Today the insurance sector is one of actively developing spheres of Azerbaijani economy. In difference to previous years, absolutely new ambitious insurance companies, which do not target only presence in the market, but also establishment of normal relationships with the clients, carry out active policy on expansion of their regional network, appear in the market. According to the Finance Ministry, only last year the number of braches and representations of the insurers tripled.
Taking into consideration Azerbaijan is in the initial stage of development, special weight of the insurance market in the GDP was 0.8% last year. For instance, in CIS countries the figure is up to 1%, while in developed countries it reaches to 8%. As compared to 2001, in 2005 insurance revenues grew 5.3 times.
Almost in all developed countries the government itself is interested in propaganda of insurance, as it replaces definite part of burden of the social security of citizens on the insurance companies. High growth pace of economy leads to improvement of financial welfare of both physical and legal entities, which in its turn promotes increase of property interests and raises demand for insurance services. The number of interested insurers grew considerably as compared to last year. The people trust on insurance companies more and more and more frequently for their services. It is also pushed ahead by a timely execution of commitments by insurers.
Insurance in Azerbaijan started with the obligatory insurance of local owners of automobiles, which is one of the widely spread types of insurance. Obligatory insurance of local owners automobiles is one of the more profitable types of insurance worldwide, bringing high revenues. However, increase of the average market price of automobiles made this business less profitable for the Azerbaijani insurance companies. The situation has worsened with the injection of changes into the law on Obligatory types of insurance on decrease of insurance tariffs by 16%. According to insurers, it would be more expedient to reduce the tariffs, a rise in prices of automobiles is observed in the country. As a result of frequent faults of automobiles and high average cost of cars, the probability of payment of high prices increase. Nevertheless the business remains to be profitable in the country and increase of tariffs does not enter the Finance Ministrys immediate plans.
Meanwhile, the Ministry of Finances worked out initial draft new law on Insurance in Azerbaijan, which should replace the similar legislative act of 1999. The bill can become the law and start functioning by the end of 2006. The Cabinet of Ministers of Azerbaijan authorized Samir Sharifov, the Azerbaijani Finance Minister, in signing a $323m grant agreement with the WB on the improvement of the legislation in the insurance sphere. The European Bank for Reconstruction and Development (EBRD) also offers technical assistance in the development of a new law relating the insurance activities. In the initial stage it is committed to carry out the necessary work and after this financial institute will define the amount of assistance.
The United States also voiced its will to render technical assistance in the development of insurance market in Azerbaijan and stated their readiness to allocate grant for the development of the insurance system in Azerbaijan. Within the framework of improvement of a mechanism on 9 types of obligatory insurance, in 2007 it is planned to adopt anew bill on Obligatory types of insurance.
So, intensive measures are taken for swift development of Azerbaijani insurance market. Thus, the Ministry of Finances plans to intensify a process of capitalization of insurance companies. In compliance with existing program on increase of statutory capital of insurance companies, by 2010 it is to be increased to 1m manats, whereas requirement set for the aggregate capital in the banks is expected to reach 10m manats by 2008. Moreover, taxation of the insurance organizations in compliance with the existing legislation is carried out in sparring regime and taxation of banks Operations on insurance and reinsurance, lie the banking transactions, have been released from VAT.
Insurance is considered to be the most profitable type of business, which enables to collect 80m manats of fees every year. The funds are respectably raised in different spheres of economy, in particular upgrade of the country. So, as the insurance market in Azerbaijan is on progress, the Ministry of Finances does not think of liberalization of the freeing participation in the insurance market, though the countrys insurance market requires it.
The WTO offers Azerbaijan to remove from the Law on insurance the article specifying possible participation of foreign insurance capital in the correlation 49% and 51%. However, it could result in the absorption of the notional companies by world insurance giants. In this connection the law in the new edition maintains this correlation.
The liberalization at the insurance market will be possible after the liberalization of the local insurance companies by 2010. With this respect the demand for the statutory capital is increased every year by 100,000 manats and by 2010 the minimal amount of the statutory capital is to comprise 1m manats. However, the control body is eager to increase after, for as the statutory capital is high as the insurance risks might be retained in the country.
Thus, we come to a conclusion that insurance is the sector of economy without which the establishment of the social state with the development market relationships is impossible, while the development of the insurance market is an objective process under intent glance of international communities.
As to development perspectives of the insurance market in Azerbaijan, the insurance market will develop thanks to increase of money resources, including the consumer credits. At present the banking market is one of the major deliverers of insurance services for enterprises and people. Respectively, the role and volume of services rendered in this sector by the insurance companies will boost.