Law on compulsory insurances will raise level of premiums five times in Azerbaijan

Compared with global trends in the insurance market, this market in Azerbaijan has very modest rates currently. The volume of the insurance market currently makes up 0.4 percent of GDP, which is lower than not only in developing countries, countries in Europe, but also in the CIS.

The current level of premiums in Azerbaijan totals 16-17 manat per capita. This is very low compared with the level of insurance market development in other developing countries, countries in Europe. The world average insurance premium is 15 times more than the level of premiums in Azerbaijan.

Source: World Insurance- Swissre.com

In Azerbaijan, the amount of the insurance market may increase to 2-3 percent of GDP, the foreign insurance investors consider. Azerbaijani insurance market has long attracted the attention of foreigners. And the reason for the spread of such views is the stable economic situation in the country and the great potential for the development of insurance business.  

Another factor is the liberalization of the insurance market. If before 2008 the share of foreign capital could not exceed 49 percent of the capital in one company, then after the entry into force of a Law on insurance activity in March of that year, the 49 percent limit was applied to total capital of the insurance market. This means that the restrictions on the establishment of the company with 100 percent foreign capital were eliminated.

Currently, foreign capital is present at five out of 27 insurance companies operating in Azerbaijan, but their share in total capital of all companies do not exceed 20 percent, so to achieve tangible indicators in the country is still far.

It is necessary to adopt a new law on compulsory insurances in order to improve the insurance market in Azerbaijan. Unlike voluntary insurances, the compulsory insurances are regulated by the state, so firstly, the attention will be paid to developing and improving the legal framework on this type of insurance. The previous law governing the compulsory insurance was adopted in 1996, respectively, there is a need to improve regulatory mechanisms in other legislative acts because of an inconsistency.

In July 2010, Azerbaijan has already approved law on compulsory insurance on labor ability loss in production, but under the laws, this type of insurance can be provided only by the specialized insurance companies licensed for life insurance.

Of course, the compulsory insurance would influence the development of life insurance in the country, and can provide a certain amount for the market. However, today there are only two insurance companies (Ateshgah Heyat and Qala Heyat) in Azerbaijan, which can apply for a license to provide compulsory insurance on labor ability work.

It is hard to imagine how much work must be done, since the relevant documents should be prepared for each worker, while the new law refers to more than 1.5 million people officially registered in the State Social Protection Fund of Azerbaijan as payers of compulsory social insurance contributions. Today, there are four million labor active people in the country.

The whole "hope" for improving indicators of the insurance market in Azerbaijan in the near future leans on new law on compulsory insurance developed by the Azerbaijani Association of Insurance, Parliament and Finance Ministry. This draft law regulates four types of compulsory insurance - real estate, compulsory MTP liability insurance, passenger insurance, liability insurance in operation of real estate.

Under the bill, the compulsory insurance of real estate will be distributed to all types of buildings, houses and apartments belonging to individuals, offices, legal entities, public property. In this case the insured event will be considered the facts related to damage to this property as a result of fire, explosion, lightning, short circuit in the electrical system, an accident in the sewer or water system, natural disasters, etc.

Compulsory insurance of civil liability, associated with the operation of real estate, provides insurance protection for third parties from harm caused by using this property. This insurance will apply to legal entities and individuals engaged in entrepreneurial activities. The amount of reimbursement for this type of insurance for damage to health will be 5,000 manat for one person, 50,000 manat for property.

Compulsory insurance for passengers will be applied to persons using the vehicles, regardless of its form. The amount of the insurance coverage will be 5,000 manat per person. Until now, this type of insurance is regulated by a law adopted in 2003, but the acting form is unacceptable today and creates problems in obtaining compensation.

The draft law contains a differentiated approach in determining the insurance rate, depending on the type of vehicle. The fee for compulsory motor TPL insurance on the property amounts to 5,000 manat (currently 1,000 manat), health - 50,000 manat (5,000). At present, this activity is regulated by the law of 1996.