ALGORITHMS AGAINST RISKS

Since last year, the Compulsory Insurance Bureau (İSB) has been operating within the framework of a strategic development roadmap, with the key goal of transforming the compulsory insurance system into an InsurTech centre (insurance and technological innovation). It has been determined that the creation of a unified data centre, the strengthening of IT infrastructure, and the improvement of financial reserve management are to be identified as strategic priorities.

At the same time, upgrades to corporate governance systems, expansion of the activities of the Azerbaijan Green Card Bureau, and the establishment of an environmentally sustainable environment through the Paperless Bureau concept are also envisaged. Today, approximately 70 per cent of the bureau's activities have already been converted to digital format, and a complete transition to a paperless document model is expected by 2027.

To this end, the bureau is introducing new tools that will benefit market participants, and has substantially overhauled its website.

Digital transformation

The presentation of the ISB's report on strategic projects for 2025 provided valuable insights, particularly in terms of understanding the evolving risk regulatory logic in Azerbaijan. However, beneath the technological innovations, a deeper objective has emerged: a transition from a compensation model to risk management.

As noted by Khanym Jafarova, Head of the Business Development Department at İSB, during the annual report presentation, the strategy presented is aimed at "adapting the insurance sector to modern standards and digital transformation," and it is intended to ensure "fair protection of the interests of both insurers and policyholders."

The strategy will prioritise the use of analytics and artificial intelligence. The establishment of a unified data centre, the enhancement of IT infrastructure, and the modernisation of corporate governance serve as the foundation for the transition to a predictive regulatory model.

The practical effects of digitalisation were evident as early as 2025. Ms Jafarova reported that following the introduction of electronic data submission using Form-4, there was a 97 per cent decrease in inquiries from insurance companies to the bureau: while 548 requests were received in the first half of October, this figure dropped to 16 in November and 13 in December. This signifies more than just an acceleration of service; it is the elimination of the administrative burden itself.

Concurrently, the financial function of the system is also changing. Ms Jafarova reminded the meeting that the Central Bank of Azerbaijan has developed and approved rules and procedures for improving subrogation activities to establish effective mechanisms for compensation payments and subrogation concerning the sustainable financing fund and the guarantee fund. "Consequently, the value of the investment portfolio increased, and with a target return of ₼5.9 million set, the actual income amounted to ₼6.5 million," she added.

Consequently, in recent years, the number of compulsory insurance contracts in Azerbaijan has grown significantly—from ₼1.1–1.2 million to ₼1.4–1.5 million.

"Among the types of compulsory insurance, the most common is compulsory motor third party liability insurance, which effectively forms the foundation of the compulsory insurance market. In comparison with previous years, there has been a marked increase in the number of individuals seeking compulsory insurance. Even those who previously did not use this type of insurance are now applying," emphasised Seymur Mirzayev, Deputy Executive Director of the Compulsory Insurance Bureau.

New projects

In the near future, the bureau aims to implement new projects that will benefit all market participants.

For instance, a project is underway to create an "Incident Map" – an analytical database on risk events – in collaboration with the Central Bank. This system will be utilised not only by insurers but also by government agencies. Vusal Masimov, ISB Executive Director, has noted that the project has already been discussed multiple times with the Central Bank and will also be presented to the Ministry of Digital Development and Transport and the Ministry of Internal Affairs. "We are currently working on a project with the Central Bank to create an incident map across the entire republic. By processing the collected data, we aim to transform it into a valuable analytical resource for the insurance sector and government bodies."

Mr Masimov asserted that implementing the project could help reduce the number of incidents and minimise damage to citizens' property and health. "Our primary objective is to minimise the impact on our citizens and to reduce the frequency of risk events," he added.

It is evident that the insurance system is beginning to fulfil a preventative regulatory function, similar to macroeconomic stabilisation. The reduction in accidental losses enhances household resilience and reduces the state's fiscal risks.

The subsequent phase of transformation will involve integrating insurance into transport infrastructure. Mr Masimov also announced joint projects with the Ministry of Digital Development and Transport concerning the insurance of passengers for all types of transport. These projects envisage the creation of a unified and convenient mechanism for compulsory individual insurance for passenger transport—road, rail, and air. The objective is to complete integrations and ensure greater accessibility and efficiency in the insurance process. Mr Masimov has stated that the objective is for "all passenger transport vehicles to be able to obtain insurance easily and without problems. We anticipate the implementation of these mechanisms before the close of this year."

The Executive Director also mentioned that, in this direction, projects are being implemented in collaboration with the Ministry of Digital Development and Transport and the Central Bank to establish registers and integrate them. "At present, we have established an integration with the Ministry of Internal Affairs. When a vehicle's state registration plate is entered, all the relevant information is displayed automatically. A similar approach is planned for all types of passenger transport."

It is worth recalling that in 2025, Azerbaijan collected ₼147,000 in insurance premiums for compulsory individual passenger insurance, while payouts amounted to ₼82,000. When compared to 2024, these figures increased by 16.2 per cent and 22.8 per cent, respectively. Last year, for every ₼100 of insurance premium, ₼56.2 were returned in the form of payouts, whereas in 2023 this figure stood at ₼53.2.

Compulsory insurance in Azerbaijan is gradually moving beyond the confines of a narrow industry service and becoming an integral part of a country's risk management infrastructure. The use of data and predictive analytics helps to reduce the number of incidents, thereby decreasing the economic losses suffered by households and the state.

If the announced projects are fully implemented, the insurance sector will begin to function as a stabiliser, influencing not only the financial market but also the everyday safety of citizens. In essence, this entails the establishment of a novel model in which insurance becomes an integral component of the digital economy, transcending its traditional role as a mere compensation mechanism.