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Azerbaijan 2016 | FINANCE | REVIEW: INSURANCE

When it comes to the insurance sector, the authorities certainly have a finger on the pulse, with solid regulation providing growth prospects across the board.

The insurance sector, made up of 28 insurers and one reinsurer, posted growth rates above GDP over 2015. Now with mandatory medical insurance on schedule for 2017, a brand new growth engine for this already invigorated industry is gassing up.

Over the first 11 months of 2015, premiums came in at AZN403 million ($253 million), with 26.1%, or AZN105.3 million, in the life insurance sub sector. Overall payments came in at AZN157 million ($100 million). Other segments that made up significant shares of the total included fire, real estate (compulsive), automobile, and health insurance.

A number of developments defined the year, with automobile owners laying claim to the largest cause célèbre. Azerbaijan now works with Audatex to implement a unified system of damage assessment, with industry insiders already claiming that the number of complaints from customers has fallen. On top of that, Azerbaijan also joined the Green Card system of auto insurance, meaning that if an Azerbaijani citizen driving in one of 48 member countries has an accident, he or she will be able to recoup losses locally.

Elsewhere in the exciting realm of non-life insurance, insurers now have a clearer idea of when to expect movement on the introduction of compulsory medical insurance. Currently available only on a voluntary basis and accounting for just 15.7%, or AZN64.3 million ($41 million) of all premiums in the first 11 months of 2015, the government has announced that medical insurance will become compulsory by 2017, when a pilot project will be launched.

Over 2016, the State Agency for Compulsory Health Insurance is expected to work on the details, according to AzerNews, meaning the development of the relevant legislation and the preparation of participatory medical institutions. TBY recently had the chance to sit down with Alexandr Kananadze, Chairman of the Board of Directors of AzSigorta, which boasts the largest branch network in Azerbaijan and is the only insurer to have received a Fitch rating. Discussing the prospect of compulsory medical insurance, Kananadze said, “We are expecting a law on obligatory healthcare insurance to be implemented because, during an economic downturn, people might not have enough money for treatment." He was also keen to highlight the importance of insurance for domestic or international investment, stating that, “companies investing their money in Azerbaijan's economy need to have guarantees from the government that they will be supported." That said, Kananadze also hypothesized that, “life insurance is the future of the sector. It can be a tool as effective as bank deposits and savings. Perhaps there will be new laws in this area. It could be another way to support the population."

And on the hot topic of life insurance, most indicators suggest a clear upward trend. The sector grew almost 15% over the last year and represents a quarter of all premiums. Diving into the details, and the Azerbaijan Insurers Association (AIA) reported that 59.2% of the total life insurance premiums collected, or AZN62.3 million worth, came from universal life insurance. After that, 27.1% or AZN28.6 million came from insurance against accidents at work, with 12.3%, or AZN12.9 million from insurance against death. A much smaller 1% of the pie, or AZN1.1 million, was accounted for by disability insurance and just 0.3%, or AZN390,000, by critical illness insurance. Life insurance payments came in at AZN42.7 million, representing 27.1% of total payments for the 11 months, up 59.2% over the same period of 2014. Universal life insurance also dominated payments, representing over 90%, or AZN38.7 million, with 4.7%, or AZN2 million, made in the insurance against accidents at work field, AZN2 million in the insurance against death field, and AZN13.7 million in the critical illness insurance field. According to report.az, AZN40.6 was paid out for every AZN100 collected through premiums between January and November 2014, up from AZN19.3 in 2014.

One issue moving forward is the lack of education on the benefits of insurance, and in no sector is this truer than agriculture. At the end of 2015, Head of the State Insurance Supervision Service under the Azerbaijani Finance Ministry Namig Khxalilov was quoted as saying that a lack of infrastructure was holding back the country's insurers from providing sufficient agricultural insurance. And with 40% of the Azerbaijani population living in rural areas that are dependent on the sector as a main source of income, the need for further development is clear.

Khalilov also suggested that the training of experts in this field is crucial, suggesting that the authorities are seeking to apply foreign expertise to bring things up to standard in terms of risk assessment. In those regards, AzerNews has reported that the country is indeed preparing the relevant legislation for the mass use of agricultural insurance in Azerbaijan. The current setup has the government subsidizing agricultural insurance at a rate of 50% based on the Law on Assistance and Agricultural Development in Azerbaijan. AzerNews sheds more light on the current framework, highlighting the fact that the average tariff for agricultural insurance stands at around $1,427 a year, or 5% per hectare, with the average profit per hectare standing at $23,778 per year. The system is plagued with inefficiencies, however, with a new electronic database from the Ministry of Agriculture currently under development to solve the issue. The Ministry's “e-Agriculture" system was assigned $4.6 million for 2015, and will allow insurers access to a database to better judge and predict risks. And when all is said and done, it is hoped that insurers will better see the opportunities in agriculture and the farmers, in turn, will grow their interest in the resulting products on offer.

Moving forward, Research and Markets is predicting a compound annual growth rate (CAGR) of 28.9% from 2014-19, supported by growth in compulsory lines. The upward trend in the sector will also keep it attractive for foreign firms, the most prominent currently present being AXA, which exploded onto the scene in 2010 and laid claim to the “Leader of the Insurance Industry" award in 2014. The sector is regulated by the State Insurance Supervision Service (SISS) under the Ministry of Finance, which permits up to 30% FDI in the industry.

All in all, the Azerbaijani population is embracing the culture of insurance with a fervor normally associated with developed nations. Insurers up and down the land also have plenty to smile about, with solid regultion and the coming of new mandatory lines offering up tantalizing growth prospects for years to come.