NEW RULES

Azerbaijan's insurance market is currently experiencing a period of significant transformation, impacting both compulsory and voluntary insurance segments. The Central Bank of Azerbaijan (CBA) plays a pivotal role in these processes, implementing reforms with the aim of enhancing the sector's resilience, fair tariff setting, and public trust. One of the most significant developments has been the revision of the calculation mechanism for insurance premiums in compulsory motor liability insurance.

Insurance pricing

The new logic for calculating insurance premiums marks a shift from the previous model to a more flexible and personalised system. The traditional bonus-malus system has been replaced by the introduction of an insurance history coefficient ranging from 0.6 to 3, which directly depends on the driver's behaviour, insurance experience, and the number of accident claims.

Consequently, the policy cost is increasingly linked to individual risk levels, making the system fairer and encouraging responsible driving.

The new model is based on two key factors: the duration of insurance coverage and the occurrence of accidents caused by the driver. A prolonged period of uninterrupted driving results in a steady decline of the coefficient, with each claim having the effect of increasing it. This approach is designed to encourage adherence to traffic regulations.

An important element of the reform is the differentiation between approaches for individuals and legal entities. For private owners, the highest coefficient among all vehicle owners applies, thus preventing any artificial lowering of insurance costs. The calculation takes into account all persons who have owned the vehicle in the month preceding the contract signing, including those whose ownership ended during this period (except in cases of alienation).

A different logic applies to legal entities: if the vehicle is not used as a taxi, the coefficient is fixed at 1. However, in the event of an accident, responsibility shifts to the specific driver, increasing personalisation of risk even within corporations.

For first-time contracts, or when no previous claims have been recorded against an individual, the coefficient is set at 1. A first-time contract means that there are no records in the Compulsory Insurance Bureau's information system (ISB) of prior contracts for that person in the relevant category.

The system rewards policyholders who drive safely, with a 5% discount applied after 275 days without a claim and no more than one coefficient change. Conversely, each claim made by an individual increases the coefficient by 30%, irrespective of the current contract status. In the absence of an insurance contract, the coefficient reverts to 1, with the subsequent application of the surcharge.

The taxi segment is considered to be a high-risk zone. Due to the high volume of vehicle usage for passenger transport, special terms apply with regard to accident rates. Individuals and legal entities using vehicles as taxis will be subject to an additional 30% surcharge on each claim.

It is important to note that continuity with the previous system has been maintained. For individuals and taxi operators, the new insurance history coefficient corresponds to the earlier bonus-malus coefficient. This approach ensures that market participants can adapt smoothly to new regulations.

Values of 0.45, 0.50, and 0.55 are automatically recognised as new insurance history coefficients; however, upon a first claim by such individuals, these increase to 0.60. For other legal entities, the coefficient is set at the base level of 1.

Overall, the reform establishes a more transparent and targeted system for assessing insurance risks, where policy cost directly reflects the driver's insurance behaviour. The new regulations will be implemented in two months' time, at the end of June.

Incident map

The logical progression of automotive insurance reforms is the advancement of digital infrastructure and analytical tools. In this context, ISB proactively implements new solutions designed to improve system efficiency.

One of the key projects is the "Incident Map", a digital platform that brings together data on road traffic accidents nationwide. The project is being carried out in cooperation with government bodies and aims to transform accumulated data into a practical tool for risk assessment. ISB's Executive Director, Vusal Masiyev, has announced its development.

He confirmed that this initiative has been the subject of repeated discussions with the Central Bank. The future plan is to involve the Ministry of Digital Development and Transport, as well as the Ministry of Internal Affairs (MIA).

Masiyev emphasised that the project's main goal is to transform collected data into a practical instrument for insurers and government agencies. It is expected to facilitate more precise risk assessments and tariff calculations, while also contributing to a reduction in road accidents through a more in-depth analysis of their causes and a reduction in property damage and citizen health concerns over time.

Concurrently, ISB is developing compulsory individual passenger accident insurance systems. We are pleased to inform you that we are currently implementing key projects in collaboration with the Ministry of Digital Development and Transport. These projects encompass both road and rail transport, demonstrating our commitment to enhancing infrastructure and efficiency across various transportation sectors.

This involves creating a unified, convenient insurance mechanism for all passenger transport modes, including road, rail, and air. The overarching objective is to facilitate insurance issuance through digital integration, ensuring simplicity and efficiency.

As part of this initiative, specialised registries are being established and integrated with government systems. At present, interaction with the MIA is as follows: when the state registration number of a vehicle is entered, the necessary data are automatically retrieved. This approach will eventually be extended to all passenger transport.

Statistics confirm the growing importance of this segment. In 2025, the total amount of compulsory individual passenger accident insurance premiums collected was ₼147 thousand, with insurance payouts amounting to ₼82,000. When compared to the previous year, these figures increased by 16.2% and 22.8%, respectively.

Concurrently, payout ratios have increased: in 2023, there were ₼53.2 payouts per ₼100 premiums; in 2024 this rose to ₼56.2 per ₼100 premiums. This is an indication of enhanced insurance protection effectiveness and authentic passenger demand.

In general, ongoing reforms reflect a transition towards a more modern, technological, and risk-oriented insurance market model where analytics, digitalisation, and citizen protection play key roles.

It should also be noted that significant changes are occurring in the field of digitalisation. ISB is committed to the implementation of electronic services, encompassing the retrieval of vehicle data automatically and the management of digital documents. A significant proportion of operations are now conducted electronically, reducing administrative burdens and accelerating market participant interactions.

The development of new analytical tools, such as the incident map, creates additional opportunities for data analysis and more precise risk assessment. This could potentially result in the development of a fully data-driven insurance model, where decisions are informed by substantial amounts of data.