A GROWTH IN TIME OF CRISIS

Oddly enough, insurance became one of the profitable sectors of the Azerbaijani economy amid the pandemic. Is this a miracle or the result of efforts of insurance companies? Admittedly, in 2019, market participants did their best in terms of propaganda, blew off the dust and updated long-forgotten but very effective products.

Nevertheless, the Central Bank of Azerbaijan (CBA) is still not happy with the development of the insurance sector, promising to pay special attention to the sector this year.

Growth dynamics

According to CBA chairman Elman Rustamov, the insurance and capital markets in Azerbaijan remain weak. “For us, as a regulator, these sectors are new. We make our first steps in this area. The aim of our programs is primarily to ensure the development of legislation in these areas,” E. Rustamov said at a recent press conference.

The main problems are still the same and have been migrating from year to year, without finding an effective solution: very small market volumes, large dependence on the banking sector.

“First, we have a very poorly developed legislation concerning this sector. We use modern technologies insufficiently. In addition, human resources are underdeveloped. We believe these markets should take their rightful place in the financial sector. The insurance market should cover all risks of both the population and business. The capital market should participate in the financing and capitalization of not only the banking sector, but the entire economy,” Mr. Rustamov said.

CBA’s unpleasant remarks, albeit justified on a global scale, differ from the last year's statistical results, which show that the market deserves some praise. Thus, the insurance companies indicate positive dynamics in the market largely due to the transfer of regulatory functions to CBA.

In 2020, total premiums of insurance companies in Azerbaijan reached ₼728.6 million, which is 7% more than in 2019. ₼465.2 million of this amount were paid as compensation for insured events (+54.3%). Insurance companies describe these statistics as ‘encouraging’. They note that the conservative approach to the sector is gradually changing among the population. In principle, statistical data also proves this conclusion. Premiums of insurers on voluntary types of insurance products amounted to ₼502.8 million (+10.1%), or 69% of all premiums on the market, while compulsory insurance products increased by only 0.6%. The same applies to payments with voluntary insurance payments reaching 81.4% of the total market share, showing an increase of 71.4%.

Prompt response

The above indicators are more than satisfactory given the lockdown restrictions and general stagnation in the economy and the financial sector. But it seems that their impact on the insurance sector was not catastrophic, as there were also positive elements.

According to the head of the Azerbaijan Insurers Association (ASA) Azer Aliyev, the main negative implication of the lockdown for insurance companies was the weakening of the purchasing power of some types of insurance. “These products have lost their market attractiveness. Take, for example, travel insurance. This product has lost its functionality with the closing of borders after the introduction of lockdown. At the same time, other types of insurance products have also experienced a certain degree of stagnation since the beginning of the lockdown," Aliyev said.

However, it seems that the insurance companies could adequately response to these negative factors. Most importantly, thanks to information technology, insurance operations are carried out without any physical contact. In fact, the lockdown forced the insurance companies in a very short time to establish remote contact with customers and refine the process of providing services. “It was a positive experience that we gained during the pandemic. I think 2021 will be a new stage of development for online insurance services,” Mr. Aliyev said.

A brief analysis of statistical details of the insurance market also reflect the influence of the pandemic. So, in 2020, most of premiums and payments on the market were paid on subtypes of life insurance, health insurance and CMTPL. It is clear why they were especially relevant last year. In general, premiums for these types of insurance products provided 54.9% of the income of insurance companies last year. At the same time, the growth of life insurance premiums reached almost 14%, and payments 2.3 times.

Moreover, a number of companies took advantage of the situation and introduced a new product –  insurance against COVID-19 on rather favourable terms. Examples include insurance products such as COVID Yardim (COVID Help), Anticoronavirus and COVID-19. As insurers point out, the products turned out to be quite in demand. They found customers quickly, as treatment at home sometimes is expensive, while insurance helps to compensate part of the costs.

In this regard, we can safely say that insurance turned out to be one of the few sectors of the economy that promptly responded to new global challenges.

