BREATHING LIFE

The frenetic pace of life today, the increase in traffic leading to a rise in the number of road accidents, the growth in stressful situations and the health problems that go with them highlight the question of insurance. In most of the world's developed countries people insure virtually everything - from their homes and cars to different parts of their body. When it comes to companies, this list is even greater. In Azerbaijan, insurance has taken root rather well in industry, but in everyday life there is considerable potential for development. On the other hand, insurance is a kind of mirror of the country's economy, a reflection of the processes that are visible at a macro- and micro-level. That means the activities of the insurance companies are an indicator of the current state of the economy.

The market 

According to the Insurers Association, in 2014 insurers' premiums in Azerbaijan increased by 5.8 per cent - to 429.2m manats. "Of course, this is somewhat lower than early expectations, because at the beginning of last year we forecast a growth in the market for 2014 of 15-20 per cent. However, certain processes, especially in the banking sector, had a negative impact on insurers' premiums. But, generally speaking, a market growth of 6 per cent was the figure we were aiming at for the whole second half of the year," the head of the association, Orxan Bayramov, said.

The main "culprit" of the more restrained growth in the insurance market last year was the banking sector. Last January the Central Bank adopted a decision on tightening the conditions of consumer credit, including automobile loan financing. The result was that last year automobile loan financing was reduced by 31 per cent and this hurt the insurance sector. Specifically, insurers' premiums on Motor Own Damage (CASCO) insurance were reduced last year by 33.5 per cent - to 37.8m manats.

It should be noted that last year was not a very successful one for those types of insurance which are not linked with life insurance - the total amount of premiums was down 3.8 per cent compared with 2013 - to 324.2m manats. However, these types of insurance currently maintain a dominant position in the market and form over 75 per cent of all insurers' premiums.

At the same time, the insurance companies received a considerable portion of insurance premiums that are not linked with life insurance from voluntary medical insurance and compulsory third-party car insurance (OSAGO). Medical insurance premiums increased last year by 9 per cent - to 71.3m manats, and OSAGO premiums by 1.6 per cent - to 70.3m manats. 

Life insurance came to the rescue of the insurance market last year. This segment of the market was a very successful one for the insurance companies, although there were only three companies operating in it. Employees' life insurance premiums amounted to 105m manats and in the year under review increased by 52.7 per cent. As a result of the rapid growth in life insurance over the last three years premiums for this type of insurance have almost trebled since 2012.

As far as payments are concerned, in 2014 the amount was 157.1m manats, and increased by 28 per cent compared with 2013, i.e. the rate of growth of payments was higher than the increase in premiums. It was the same situation in 2013 when premiums increased by 18.4 per cent, whereas the increase in payments was 30.8 per cent. Bayramov estimates that this trend will continue in 2015-2017. "In 2014, for every 100 manats of premiums the insurance companies paid out 36.6 manats, whereas in 2013 the figure was 30.3 manats. I believe that in the next three years the rate of growth of payments will be higher than the increase in premiums. As a result, the ratio of payments to premiums will exceed this figure by 50 per cent," he noted.

Insurers 

In 2014 five insurance companies collected 48.6 per cent of premiums - 208.8m manats. Overall, last year the companies in the top-10 of the insurance market collected 324.9m manats, or 75.7 per cent of all insurers' premiums. At the same time, life insurance companies began to strengthen their own positions, which is not surprising because it was this segment of the market that last year showed a high rate of growth. Whereas in 2013 only one life insurance company was represented in the top-5 and two in the top-10, in 2014 two out of the three life insurance companies were in the top-5 and the third company in this segment was in seventh position. It is most likely that these three companies will continue their rise to the top of the insurance market, because life insurance in Azerbaijan, according to the experts, will grow at a higher rate in the next couple of years than other types of insurance.

Last year, of the 28 companies operating in the market, 11 increased their premiums compared with 2013 and 17 reduced them. So, for the majority of insurance companies last year was rather a difficult one.

Last year, the insurance market lost one of its participants - Royal Sigorta failed to fulfil the requirements of the Finance Ministry on minimum capital and had to withdraw.  The Era Trans Sigorta company, whose licence was suspended for the same reason, could share the same fate. However, the reduction in the number of companies on the market is not one of the government's priorities. "I don't feel that it is necessary to reduce the number of insurance companies on the market in Azerbaijan. There are many movable and real-estate properties which are not covered by insurance. This mainly affects voluntary insurance. "When you take this into account, 27 insurance companies on the market is even quite a small number," Mahir Abdullayev, head of the department of licensing, application and complaints of the State Insurance Supervision Service, believes.

