THE FLIP SIDE OF RISK

Geopolitical instability, digital transformation, the proliferation of cyber threats, and demographic processes have significantly expanded the range of challenges faced by states, businesses, and citizens. In light of these developments, it is important to recognise the evolution of insurance from a purely financial service to a pivotal component of economic resilience. It is for this reason that the development of the insurance market is increasingly regarded as a key indicator of the maturity of the national economy.

Azerbaijan is no exception to this rule. Despite the noticeable growth of the industry in recent years, the national insurance market faces qualitatively new tasks, the resolution of which requires not only the improvement of legislation but also a shift in the culture of attitudes towards insurance.

From compensation to management

The main feature of the current stage of development in the global insurance industry is the changing nature of its functional role. Insurance is no longer confined to compensating for financial losses; it has become an instrument for risk management and the assurance of sustainable development.

This was the very point emphasised by Vusal Gasimli, Executive Director of the Centre for Analysis of Economic Reforms and Communications, during his speech at the 11th Azerbaijan International Insurance Forum. He added that today, insurance is not merely a mechanism for compensating financial losses, but also a vital tool for ensuring economic resilience, social welfare, and stable development.

This assessment fully aligns with global trends. According to the Allianz Global Insurance Report 2026, the global insurance market reached a volume of 6.9 trillion euros, demonstrating a growth of 7.1%. In turn, the BlackRock Global Insurance Report 2025 indicates that around 30% of insurance companies intend to increase their investments in private markets, 87% are transitioning to a hybrid asset management model, and 73% are implementing artificial intelligence and data analytics. Furthermore, approximately 70% of companies continue to pursue ESG strategies (environmental, social, and governance aspects) and principles of sustainable investing.

In effect, the industry is undergoing a structural transformation. Insurance companies are gradually evolving from mere sellers of their products into major institutional investors, managing substantial volumes of capital and playing an increasingly prominent role in financing the economy.

"Following a period of active growth in 2022-2023, the global insurance market entered a phase of stabilisation in 2024, and in 2025-2026, it is gradually transitioning to a phase known as the 'soft market', which contributes to increased accessibility of insurance products and more flexible risk management," Mr Gasimli emphasised.

It is this trend that largely defines the agenda of insurance markets in most countries, including Azerbaijan.

The main goal is greater growth

The Azerbaijani insurance market has demonstrated highly confident development over the past few years. However, practically all forum participants agreed that the industry is entering a qualitatively new stage, where a simple increase in business volumes is no longer sufficient.

According to Gasimli, from 2022 to 2025, the volume of insurance premiums increased from ₼971 million to ₼1.5 billion, which is roughly 55%, while the volume of insurance payouts grew more than twofold, rising from ₼433 million to ₼921 million. Over the same period, the level of insurance penetration into the economy rose from 0.73% to 1.17%, and insurance premiums per capita grew from ₼95 to ₼147.

An equally important indicator has been the increase in the number of citizens utilising insurance services. If just a few years ago insurance products remained the preserve of a relatively narrow segment of the population, today at least one active policy is held by a quarter of the country's adult residents. The state programme on expanding financial inclusivity sets the task of bringing this figure to 32%.

Aliyar Mammadov, First Deputy Chairman of the Central Bank, noted that over the past two years, the assets of the insurance sector have reached ₼2.1 billion and the aggregate capital of the companies is approximately double the minimum regulatory requirements. "These indicators demonstrate that the insurance sector is developing along a healthy trajectory, and financial resilience continues to strengthen," he believes.

The Central Bank has already begun developing a new strategy for the development of the insurance market. Among the main priorities are the full implementation of a risk-based prudential supervision model, the transition from a reactive to a proactive supervision model, the expansion of the special regulatory regime, the introduction of alternative insurance products, the strengthening of consumer rights protection, and the development of digital innovations.

Main deficit

Despite the positive dynamics of key financial indicators, a thought voiced during the forum perhaps characterises the current stage of the Azerbaijani insurance market's development most accurately. The main problem for the industry is no longer a lack of capital or even a limited range of insurance products. It is far more difficult to change society's attitude towards insurance itself.

This theme was touched upon in the speeches of several forum participants, and it became a sort of leitmotif for the discussions.

Azer Amiraslanov, Chairman of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, reminded the audience that insurance is still not perceived by a significant part of the population as a necessary element of financial planning. "We must frankly admit that often representatives of business and even ordinary citizens view the costs of insurance as unnecessary expenses. At the same time, we need to realise that, in any case, these are funds directed towards risk management," he pointed out.

In essence, we are talking about a psychological barrier that is characteristic not only of Azerbaijan but also of many developing markets. An insurance policy is often perceived as an optional line item. Meanwhile, the very logic of modern risk management is built on the principle that insurance should prevent financial shocks, not merely compensate for them post-factum.

Practically the same problem was identified by Vusal Abbasov, Chairman of the Board of AzRe Reinsurance, who called the enhancement of insurance literacy the number one task for the entire market. "A significant part of the population of Azerbaijan, as well as some enterprises, perceive insurance not as a tool for risk transfer, but as a regulatory requirement," he noted.

Such an approach objectively limits the opportunities for further market development. After all, growth based predominantly on compulsory types of insurance has natural limits.

New risks = new solutions

During the forum, it was also revealed that the Central Bank, as the market regulator, has already begun reviewing the legislation on compulsory and voluntary types of insurance.

As reported by Vusal Gurbanov, Director General of the Central Bank, the system of compulsory accident insurance is currently being improved, approaches to compulsory motor insurance are being updated, and a new model for voluntary insurance is being formed.

A particularly notable development is the strategic decision to consolidate multiple popular insurance products into a unified suite of comprehensive packages. This approach aligns with global practice, where clients are increasingly purchasing comprehensive insurance coverage rather than individual policies.

Concurrently, the market is beginning to master entirely new areas, including cyber insurance, the broader use of digital services, and the development of bank assurance. These areas have the potential to become a major source of industry growth in the coming years. This is particularly relevant given that the digitalisation of the banking sector in Azerbaijan has already reached a high level, while the use of banks as a full-fledged sales channel for insurance products remains significantly below its potential.

Another factor for future development could be the expansion of international cooperation. It is no coincidence that during the forum, Ahmet Yasar, Chairman of the Union of Insurers of Türkiye, stated the possibility of forming a common insurance space for the Turkic states, including the creation of a single insurance pool, the development of cooperation in the field of reinsurance, and the preparation of a common statistical database.

If this initiative is realised, it will allow for a significant expansion of the capabilities of national insurance markets in managing large risks associated with natural disasters and climate change.