs also ignore Iraqi insurance companies. The investment laws of Iraq and the Kurdish Regional Government (KRG) leave the option of insuring with Iraqi or foreign insurers to the investors. For the time being, the crumbs are left to Iraqi insurers generating a meagre volume of premium for the market. There are other problems affecting the market. One of them is the failure so far to develop a truly federal insurance market. Public and private insurance companies made representations to the KRG to re/open branches in the region but these attempts have not been fully successful yet. At one time the KRG drafted an insurance supervisory bill but to date it has not been put on the statute book. The Compulsory Motor Insurance Law of 1980 and its amendments remain out of bounds in the Kurdish Region. This was an outstanding piece of legislation. It departed from contractual liability and embedded it in law (presumption of liability). This state of affairs reflects some legacy problems inherited from the pre-2003 regime and its discriminatory and oppressive policies against the Kurdish people of Iraq. Then there is the problem of international facultative reinsurance support. When an Iraqi insurance company succeeds in writing a piece of business and seeks facultative reinsurance from the international market, some interested reinsurers, and to date their number is limited, decline to reinsure an Iraqi insurance company. They even decline to accept an Iraqi insurance company as a fronting company. Others are barred by their own treaty protections from writing Iraqi business and some find the adverse security conditions unacceptable from an underwriting point of view. So far, no concerted effort has been made by Iraqi insurers to international reinsurers to engage their capacity for Iraqi risks. Iraq insurers, based on available information, have not visited such reinsurers to establish and develop relationships. The state-owned companies, although they are formally independent, as self-financing entities regulated by Law 21 of 1997 and its 2004 amendment, are closely tied to the Ministry of Finance to the extent that travel authorisation for their officers had to be approved by the ministry. Such bureaucratic control adds a further burden on these companies and stifles initiative. At present, the individual insurance companies, public and private, do not have separate treaty protections. Iraq Re negotiated a common treaty programme with the Munich Re in 2004 for the whole Iraqi market. The bouquet of treaties is made up of the following: Fire Quota Share and Surplus Engineering Quota Share and Surplus Cargo Quota Share General Accident Quota Share Motor, Fire, Engineering, Cargo and General XL for Protecting Retentions. A London-based adviser and three London market broking firms are involved as co-brokers in the treaties. The treaties have various exclusions reflecting the current underwriting assessment of the security and other conditions of Iraq. Market-wide data are not publicly available; even the Report on Iraq’s Insurance Market, submitted to the 27th conference of the General Arab Insurance Federation (GAIF), Manama 26-28 February 2008, which is the latest available, is incomplete. The latest published data (al-Tameen al-Arabi, quarterly journal of GAIF, issue no. 100, March 2009) is restricted to the National Insurance Company (2007 written premium: ID 7,525,657,000 Co) and Iraq Re (2007 premium USD 5,991,000). It appears that other Iraqi insurance companies have not responded to GAIF’s request for data. Insurance density and penetration is very low and because of the lack of proper statistics (national income, population and written premium), they are difficult to calculate. Despite the ascendancy of religiously based parties that are dominant in the make up of the present government as well as various sectors of the public space, Islamic takaful has not surfaced in the insurance sector. Takaful has been promoted elsewhere is a medium for developing insurance among pious people who would normally consider insurance to be unlawful under strict interpretation of Shariah provisions. If the present trends continue, it will be a long time before the market comes out of its doldrums. Published in the Dubai-based journal Policy, Vol 06, Issue 03, May/June 2009, pp 38-40, under the title Iraq’s Difficult Journey.  Rate of Exchange per the Central Bank of Iraq has been hovering around ID 1,170 to 1 USD.