Privatization is implemented with the purpose of promoting efficiency and competitiveness in the economy. Fulfilling this purpose requires proper and simultaneous implementation of privatization and deregulation in order to reduce the role and share of the state and eliminate barriers and foster the private sector. However, the experiences of privatization in Iran and Russia and some other countries indicate that not only inappropriate and incomplete implementation of privatization will lead to defective transfer of ownership from the state to the private sector but it may also maximize and strengthen the insiders' benefits, reduce supervision due to the semi-governmental ownership, and increase their power – eventually leading to the reduction of private sector share, their efficiency, and competitiveness.
Now and after about two decades of the implementation of privatization program of the insurance industry in Iran, the question still remains whether privatization in the insurance industry has led to the ownership transfer from the public sector to the private sector or not.
In order to answer this question and with the aim of identifying the real business owners of the insurance companies and reviewing the results of the privatization in the insurance industry, IRC has carried out a research project entitled "Privatization of Iran's Insurance Industry: Present Status", accordign to Public Relations Office, IRC.
Conducted by Mr Sajjad Farzamand, Director of Financial Studies Desk of IRC, the study examines ownership structure of the registered insurance companies present in Iran's capital market, identifies their main business owners, and categorizes them into four groups: public sector owners, nongovernmental public sector owners, owners associated with the independent banks, and isolated owners. Dependence of the companies to their business owners (business ownership scale) are determined based on the documents showing a 50% share or holding the majority of the board seats.
The results of the research revealed that out of 25 firms under study, the lion share of five companies namely Amin Re Co., Dana Insurance Co, Ma Insurance Co., Moallem Insurance Co., and Mihan Insurance Co., are entitled to the state and their ownership can be considered semi-governmental. The ownership of some other insurance companies such as Alborz, Tejarat No, Dey, Sina, Kowsar, Mellat, Novin, and Parsian are claimed by the nongovernmental public sector (public institutions) and cannot be considered totally private.
Other companies including Iranian Re Co., Pasargad Insurance Co., Samand Insurance Co., Middle East Life Insurance Co., and Karafarin Insurance Company are owned by independent banks. The insurance companies such as Arman, Sarmad, Asia, Hekmat Saba, Taavon, Hefez, and Razi have isolated and unknown ownership type.
According to the results of the study, the state and nongovernmental public sector have respectively the highest financial efficiency that can be traced in the relationship-based nature of the insurance industry. This is where the operations under public governance are generally based on the relationships and on the contrary, the same operations in the private sector are based on the market rules. In this study, the lowest rank was assigned to the insurance companies having isolated or unclear ownerships and this weakness could be a sign of their low competitive power in connecting with the bigger holdings in the country that further proves the relationship-based characteristic of the insurance industry.
It must be noted that such relationship-based nature of the insurance industry as the prominent feature of the public sector translates into the failure of the privatization program in the industry. Thus, if the goal of the policymakers in the privatization programs is to enhance the efficiency and competitiveness, transferring the ownership from nongovernmental public sector to the private sector can create a niche in the insurance industry.
Those interested to access and download the Persian full text of the study, please visit http://www.irc.ac.ir/fa-IR/Irc/4946/Articles/view/14643/1508/ .