What are prospects of Azerbaijani insurance market?

The situation on the Azerbaijani insurance market is that small insurance companies are likely to be driven by larger ones. The established bureau for compulsory insurance poses a threat to the existence of relatively weak insurance companies in the country which is a consequence of a new law on compulsory types of insurance adopted in Azerbaijan. This involves each company joining the bureau.

The law regulates four of the current nine types of compulsory insurance - real estate, liability of owners of vehicles, passenger insurance and liability insurance while exploiting the real estate. Companies have started using the law since December 16, 2011.

The number of insurance companies capable of rendering these services is gradually increasing. It is clear that those collecting 20,000-25,000 manat on mandatory types during the year will fail to pay the fee set at 200,000 manat for being a member of the bureau and 200,000 manat for permission to stay for a year.

Moreover, the fees on deposit for the four kinds regulated by the new law were set at 200,000 manat for the compulsory insurance of civil liability of vehicles, 200,000 manat - insurance of passengers, 100,000 manat - property insurance and 100,000 manat - liability insurance while exploiting the real estate.
Moreover it is time to accelerate the capital. According to the minimum requirement of the Azerbaijani Finance Ministry, the capital of insurance companies was to reach three million manat as of January 1, 2011 but not all companies fulfilled this. As of early 2012, they must bring the capital up to four million manat.

About 29 insurance companies operate in Azerbaijan today. Up to 15 are expected to be represented at the Bureau. At present seven companies joined the bureau and more than five insurers appealed to the Finance Ministry to get the permission to render services on compulsory insurance, regulated by the new law.

The difficulty is that besides the fees, requirements for the insurers dealing with mandatory types of insurance are likely to toughen. This will increase the competition in this market segment. Additional requirements will come into force from July 1, 2012 for insurance companies to work for compulsory insurance.

According to these requirements, the insurer must have a branch or a representative office with all the opportunities necessary to indemnify damage at least in one of the regions or towns of the 10 economic regions of the country, except for the occupied territories.

International experience shows that the reducing the number of companies does not mean the deterioration of the market. The large companies, remaining in a competitive mode begin to improve and propose new products. Thus, by the example of Russia, the number of insurance companies registered in the Unified State Register reduced by 13 per cent (83 companies) in the first half of 2010 compared to the same period of 2009 and hit 660 organisations.

While the total volume of insurance premiums increased by 5.6 per cent in annual terms and reaching 521.1 billion rubles in the first half of 2010, the volume of insurance payments increased by 4.3 per cent to 367.2 billion rubles compared to the previous year.


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