16 Jun 2023
 | 16 Jun 2023
Status: a revised version of this preprint is currently under review for the journal NHESS.

Earthquake insurance in Iran: Solvency of local insurers in light of the current market practice

Mohsen Ghafory-Ashtiany and Hooman Motamed

Abstract. Due to its location in one of the most seismically active regions in the world, Iran has witnessed many devastating earthquakes through history. To finance a part of these losses and reconstruction expenses, earthquake insurance has been offered as a rider of fire policy by the Iranian insurers. This mechanism, if well operated, can substantially contribute to disaster risk management. On the other hand, if the pricing and management of catastrophe risk lack a sound, risk-based practice, it might add to the problems and act to the detriment of disaster risk management. In this paper, we first compare the current earthquake insurance pricing and risk management in the Iranian insurance industry with a state-of-the-art insurance regulation in the European Union (Solvency-II). Then, we examine the consequence of following each approach in terms of business profitability and viability by conducting a numerical analysis on a hypothetical portfolio of property risks in Iran. The results suggest that maintaining the current insurance pricing and risk management techniques in Iran will probably lead to a substantial accumulation of earthquake risk for domestic firms and eventually endanger the solvency of these companies in the event of large-scale earthquake losses in future.

Mohsen Ghafory-Ashtiany and Hooman Motamed

Status: final response (author comments only)

Comment types: AC – author | RC – referee | CC – community | EC – editor | CEC – chief editor | : Report abuse
  • CC1: 'Comment on nhess-2023-81- Public-Private cooperation schema', Abbas FathiAzar, 27 Jun 2023
    • AC1: 'Reply on CC1', Hooman Motamed, 10 Jul 2023
  • CC2: 'Comment on nhess-2023-81', Farhad Behnamfar, 30 Jun 2023
    • AC2: 'Reply on CC2', Hooman Motamed, 10 Jul 2023
  • CC3: 'Comment on nhess-2023-81', Ali Kharrazi, 09 Jul 2023
  • RC1: 'Comment on nhess-2023-81', Zoran Stojadinovic, 19 Jul 2023
    • AC3: 'Reply on RC1', Hooman Motamed, 06 Sep 2023
  • CC4: 'Comment on nhess-2023-81', Babak Mansouri, 29 Jul 2023
    • AC4: 'Reply on CC4', Hooman Motamed, 06 Sep 2023
  • RC2: 'Comment on nhess-2023-81', Anonymous Referee #2, 31 Jul 2023
    • AC6: 'Reply on RC2', Hooman Motamed, 07 Sep 2023
  • AC5: 'Comment on nhess-2023-81', Hooman Motamed, 07 Sep 2023
Mohsen Ghafory-Ashtiany and Hooman Motamed
Mohsen Ghafory-Ashtiany and Hooman Motamed


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Short summary
Iranian insurers has been offering earthquake cover since 1990's. However, despite international best practices they do not still use modern methods for risk pricing and management. As such, they seem to continue accumulating seismic risk over time. This paper examines the viability of this market in Iran by comparing the local market practice with international best practices in earthquake risk pricing (catastrophe modelling) and insurance risk management (European Solvency II regime).