NO JOY WITHOUT ALLOY

Recent earthquakes in Ismayilli, Aghsu and Shamakhi and the fire in the Diglas shopping mall revealed, among other things, serious problems and gaps in the insurance sector of Azerbaijan. As a result, the government had to take on the financial burden of compensations, which in Western countries is usually paid by insurance companies. According to statistical data, Azerbaijan's insurance market has increased significantly from ₼450 to ₼728 million (65%), or from 0.8% to 1.6% as a share of the non-oil GDP.

"In general, entrepreneurs are encouraged to insure their property. In this case, they can be completely sure that in case of an accident their property will not be lost," President Ilham Aliyev said recently.

Why not only businessmen, but in general, the majority of Azerbaijanis are involved in the insurance sector at an extremely low level? First, it is a matter of trust. To overcome the problems in this area, we need a very serious educational work to promote both mandatory and voluntary types of insurance.

In general, there are up to 50 types of voluntary and compulsory insurance on the market, 35 of which are voluntary. Mandatory types of insurance have two objectives. Firstly, these are socially important types of insurance: their goal is not to make money, but to provide the population with a certain financial stability in case of accidents. Today, compulsory insurance in Azerbaijan fully fulfils this function. The second task is to arouse public interest in voluntary types of insurance. To do this, insurance companies must inform, promote, provide exactly the product that customers need.

If we consider the fire in Diglas shopping mall as an example, then at least two categories of insured events - damage to real estate and movable property – are obvious.

As for the first category, real estate insurance in Azerbaijan, which covers the property of both individuals and legal entities, is mandatory. Damage compensation for property insurance of individuals in Baku is ₼25,000 with an annual insurance premium of ₼50, in Sumgayit, Ganja and Nakhchivan – ₼20,000 (₼40 premium), and in other cities and districts –₼15,000 (₼30 premium). Moreover, if in many countries real estate insurance is mandatory and is paid only in the event of natural disasters, coverage in Azerbaijan is wider, and the damage is compensated for in the event of a fire and other emergencies. This shows the social side of the issue, to which the government of Azerbaijan pays great attention.

As for real estate owned by legal entities, in particular, shopping, business centres, etc., the situation is different. Besides the main owner, tenants should also be involved in solving insurance problems. This is where the problem occurs - both parties impose obligations on this issue on each other, and it turns out that the property is not insured at all.

As a solution to the problem, the executive director of the Mandatory Insurance Bureau (MIB), Rashad Ahmadov, offers two options: the tenant-owner of real estate can insure the property in entirety, then the entrepreneurs will be charged premiums, or the rental agreement may specify a clause that urges entrepreneurs to insure the leased property. Both of these options are legal.

Let us return to the Diglas shopping mall. The main social aspect of the emergency concerned the damage caused to the goods of tenants. This is, of course, considered movable property, an asset of these entrepreneurs. What can be done in this case? Movable property is subject to voluntary insurance, which entrepreneurs generally are extremely reluctant to undertake. It is believed that this is quite an expensive pleasure, and unnecessary additional expense. Plus it is not known whether it will justify itself or not, i.e. whether insurance companies will compensate for the damage. Moreover, the majority of entrepreneurs are confident that the amount of voluntary insurance premiums is much larger than that of compulsory types. It is here that the level, more precisely, the very low level of awareness of the population and entrepreneurs about insurance conditions, is revealed.

For example, for voluntary insurance of ₼100,000-worth property, annual insurance fee is 0.1-0.3% (₼200-250 annually) of the insured amount, and for goods worth ₼20,000 the premium is ₼100-150. By paying only ₼25-30 every month, one can be rest assured that in case of emergency the damage will be fully compensated. As with the rest of the world, insurance fees can also be made in instalments. The amount of fees differs depending on the specifics of the product - for building materials it is lower than, for example, for flammable cotton.

In any case, the fees are very low compared to almost full compensation for loss. As for the degree of trust in insurance companies, then, as Rashad Ahmadov emphasized, today the situation in the insurance market is significantly different from what it was 15-20 years ago in terms of payment control. If previously it took a long time to get an answer to a client’s question to an insurance company, now this can be done as soon as possible through the online information system. In addition, there is an immediate response when applying in connection with insurance claims.

According to the director of the Financial Markets Supervision Chamber Firdovsi Aghashirinov, the law on mandatory insurance became effective in 2011 and insurance companies have done enough educational work, but citizens are not in a hurry to insure themselves from future risks, which means their indifference to own property. "Azerbaijan currently has 22 insurance companies (including 4 life insurance companies) and one reinsurance company, about a thousand insurance intermediaries, through which the population is informed about insurance products. This suggests that the infrastructure is there, but the main thing is to use it correctly and in a timely manner," says F. Aghashirinov.

But then why is the situation with car insurance different? According to the latest data, almost 95% of automobiles in Azerbaijan are insured. At the same time, insurance payments for mandatory car insurance reached approximately ₼60 million for ₼100 million insurance coverage. The only answer is that there is tight control by the State Traffic Police. If 50% of car owners realise the importance of insurance, then the rest would gladly risk their own and others' cars if it were not for the fines.

Experts believe that the time has come to tighten control over the execution of other types of mandatory insurance. But this is one side of the problem. Why insurance companies do not try to make insurance an attractive financial tool instead of expanding the list of mandatory types? Indeed, in essence, potential clients should be interested in signing a contract in exchange for quality products of insurance companies. That is, instead of waiting for help from the state, insurance companies should think about creating a competitive environment and gaining people's trust, which can be a factor in shaping a common insurance culture.

As promised by the supervisory authorities, based on the remarks of the president, the implementation of a joint project of the Chamber of Insurance Market Supervision and insurance companies has already begun. In addition, an action plan has been developed for the development of the insurance market in line with the strategic roadmap for the development of financial services. As well, a number of projects will soon be developed and implemented immediately. One of them is the development of a mechanism for agricultural insurance, introduction of microinsurance products, a mechanism for joint insurance, etc. the interested parties are also working on direct regulation of damage with mandatory insurance of civil liability of car owners, along with the development of a single register of policyholders.

Representatives of supervisory authorities say that over the past ten years a considerable volume of works has been done in Azerbaijan to improve the insurance sector. But it takes time for insurance companies to start introducing cross-selling, offering customers mandatory insurance products of voluntary insurance, as in developed countries.

That is the case when just a single case, a fire in the shopping mall and its negative effects can be a turning point for the whole insurance market in Azerbaijan. Therefore, we hope that serious changes in the sector will take place soon.