PREMIUMS OF AZN ONE BILLION

Going by the statistics, the Azerbaijani insurance market has finally reached a stable rate of development. There are, of course, plenty of problems and the degree of popularity of this segment of the financial sector is not as high as it should be among the population, but it is gradually progressing thanks to the introduction of compulsory types of insurance, various advertising campaigns and, most important of all, the consolidation of the place on the market of its leading players.

In order to develop these positive trends, the Azerbaijani Finance Ministry, which fulfils supervisory functions over the insurance companies, plans to take a number of tough, but, experts believe, effective steps. In particular, Finance Minister Samir Sarifov says, the minimum demands on the capital of insurance companies may be doubled, because they should have high financial potential to provide high-quality services to the population.

At the fourth international insurance forum that was held on 20-21 June, other interesting innovations which await the market in the near future were also revealed.

The task - further growth

Statistics show that in the past ten years the capitalization of Azerbaijan's insurance market has increased 18 times, the net profit of companies 17.5 times, the overall capital of the participants in the insurance market amounted to AZN 343.44m based on last year's results, including paid-in statutory capital of AZN 294.06m, and other capital reserves amounted to AZN 49.39m. At the same time, insurance premiums per capita increased from AZN 7 to AZN 47.

In Sarifov's opinion, the market is developing at a good rate - by about 20% annually, and the driving force of this trend has been the overall economic situation in the country, the implementation of social programmes and an improvement in people's welfare, institutional improvements, and other factors. "In the past ten years Azerbaijan's GDP has trebled, the poverty level has been reduced sixfold and foreign currency reserves and investments in the economy have increased appreciably," the minister said.

According to the chairman of the parliamentary committee for economic policy, Ziyad Samadzada, the rate of growth in Azerbaijan's insurance sector considerably exceeds the country's economic growth. "The market has a growth potential of up to AZN one billion by 2020," the MP noted, adding that the country's legislative base helps the insurance companies to carry out their work successfully. Nevertheless, he says, there is still a need to improve mechanisms in the insurance market and its structure, specifically in the sphere of agricultural insurance.

However, the finance minister also said that he is planning to continue to strengthen the legislative and institutional base for the development of the insurance sector. "We have achieved a lot, as stated earlier, including the creation of a Compulsory Insurance Bureau, which will play an incentive role in the market's development. However, this does not mean that we have been able to solve all problems, and there are a number of tasks which require attention in the short term," the minister noted.

With the purpose of strengthening the market and increasing the population's confidence in its players, the finance minister plans to double the requirements for the minimum level of the overall capital of insurance and reinsurance companies - to AZN 10 million. "As you know, the Central Bank of Azerbaijan has increased the capital requirement of banks fivefold. I think the time has also come to increase the requirement for minimum capital of insurance companies - from AZN 5m to AZN 10m," Sarifov said. In his opinion, the insurance companies must have high financial potential in order to provide high-quality services to the population. Pointing out that in 2002-2013 the maximum capital requirement of insurance companies increased from AZN 1m to AZN 5m, as a result of which the sector's financial stability was strengthened, and companies' net profits in this period increased to AZN 48m, the minister noted that the next increase would occur gradually. "I don't think this will create major problems for the players in the market because the capital of some of them already exceeds AZN 10m," he added.

Through cooperation with the state

And so, the main objective of the players in the market for the next few years has been set. But there are also global objectives for the general development of the whole insurance system, as well as individual products. For example, today's vital agricultural and medical segments of insurance can only be introduced with state support. Both sort of exist on the market, and are fairly popular in the world, but are in virtually minimal demand in Azerbaijan.

Even minister Sarifov admitted that many people in the country do not even know that we have agricultural insurance. "The point is that this market is very limited. The population has not been well informed about this product. Besides, the existing mechanisms are not that advanced," he said. All this explains the gloomy statistics for this segment of the market. According to the finance minister, in January-May of this year insurance company premiums in Azerbaijan for insuring risks in the agro-industrial sector amounted to AZN 400,776.23, i.e. only 0.24% of all insurance company premiums for this period.

According to the minister, the Finance Ministry and the major insurance companies have already begun studying the experience of the developed countries in this sphere of insurance, and in the near future proposals will be prepared and changes made to legislation to make this product more effective.

Meanwhile, the head of the State Service for Insurance Supervision of the Azerbaijani Foreign Ministry, Namiq Xalilov, said that, among other things, a close study is being made of the Turkish agrarian insurance system adopted by the Tarsim organization. "It works like this: in the context of its cooperation with insurance companies the state created the Tarsim organization. Insurance companies fulfil the function of agents during sales, conclude agreements, issue certificates, receive 50% of the premiums, take a commission and send the rest to Tarsim. The state, for its part, pays out the remaining 50% to Tarsim," Xalilov explained.

He said that when an insurance matter arises farmers apply to Tarsim for insurance cover. "It should be noted that in this instance a large group of experts operates which is eventually accountable to Tarsim," he stressed. "This system has been operating in Turkey since 2006 and has justified itself. If we switch to this system, based on the Tarsim principles, it will help the development of Azerbaijan's agrarian sector," Xalilov said.

As regards another poorly developed segment today - medical insurance - despite the fact that a legal base has been formed here, the required effect of its application has not been felt yet. "The time has already come for the active application of compulsory medical insurance in everyday life, because in recent years the infrastructure of the health industry has improved considerably as a result of socio-economic policy," Sarifov said. According to Azerbaijan's Deputy Finance Minister Azar Bayramov, in this instance the principle of mutual cooperation between companies and the state will also be applied while maintaining the Agency for Compulsory Medical Insurance that was created within the Azerbaijani Cabinet of Ministers.

According to Xalilov, the object of the project for a compulsory medical insurance system that is being drawn up is to ensure that every citizen of the country has the opportunity to take advantage of a package of minimum medical services, and it will be funded from three sources - the state budget, employers' contributions and contributions from employees. The mechanisms of the development of this product have not yet been disclosed, but the introduction of an effective medical insurance system is part of the government's immediate plans.

There are also plans for the development of other types of compulsory insurance and the stimulation of a growth of interest in voluntary types - the predictions of a stable annual 20% growth in the market over the next five years are based on them. And at the end of this period Azerbaijan's insurance market should reach a volume of premiums of AZN 1 billion annually (for this year this figure has been projected at AZN 400m). The end justifies the means, as they say, especially if they are sufficiently useful for all players in the market.