FANTASTIC FUTURE

After two years, the second Azerbaijani international insurance forum "Prospects of the Development of the Azerbaijani Insurance Market" took place at the beginning of July. However, despite its name, the Baku forum became a platform for discussions about the situation on the insurance market in Central and Eastern Europe and the CIS, and primarily on the interaction of insurance markets in the post-Soviet area.

The Azerbaijani insurance market, though it is not making full use of all its potential, has great prospects - this is a brief summary of the views of both local and foreign experts who attended the forum. "I believe in the fantastic future of insurance in Azerbaijan, and we are ready to explore investment opportunities in Azerbaijan. I was pleasantly surprised by the relatively underdeveloped sector of insurance and the wealth of the country - this creates a great opportunity for us investors." This, in particular, was stated by the general director of the office of ING, the world's largest financial services company, in Turkey (ING Emeklilik), Jetse Frederik de Vries.

At the same time, it would be wrong to talk about stagnation on the domestic insurance market. Despite the negative impact of the global financial crisis, the capitalization of insurance companies in Azerbaijan has increased significantly in recent years - up to 150 million manats in 2010, although in 2003 this figure was 18.4 million manats. However, it is also true that by the end of 2010, the share of insurance fees in the country's GDP was 0.37 per cent versus 0.5 per cent in 2009. Although, according to the draft long-term strategy for the economic development of Azerbaijan in 2011-2025, prepared by the Ministry of Economic Development, it is planned to increase this figure to at least 3 per cent in 2025, raising the amount of taxes in general to $3.108 billion from $215 million in 2009.

Low rates are mainly due to the fact that today, the country's level of confidence in the banking sector is higher than in the insurance sector. And this is despite the fact that the assessment of the financial stability of insurance companies already relies on international experience and on the system applied in developed countries with developed insurance markets. The rights of policyholders are also better protected today. Thus, the provisions of the law "On insurance activity", as well as provisions of the Civil Code more clearly and accurately describe the many issues related to insurance contracts, rights and obligations of the parties, etc.

From this perspective, it would be wise to offer insurance products to customers who use banking services, which will contribute to the parallel development of the financial sector on the whole and the mass use of banking and insurance services.

It may be noted that in the whole world, bank insurance is actively working in the field of life insurance. In some countries, more than half of the insurance premiums of life-companies come from companies working exactly on this sales channel. We, on the one hand, believe that the current level of the development of Azerbaijan's banking system encourages the development of the insurance sector, but on the other, it would be correct if insurance companies diversified sales channels to the maximum. Because the dependence of the sales channels of the insurance sector on commercial banks can lead to negative consequences in the event of systemic risks in the banking system. In this context, a major stimulus for the growth of the insurance market may be the development of other sales channels in parallel with bank insurance.

Also, one of the problems whose solution could stimulate the growth of the insurance market is the diversification of the risks of insurance companies. According to participants in the second Azerbaijani international insurance forum, the benefits of diversification are to reduce the overall level of exposure to risks associated with the geographic concentration of the business in one region and reduce dependence on negative market conditions associated with the influence of the phase of the cycle on a single market, which creates conditions for exceeding the boundaries of the national market.

By expanding the range of risks, we can achieve not only quantitative but also qualitative improvements in the portfolio. In addition, it is an additional source of premiums. Reducing the relative shares of the largest assignors in the total amount of the premiums collected will reduce the company's dependence on contractors and lead to greater stability. This, in turn, enhances the financial and technical capacity of re-insurers in post-Soviet countries.

This way or another, for greater public involvement in the insurance market, the Ministry of Finance enhances educational work in the insurance industry, and the main objective is to ensure that the services provided by insurance companies are in demand among the population. And this year, the minister has forecast a growth of 10-12 per cent on Azerbaijan's insurance market.

Incidentally, a lot of interesting information regarding plans for the development of the insurance market of Azerbaijan was announced at the forum. It is known that in order to bring the system of state oversight of insurance in conformity with international standards, improve its quality and ensure transparency in the process of submitting and considering reports, from 2011 the State Insurance Department of Azerbaijan started to take financial and other reports from insurance companies and brokers through new software called "The system of insurance supervision". As it turned out, the Ministry of Finance does not intend to stop here - the next step, according to Minister Samir Sarifov, is the automation of the process of concluding insurance contracts.

The minister noted that Azerbaijan plans to use electronic signatures for signing insurance contracts. We are now preparing an appropriate legal framework that allows insurance companies to provide e-services, and possibly as early as 2011, this issue will be resolved.

Thus, if we solve all problems in the development of the insurance sector in Azerbaijan, we can quickly approach the "fantastic future" predicted by foreign experts.