When it comes to payments, the gap between the companies in the top-5 and the rest is even greater. Last year these five companies accounted for 57.3 per cent of all payments. Overall, the top-10 faced reimbursement payments of 128.4m manats, or 81.7 per cent of all payments.

Development of the market 

An Action Plan for the development of Azerbaijan's insurance market for 2015-2017, approved by the Finance Ministry, will become a kind of "road map" for the insurance market in the next three years. "This plan provides for a range of measures to develop the insurance market. One of the areas is the introduction of new types of compulsory insurance on the market," Abdullayev said. Consequently, the course towards the development of compulsory types of insurance, which the Finance Ministry began implementing in 2010-2011, will continue in the next three years.

In 2014 insurers' premiums in Azerbaijan for compulsory types of insurance amounted to 144.5m manats, or 33.7 per cent of all premiums over the year. At the same time, premiums of compulsory types of insurance increased last year by 7.3 per cent, which is somewhat higher than the increase in premiums for voluntary types of insurance (5.1 per cent).

According to the Finance Ministry's plans, in the medium term new types of compulsory professional liability insurance will be appearing on the market. In addition, the introduction of compulsory medical insurance (CMI) is due to become a key factor of the development of the market. The government has not yet announced which type of CMI will be chosen, or when this process will start and what it will cost. In any event CMI will require substantial funds from the state budget to insure employees in the state sector, but in conditions of a reduction in oil prices, accompanied by a reduction in revenue, the government will be in no hurry to introduce compulsory medical insurance.

Another planned innovation linked with compulsory types of insurance is the creation of a system of on-line sale of compulsory insurance policies before 2018 via a special "e-insurance" website.

Wide-ranging changes are expected in the motor insurance sphere. For example, the Finance Ministry and the Insurers Association are planning to carry out a range of measures on motor insurance, both compulsory and voluntary. In 2015-2017 it is planned to draw up standards for calculating the damage caused to vehicles and real-estate as a result of an insurable event, and also to prepare proposals for preventing cases where individuals reject third-party insurance agreements.

In addition, the Finance Ministry plans to carry out measures to speed up the receipt by drivers of road accident reports. It is no secret that today this procedure is quite long and energy-consuming. In order to speed up the process of receiving notification, it is planned to integrate the systems of the Compulsory Insurance Bureau and the Interior Ministry which, the authorities believe, will enable all the necessary documents to be received promptly.

Apart from this, the Finance Ministry plans to gradually increase the sum assured for third-party insurance, and to this end proposals are being prepared to introduce changes to the existing legislation. According to current law, in third-party insurance the sum assured for damage to property is 5,000 manats, the sum assured for damage to health is 5,000 manats per individual and the overall limit for one insurable event is 50,000 manats.  Consequently, the maximum cover for third-party insurance could be 55,000 manats.

The Finance Ministry was also mindful of agriculture, especially bearing in mind that 2015 has been declared the Year of the Agro-Industrial Sector in Azerbaijan. It is quite possible that this year a law "On the encouragement of insurance in the agro-industrial sector by way of state support", prepared by the Finance Ministry, may be adopted. "Insurance in the agro-industrial sector is in a feeble state today. The insurance companies are in no hurry to sign agreements on this subject, because the disadvantages are too great. The Finance Ministry has prepared a draft of this law which is now being studied by experts in the cabinet," Abdullayev said.

The main objective behind adopting this law is to protect the property interests of the manufacturers of agricultural production. The points of this law have not yet been finally agreed, but it is already known that Azerbaijan plans to use the Turkish model for the system of insurance against risks in the agro-industrial sector, where the management company TARSIM - a kind of insurance pool - has been created. The insurance companies pass on all their premiums on the AIS to TARSIM and in exchange receive a commission. If there is an insurable event payments are made to the agricultural producers from TARSIM. Insurance against risks in Azerbaijan's AIS will be voluntary.

As far as the numerical aspects of the market are concerned, in the next three years the Finance Ministry is looking at an increase of per capita insurance premiums of up to 50 manats.  Last year per capita insurance premiums in Azerbaijan amounted to 41.5 manats.

Insurance will increasingly become a part of our lives every year. Of course, it will not be a rapid, but rather a cautious innovation. For many people in Azerbaijan insurance is not so much protection from possible consequences as a "forced obligation", money cast to the wind. The desire to overcome this stereotype should remain a benchmark for the insurance companies and the state regulatory body. Of course, the increase in premiums and payments is an important indicator of the market.  But if the positive impact of insurance can be conveyed to the broad sections of the population, the barriers of insurance payments removed and this process accelerated as quickly as possible, the rates of growth of the insurance market will be higher. Then the insurer and the insured can easily engage.