THE KEY SECTOR

The measures to liven up Azerbaijan's insurance market adopted at state level over the last few years are taking the form of real growth figures, as demonstrated at the Vth Azerbaijan International Insurance Forum organised by the Association of Insurance Brokers of Azerbaijan (ASA). The country's minister of finance, Samir Sarifov, reported that over the last eight years the market has grown six-fold to 543m dollars. He believes that it is precisely insurance that is capable of playing a key role in attaining the non-oil sector development goals enshrined in the Azerbaijan-2020 concept.

It needs to be said that, besides the large number of measures promoting the growth of the insurance companies' figures, the companies, like the country's commercial banks, have come up against tougher requirements and standards regulating their activity. The minister thinks this is a necessary and correct step. Making the requirements stricter will lead to a decrease in the number of companies on the market, which will cause it to recover and be more efficient," he asserts.

The majority of those involved in the market will moreover cope with the new requirements as indicated by the 8.9-fold growth in the insurance companies' total capital (from 52m to 463m dollars) from 2004-2013. Over that period the sector's pure profit grew more than 9-fold to 84m dollars, and the average per capita premium went up from 29 dollars to 58 dollars. 

In the view of the country's finance ministry, these achievements provide grounds for thinking that the Azerbaijani insurance companies are ready to compete with foreign insurance brokers on the internal market. We note that the Ministry of Finance has already drawn up a schedule for raising the top rate of foreign involvement in the insurance brokers' share capital, in compliance with which the upper limit for share-holding until 1 January 2015 will be 50 per cent (at the present time the share of foreign capital on the Azerbaijani insurance market is limited to no more than 10 per cent, whereas the limit for foreign capital in the overall volume of insurance brokers' share capitals was 30 per cent). A gradual increase in this figure up to 100 per cent is moreover envisaged from 2017. "Our market is open. Our insurance brokers have already accumulated sufficient experience and have qualified experts at their disposal," the minister noted. At the present time, foreign capital is only involved in five of the 28 insurance brokers in Azerbaijan. 

At the same time, the country's finance minister also acknowledged that one of the most topical issues on the domestic insurance market at the present time remains the provision of better services: "It is important to work on improving the quality of the services provided by insurers to their clients. The companies have to justify the premiums that they are charging."

Ziyad Samadzada, the chairman of the parliamentary committee for economic policy, has said that the insurance sector is a very important segment of Azerbaijan's economy. "Reducing the dependence of the national economy on the oil sector will create favourable conditions for the development of the insurance market," he said, adding that the development of health and farm insurance is now an important task.

As far as the latter is concerned, Minister S. Sarifov recently mentioned that the Ministry of Finance has worked out proposals for improving insurance mechanisms in agriculture and has submitted them to the country's ministries of agriculture, industry and agriculture for consideration. "There are still certain problems in that segment, and we are hoping that the new mechanisms will help us to eliminate them," he said. The minister noted that easy access to farm insurance provided by all the insurance brokers operating in the country would be something new. Up until now it was only the state insurance company "Azersygorta" that had provided this service. We are proposing that all the insurance brokers should become involved in this process. A pool will be created in which finance destined for farm insurance will be accumulated. Thus, all the companies involved will be interested in the fact that the deal or insurance incident would not be a sham one," S. Sarifov reported.

He said that the main problem was that of creating the necessary data base. "Farm insurance does not simply mean insurance against a poor harvest or sowing season, but also cattle protection for example. This means that the relevant registers need to be set up, data bases, so that lists of the cattle and agricultural lands can be registered. This all takes time. The cost of this will be approximately the same as when OCAGO (compulsory insurance relating to a citizen's liability as a vehicle owner) was introduced in Azerbaijan." S. Sarifov recalled.

It needs to be mentioned that today in Azerbaijan this is not the only type of insurance where problems are being observed in promoting it. Thus, Azerbaijani legislation envisages compulsory insurance for real estate, but potential clients have not taken the relevant interest in this yet; owing to this more effective mechanisms need to be introduced, for example the introduction of the principle of paying the insurance premium for compulsory real estate insurance in instalments. The legislation provides for an annual premium. I think that it would be possible to make monthly payments, for example," S. Sarifov said. We remind you that the maximum amount of insurance cover that can be taken on real estate in Baku is 25,000 manats, in Ganca, Sumqayit and Naxcivan - 20,000 manats and in other populated locations 15,000 manats. The insurance tariff levied on this type of insurance is 02 per cent of the sum insured that is a maximum of 50 manats.

Taking into account the financial possibilities of Azerbaijan's population, a model for insurance against elemental disasters is also being worked out; the introduction of compulsory health insurance (OMS) and other types of insurance services in the country is increasing. In brief, in the view of the experts and representatives of the companies, the introduction of medical insurance can already start, taking into account Azerbaijan's economic development and in spite of the obvious difficulties, which will beset this process, at least in the beginning. "There will be difficulties connected with financing the medical sphere and problems relating to the accreditation, drawing up of medical protocols and other aspects," Rana Mahmudova, a representative of one of the companies, noted, after adding that even taking this into account, the market is ready to introduce this form of insurance.

All these innovations and further amendments will most probably form the basis for the insurance development strategy in Azerbaijan in the period up to 2020, which will be drawn up by the Ministry of Finance with input from the Association of Insurance Brokers of Azerbaijan. The comprehensive measures that need to be undertaken to develop insurance in Azerbaijan will be reflected in the document. 

In the opinion of Deputy S. Samadzada, the main purpose of the efforts being undertaken should be to achieve a volume of insurance company premiums amounting to 1 per cent of the country's GDP; at the present time the figure is 0.8 per cent of GDP. In January to May this year the total volume of premiums of the insurance brokers operating in the country amounted to 186.9m manats, which is 10.8 per cent higher than the figure for the same period last year; the volume of payments for that period was 55.2m manats (a growth of 13 per cent). 

 "I hope that in the future the country's insurance market will reach 1bn dollars," Z. Samadzada said. This figure is quite attainable once the new compulsory forms of insurance have been introduced and those already available gain popularity. You see, a great deal depends on the overall economic situation in the country, but it does allow us to place our hopes in rapid development in this sector as well.