Baku, Azerbaijan, Sept. 1
By Ilaha Mamedli - Trend:
The development of agricultural insurance in Azerbaijan needs tax and financial incentives, the expert in the field of insurance Khayal Mammadkhanly told Trend.
"The problem of lack of development of this type of insurance in the country is related to the issue of funding and the lack of agricultural insurance in general, although farmers are willing and interested in insuring of their risks," Mammadkhanly said.
"European countries give farmers the soft loans, loans for business in order to promote agricultural insurance (if farmers have insurance for agricultural products)," he added, "Azerbaijan can stimulate this activity by providing subsidies for agricultural insurance, soft loans and other financial resources."
"At present, farmers can not get enough profit, so insurance is considered as an additional burden and they try to avoid the security risks," he concluded.
Mammadkhanly went on to add that the government can stimulate agricultural insurance by using fiscal policy, that is, if the cost of insurance is deducted from income, it leads to a reduction of the tax base, which is also an incentive. Currently, farmers have to pay these costs at the expense of profits.
Agricultural insurance is classified according to the risks on insurance of animals, plants and machinery, farmer's assets, investment risks. There is a great need to insurance products from natural disasters, pests, as well as farm machinery (machines and tractors) insurance today in Azerbaijan, according to Mammadkhanly. He added that investment and liability insurances may be developed further.
By amendments to the Law "On the care and development of agriculture in Azerbaijan", approved in the summer of 2007, the share of public financing in the agricultural insurance premiums was increased from 25 to 50 percent. The list of crops insured by the state budget included barley, maize, sunflower, potatoes, sugar beets and vegetables in addition to wheat. The average tariff on agricultural insurance in Azerbaijan is about 1,500 AZN per year (5 percent per hectare), despite the fact that the average profit per hectare is about 25,000 AZN per year.
Every year the state budget of Azerbaijan provides programs to cover 50 percent of the cost of the insurance contract with farmers, but, unfortunately, it is almost never used 100 percent. One of the reasons for the underdevelopment of agricultural insurance in Azerbaijan is a lack of awareness of farmers about insurance and about their opportunities, the experts say.
Not all companies are willing to engage in agricultural insurance due to the specificity of this trend and the big risk.
For the development of agricultural insurance it is necessary to implement it on a voluntary basis, currently introduction of compulsory insurance will not be effective because of the large risk to insurers, the chairman of Azerbaijan Insurers Association (AIA) Orhan Bayramova said.
However, the introduction of mandatory agricultural insurance is inevitable. Otherwise it will be impossible to ensure the development of this sphere. This will cover the risk of "bad" areas at the expense of good areas because not all of them have the same weather conditions.
At present, the market potential of agricultural insurance in Azerbaijan is estimated at 150-200 million AZN. However, the amount of insurance premiums on this type of insurance amounted to 730.6 AZN in January-July 2014, which corresponds to 0.29 percent of the total insurance market in the country. Payments of agricultural insurance accounted to 138.7 AZN (0.18 percent of total insurance premiums).
The fees for agricultural insurance rose by 32.5 percent and payments 3.5 times compared to the same period of last year.
There are 28 insurance companies in Azerbaijan.
The official exchange rate for August 30 is 0.7844 AZN / USD.