Plus real estate

Another plus for the insurance companies last year was the compulsory real estate insurance, which was very popular in 2019. This product has shown a significant market activity. Analysis of the current situation in real numbers show a positive trend in this area. Thus, the number of new contracts concluded by insurance companies for compulsory real estate insurance in 11 months of 2020 increased almost 3 times compared to the same period last year.

“This is because we continued to actively promote the product. In particular, the members of Expert Group initiated by ASA are still actively engaged in propaganda and education about this product,” A. Aliyev said.

In a word, the hype over this product caused in 2019 due to rumours on alleged penalties for property owners who did not have insurance policies, despite the denials, had an effect. And the population, who until that time had only insured their apartments because they had to and only when they wanted to sell or donate their real estate, voluntarily turned to insurance companies. What does this mean? It means that, unfortunately, in some areas the most effective way to attract the attention of the population is the carrot and stick method. But the fact that people have become more interested in the benefits of real estate insurance and voluntarily continue to ensure their property is a huge plus for the stable development of the insurance sector. It is important that insurance companies take advantage of this opportunity in their future strategy.

Forecasts

Insurance sector of Azerbaijan has definitely moved off the ground, and with proper planning of development, the positive trend achieved last year can be turned into a stable result. The regulator also promised to focus on this direction this year. According to Director General of CBA, Ziya Aliyev, they have already launched a program to develop the insurance market using technical assistance from the World Bank (WB). “As part of preparatory works, we have taken into account the research of all leading international institutions, as well as the opinions of local experts. Currently, we are trying to attract various international experts to the program. In particular, we have already secured the technical assistance of the World Bank. Their experts have already started to work. Perhaps we will attract more experts in this area,” Z. Aliyev said.

Will the market cleanup continue? At the end of 2020, 20 insurance companies had a license to operate in Azerbaijan, which, according to experts, is quite a lot for the country. By the way, the regulator is rather cautious about this issue, with only one company – Standard Insurance – closed last year for quite understandable reasons: earlier the associated bank of the insurance company became bankrupt. This year CBA revoked the licenses of insurance companies Amrah Sigorta and AHA Mbask. This was the decision of shareholders of these companies.

According to experts, although the situation on various markets is changing unexpectedly, making it less possible to make forecasts, there is still confidence that the country's insurance market will retain the growth rates of the last year. As in other segments of the economy, the key drive of development will be the revival of socio-economic activity in the liberated territories: “We hope that the local insurance market will be able to maintain the current growth trend due to the liberation of Garabagh from the occupation and the gradual restoration of confidence in insurance among citizens", A. Aliyev said.

In addition, experts hope that new types of insurance products will get popular on the market, including in particular agricultural insurance, as well as the complete recovery of travel insurance and other products as soon as the lockdown is over.

Either way, insurance companies are no strangers to risks: it is their direct function to anticipate them and protect themselves from them. As they say, the risks are inevitable, but their consequences are nonetheless not irreversible. Under current conditions, the most successful mechanism for recovering from the negative consequences of risks is insurance. Hence, this business will generate income in the future as well.

FIRST-HAND NEWS

“At a certain level of per capita income, the demand for banking services in the economy is higher than for insurance services. More specifically, in countries with a per capita income of $5,000, the demand for banking products is greater than for insurance products. Over the past 10-15 years, our population has become significantly more familiar with insurance products. By CMTPL insurance of vehicles, we have already reached 100% penetration. In other words, every car is insured. However, we can develop other types of insurance, and we must introduce them in order to at least double the level of market penetration.

At present, CBA, Association of Insurance Companies and Bureau of Mandatory Insurance have jointly launched an educational project. We believe that this project will cover large-scale events, significantly increase the awareness of the population and businesses about insurance and change their attitude towards insurance in a positive direction.” (Report).

Ziyad Aliyev, Director General of the Central Bank of Azerbaijan