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IFC to assist in working out Azerbaijani agricultural insurance model

Business Materials 1 August 2013 19:52 (UTC +04:00)

Azerbaijan, Baku, August 1 / Trend I. Khalilova /

The Azerbaijani Ministry of Finance has reached a preliminary agreement with the International Finance Corporation (IFC) and the State Secretariat for Economic Affairs (Seco) on the implementation of a project of introducing a foreign model of developing agricultural insurance by bringing it into line with the requirements of the Azerbaijani market, chairman of Azerbaijan Insurers Association Orhan Bayramov told Trend today.

"It is very important for Azerbaijan to examine the international experience and there is such a need," he said. "A positive moment is that the state bears no expenses for the project implementation. Seco will finance the project of introducing a foreign model of agricultural insurance development."

The association must conduct the organizational work on coordination with the market and working out a national model.

According to him, foreign models, especially the Turkish model, envisaging the creation of a pool, as well as Ukrainian are being examined.

The Russian model, where part of the contributions is made by the state, and some - by entrepreneurs is being considered.

"Specifically, we do not consider one model," he added. "In general, in practice, a model of one country is not used. Turkish and Ukrainian models are close to us. But the decision will be made after the proposed IFC models are examined."

He believes that it is time for the introduction of agricultural insurance in the country today.

"The president paid special attention to the development of this sector at the meetings following the socio-economic development in the first and second quarters of 2013 as one of the big potential is in the agricultural sector within the development of the non-oil sector of the economy. Anyway, insurance can not be implemented independently. First, the system must be established. A model of insurance can be created on its basis. As the country's agricultural sector is not so big, it would be wrong to have great expectations at the initial stage."

However, it is possible to ensure the intensive growth with the state support, taking into account the priority of this direction. Bayramov said that a year and a year and a half will be required to start agricultural insurance to prepare a working mechanism.

The Azerbaijan Insurers Association also plans to hold a meeting with the Azerbaijan Microfinance Association (AMFA) within the preparation of an agricultural insurance mechanism. AMFA offered to create a fund for agricultural credit insurance on the Turkish model (the relevant fund TARSIM operates in Turkey).

"This model envisages the creation of public fund, where insurance companies act as agents," he stressed. "This system works as follows: insurers transfer fees to the fund and get their 15-20 percent. In case of an insured event, the country pays the compensation. Such a model may be acceptable for Azerbaijan, but it needs to be discussed, as there may be other more interesting variants. We are ready to receive AMFA proposals for the evaluation."

Chairman of the board of Basak İnam Sıgorta insurance company Orhan Hasanov said that agricultural insurance is Basak İnam Sıgorta's priority activity.

"The potential of the Azerbaijani agricultural insurance market is estimated at 100 million manat," Hasanov added.

"There are great insurance prospects in agriculture," Hasanov added. "There are up to 100 million manat of insurance premiums. This is calculated on the basis of data from the Ministry of Agriculture."

Bayramov added that if the country's insurance market has the potential for an annual growth of 10-12 percent, the market could grow by at least 20-30 percent, as a new field of activity will appear after the new law on "Insurance of agriculture" is adopted.

At present, Azerbaijan has the necessary legislation to stimulate insurance in the field of agriculture.

"A certain amount of funds is allocated from the state budget for the insurance of risks in the agricultural sector every year, but local farmers show little interest in this field," he said.

"Therefore, only 10 percent of the total funds allocated from the state budget are used."
According to the amendments to the Law on "Aid and agricultural development in Azerbaijan" approved in summer 2007, the share of public funding in agricultural insurance premium was increased from 25 percent to 50 percent. The list of agricultural crops insured through the state budget included wheat, barley, corn, sunflower, potatoes, sugar beet and vegetables.

The average tariff on agricultural insurance is about 1,500 manat per year, and the average profit per hectare of land - about 25,000 manat per year.

The official exchange rate is 0,7845 AZN/USD on Aug. 1.

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