DIGITISED INSURANCE

Technological innovations have been rapidly developing in recent decades, impacting every aspect of daily life, as well as the global economy and its industries. Understanding all the benefits they bring can sometimes be challenging for the average citizen. For instance, just as we were getting accustomed to the concept of fintech (financial technologies) in the financial market, similar technologies emerged in the insurance sector. These Insurtech (insurance technologies) innovations have not only emerged but are swiftly establishing their presence in the market. The inaugural Insurtech summit took place in Baku with support from the Central Bank of Azerbaijan, the Public Association "Association of Insurers of Azerbaijan," Türkiye InsurTech Hub, and the joint organization New Generation Management Company.

The primary objective of this summit is to enhance digitalization within Azerbaijan's insurance market by leveraging the expertise of leading Turkish insurance companies in the sector.

Going Online

Insurtech refers to technologies aimed at enhancing the operational efficiency of insurance companies and the industry as a whole. These technologies include big data, artificial intelligence, wearable consumer devices, and smartphone applications, transforming traditional business practices. They often intersect and merge, creating innovative solutions. In essence, Insurtech represents digital advancements that streamline processes, saving time and costs for both companies and customers. Now, instead of visiting a physical office and waiting for an available manager, individuals can simply download a mobile app to purchase insurance policies. For a generation accustomed to online payments via bank apps or fintech platforms, these new digital products from insurers may seem commonplace. However, transitioning towards digitalization entails significant effort for all involved parties due to legal, financial, and operational complexities.

According to PricewaterhouseCoopers' study "The Insurance Industry in 2030," a key trend in the insurance market over the next five years will be customer-centricity and artificial intelligence integration. Artificial intelligence will increasingly shape companies' offerings, identify customer needs, and offer personalized products based on group analysis of customers with similar profiles. In essence, digitalization is an inevitable progression in the insurance industry, requiring regulatory bodies to swiftly adapt and guide the rapid market innovations.

Necessity for New Regulations

During his address at the Insurtech Summit, Taleh Kazimov, chairman of the Central Bank of Azerbaijan, highlighted that the CBA would facilitate insurtech initiatives through a specialized regulatory framework. Kazimov emphasized, "The CBA has established a new regulatory environment to support the digital transformation of the insurance sector and has laid down a legal foundation for fintech companies' operations by approving the 'Regulations on the Application of a Special Regulatory Regime' on January 31 this year. I am confident that through this framework, we will promote insurtech activities as an integral part of fintechs." He further noted that Türkiye remains Azerbaijan's primary partner in the insurance sector. "The CBA and insurance industry stakeholders actively collaborate with various organizations in Türkiye, including the Insurance and Private Pensions Regulation and Control Authority, Insurance Information Centre, Emergency Insurance Agency, Insurance Union of Türkiye, and Insurance Institute of Türkiye," Kazimov added.

He noted that as per the new Financial Market Development Strategy for 2024-2026, the insurance market is projected to double in the medium term. "In this new phase of economic advancement, safeguarding the financial interests of individuals and businesses prioritizes the growth of the insurance market. The CBA is dedicated to executing crucial projects aimed at enhancing the insurance sector. Notably, a framework for industry risk regulation has been devised to fortify insurers' financial stability. Significant institutional measures have been implemented to bolster policyholder protection and public trust in insurance. Moreover, substantial efforts have been directed towards enhancing insurance service infrastructure, training skilled professionals, and conducting extensive educational campaigns to enhance insurance awareness in society," stated the country's top banker.

Within the scope of the Financial Market Development Strategy, the CBA will actively promote digitalization of financial services and introduce innovative products to enhance financial accessibility in the country. "A system of open banking has already been launched in Azerbaijan, fostering the growth of fintech and insurance technologies," emphasized Kazimov.

Ensuring Cybersecurity

Similar to the banking sector, not all players in the insurance market keep pace with technological advancements. Ziya Aliyev, director general of the CBA, highlighted that 10 insurance companies in Azerbaijan lack a mobile application. "An AMB survey revealed that out of these companies, 4 have fully functional mobile applications, while 2 have partial functionality," he disclosed. Additionally, Aliyev mentioned that most insurance companies in the country have only partially developed digital transformation roadmaps.

Cybersecurity remains a pressing issue in the insurance sector. Tahir Mirkishili, Chairman of the Committee on Economic Policy, Industry, and Entrepreneurship of the Milli Majlis, emphasized the paramount importance of security in these matters. While acknowledging Azerbaijan's progress in cybersecurity, Mirkishili stressed the need to extend these efforts beyond the banking sector.

Mirkishili expressed concerns over the underutilization of insurance as a mechanism for protecting against unforeseen events in Azerbaijan. He highlighted that currently, state budget shoulders the majority of costs arising from man-made incidents, pointing out that state assets remain largely uninsured. Mirkishili emphasized that relying on state funds to cover losses signifies a deviation from budget plans and underlines the pivotal role of insurance in ensuring production continuity. He further underscored insurance as a strategic sector with significant influence on macroeconomic processes, warning that production disruptions can lead to supply chain interruptions and inflation.

Pursuing Overall Growth

Despite existing gaps, the insurance sector remains a prominent segment of the country's financial market, firmly holding the second most significant position after the banking sector. Kazimov revealed that over the past three years, Azerbaijan's insurance sector assets have surged by 34.2%. Notably, the balance sheet capital of the insurance sector has seen a 7.7% increase. Moreover, insurance premiums in the country have soared by 67.8% to ₼1.223 billion over the same period, with insurance payouts rising by 26.3% to ₼587 million. The sector's contribution to GDP has surpassed 1%, prompting considerations for elevating this figure to 2% based on assessments and international benchmarks," he remarked.

Tahir Mirkishili emphasizes that insurance services typically constitute 8-12% of the gross domestic product in developed nations. He asserts that GDP growth and rising incomes correlate with an increased demand for insurance products.

The Financial Sector Development Strategy outlines projections indicating that by 2027, premiums from voluntary non-life insurance in Türkiye are anticipated to reach ₼630 million, nearly doubling from the 2023 figure of ₼350 million. Additionally, life insurance premiums (excluding accumulative life insurance) are forecasted to potentially reach ₼280 million by 2027, compared to ₼124 million in 2023, indicating a growth potential of 2.3 times. The Central Bank predicts that by 2027, the insurance market penetration will rise to 2.15% of Türkiye's non-oil GDP, up from 1.85% recorded at the end of 2023.

Furthermore, the Central Bank anticipates the assets of the insurance sector to double within three years. Therefore, if insurers' current assets stand at ₼1.9 billion, by 2027 this figure could exceed ₼3.7 billion. Recent data suggests that achieving these targets is feasible. Total insurer premiums in Türkiye during January-February 2024 amounted to ₼239.7 million, representing an 8.4% increase from the same period in 2023. During the same timeframe, ₼97.4 million was disbursed for insurance claims reimbursements, marking a substantial 38.2% rise from January-February 2023.

The introduction of new digital products and technological innovations is poised to enhance accessibility to insurance within the financial sector, creating fresh avenues for company growth and bolstering their contribution to the nation's GDP formation.