ALLOWING FOR ALL RISKS

Following the devaluation in February, certain adjustments had to be made to day-to-day operations in virtually all organizations in the financial sector in order to keep their business attractive. The devaluation "wind of change" also affected the country's developing insurance market. As Finance Minister Samir Sarifov said at the 6th Azerbaijani International Insurance Forum (AIIF-2015), in order to mitigate the negative effect of the February events a number of measures have already been taken and, according to international experts, "the country's insurance market is stable and well funded".

Not quantity, but quality

According to the assurances of the insurance companies themselves, there is a demand for insurance services in Azerbaijan today, which is the main boost for the development of the market. However, the desire of many companies to decide at this difficult time to raise their tariffs for popular types of insurance, but also reduce the quality of their services, may be logical, but inadvisable from the point of view of its impact on business.

This trend has also been noted by the market regulator, and in connection with this minister Sarifov has urged local insurance companies not to strive for maximum profits. "I urge insurance companies to assess the risks more precisely, but at the same time have more regard for the quality of their services. Improvement in the quality of services in this sphere is one of the priority areas of development of the country's insurance sector," Sarifov said. He pointed out that as a result of the measures taken, the number of citizens' complaints about the insurance companies has reduced of late. However, insurance agents are at times damaging the company's image and so, the minister feels, their activities need to be monitored more closely. In this connection, stricter rules and regulations for monitoring the activities of brokers on the insurance market will be set up in Azerbaijan. "The Finance Ministry has sent a request to the State Insurance Supervision Service to draw up a plan of action to optimize the situation in the sphere of protection of consumers' rights. We have approved a number of steps to improve the regulation of the activities of insurance brokers," the minister said.

The head of the State Insurance Supervision Service Namiq Xalilov also said that despite a proposal from the insurance companies to increase their tariffs for compulsory types of insurance following the devaluation of the manat in February, the state service sees no grounds for this because there are no problems with the profit earnings of these types of insurance. He believes that the level of revenue could be raised by optimizing the work of the insurance companies, i.e. refining work principles, making more active use of information technology, reducing costs in general and in particular on the commission of insurance brokers. "We have also tightened control in connection with the possibility of the illegal reduction by the insurance companies of payouts on insurable events due to devaluation," Xalilov stressed.

Insurance radar

A draft of amendments to existing legislation in the battle against fraud by insurance agents has also been drawn up. "The changes will help to sell third-party car insurance policies through the Internet, cash machines and payment kiosks," Xalilov said. On top of that this will cost consumers 10 per cent less than purchase by ordinary means which, the head of the state service claims, boosts the development of online sales at the first stage. "We want to equate the obtaining of a third-party car insurance policy with the purchase of an airline ticket. In other words, the consumer himself can choose whether to buy online or at the location, and if he chooses the former then there will be no extra commission to pay. And the saved costs through the 'live' selling of policies can be integrated into the coffers of the company's revenue. This sales method has been being successfully applied in Kazakhstan since 2007," Xalilov said.

On the other hand, this innovation is encouraging insurance agents to look for a means of selling less popular types of insurance policies.  After all, it is no secret that it is not that difficult to sell third-party car insurance policies - drivers have to purchase them; the only difference is from whom. So, it is better for insurance agents to work more seriously on sales in the sphere of voluntary types of insurance, which will contribute in a realistic way to the development of the market in general.

Incidentally, there are a couple more innovations we can expect in the sphere of car insurance. According to the executive manager of the Compulsory Insurance Office (ISB), Elxan Quliyev, in the next two years it is planned to start using Audatex software, to introduce a single system of damage assessment for road traffic accidents, to integrate the ISB information system into the State Motor Vehicle Register, to introduce the electronic signature or mobile digital signature "ASAN Imza Service" into the office's system, to introduce changes to legislation in connection with the regulation of third-party car insurance, to increase the sum assured, and so on. Besides this, he said, within a month it is also planned to introduce software for smartphones. 

But the most interesting innovation for drivers will be plans to use radar detectors to check if drivers have compulsory insurance. It has emerged that there is no need to install special radar cameras for this purpose. The technical devices of the State Road Traffic Police which already exist on our roads, whereby the registration numbers and other vehicle information are transmitted to the ISB's information base and evidence of an insurance policy is revealed, will continue to be used. Xalilov promised that the system would start operating in about 2-3 months' time.

Agricultural insurance according to the law

Another promising, but slowly developing form of insurance, which was the focus of particular attention at the forum, was insurance of the agro-industrial sector. As minister Sarifov revealed, since this form of insurance involves a higher level of risk, the government should play a leading role in its development. Today, the Finance Ministry, along with the Agricultural Ministry, is drawing up a law "On state support for agricultural insurance", which is due to be voted on in the government and will be tabled for debate in parliament.

"We have a vested interest in preparing a reliable strategy for the development of AIS insurance in the country. This will contribute to the development of the agricultural sector in general and support farmers. The state will lead the way in this activity," Sarifov said.

However, Xalilov said, adopting the law will not solve the current problems in this sphere. For example, we need to assess by regions all the existing risks in the agricultural sector and based on them draw up insurance tariffs. But this will mean training highly-qualified specialists and experts to assess the damage caused, and so on. In this connection, talks are already underway with the International Finance Corporation (an institution of the World Bank) on providing technical assistance to Azerbaijan.

Every year, Azerbaijan's state budget provides a sum to cover 50 per cent of the cost of the insurance agreement with the farmers, but unfortunately, it is practically never used in its entirety. In the opinion of experts who have studied this segment, one of the reasons for the lack of development of agricultural insurance in Azerbaijan is that farmers are unaware of the opportunities at their disposal.

A representative of Britain's insurance sector, Peter Talbolt, believes that agricultural insurance needs state support for its development. "You have to decide which tariffs the farmers can afford to pay and which would allow companies to cover the costs. It is very important to create an information base on natural disasters which a specific region is prone to.  The state should also support the creation of a reinsurance segment and insurance pools," the British expert said.

Incidentally, as previously stated, the state is prepared to support the development not only of agricultural insurance, but also other forms of this segment of the financial market and also encourage international organizations. The most important thing is that the players in the market themselves show greater activity in striving for the qualitative development of business.

FYI

There are 26 insurance companies and one reinsurance company operating in Azerbaijan. Some 950 insurance agents, of whom 60 are corporate bodies and the rest private individuals, are registered in the country.