Azerbaijani Economy 7 february — 16:58

Elman Rustamov dissatisfied with Azerbaijani insurers (Our comment)



Azeri Daily has repeatedly noted the deplorable state of the insurance market of Azerbaijan. This was also stated at a recent press-conference by the Chairman of the Central Bank of the country, Elman Rustamov. According to him, the Central Bank (CBA) in conjunction with the World Bank (WB) will assess the country's insurance sector. The main goal is to fill in the gaps in the insurance sector and further develop this market.

It should be noted that for the Central Bank this is a very important area. Prior to this, the insurance sector was supervised for a long time by the corresponding insurance supervision service within the Ministry of Finance. With the establishment in 2016 of the Chamber of Financial Supervision, these functions were transferred to this structure. But at the end of November last year, by decree of President Ilham Aliyev, the Chamber was liquidated, and all its functions were transferred to the Central Bank. For a short time before the end of the year, we can say that there was a process of acceptance and delivery. But since the new year, the country's main bank has thoroughly taken up this sector, whose 'achievements' negatively affect the entire economy. How does the CBA intend to improve the situation, which has become the new mega-regulator of the entire financial market of the country?

According to Rustamov, first of all, it is necessary to conduct a full assessment of the entire insurance market of the country, for which it is very important to take advantage of WB's extensive experience in this field. And such an assessment is scheduled for this year. Only after that, in all likelihood, is it possible to build some serious plans and carry out reforms. Indeed, today 22 insurance and one reinsurance companies are represented on the insurance market. Moreover, following the results of 10 months of last year, the total premiums of insurers in Azerbaijan exceeded half a billion manats.

We do not have many insurers, but their premiums for only ten months amounted to 570.52 million manats, which is 7.6% less than the same period in 2018. True, the main banker himself is less critical, noting that last year certain work was carried out to develop the insurance sector, as well as to protect consumer rights in this direction. As a result, the assets of the insurance sector grew by 13%, and insurance payments by 25% compared to 2018. And yet, the main banker is clearly dissatisfied with the activities of the insurance sector; after all for a good reason he closed the Star Insurance Agency on the eve.

The Central Bank ordered the Association of Insurers of Azerbaijan to reduce agency commissions on compulsory insurance to 15%. To understand why this issue has even recently become the subject of heated debate, here are some comparisons. In 2018, insurance and reinsurance companies spent about 63.5 million manats on commissions to agents, which was almost 20% higher than the previous year. And almost a third, namely 32% of expenses of insurance and reinsurance companies, accounted for commission payments to agents. Over the nine months of last year, the expenses of insurance and reinsurance companies on doing business as a whole amounted to slightly more than 149.7 million manats. Moreover, 31.7% of expenses or 47.3 million manats accounted for the payment of commissions to agents. At first glance, a decline of 6.3% was achieved compared with the same indicator of the previous year, but, you see, commissions to insurance agents cannot make up a third of all companies' expenses. Of course, a twofold reduction in commissions will cause dissatisfaction of experienced agents and may even initially lead to a reduction in company fees. But we must learn to work in a civilised manner.

Many shortcomings exist in compulsory real estate insurance. It is enough to recall only what fear gripped the population at the end of last year because of rumours started by someone (it is possible that it were insurance companies themselves) about upcoming fines for uninsured houses, summer residences... The Central Bank intends to improve the mechanism of this process. To this end, it is planned to hold consultations with Turkish specialists, where a highly developed system of compulsory real estate insurance exists. Moreover, considerable attention should be paid to improving the literacy of the population, which, unfortunately, is not yet familiar with the benefits of insurance. Active public education is required, and the process must begin with schools.

The issue of introducing a new deposit insurance model is also being considered. It is hard to say how many complaints and grievances in connection with this issue have arisen in recent years. And they all require a speedy solution. But Rustamov is a cautious person and intends to switch to a new model of deposit insurance smoothly, after solving a number of problems in this area. In particular, only after a complete recovery of the banking sector, which is planned to be completed in the first half of this year. The current system was introduced in 2016 and allowed to stop the outflow of deposits during the crisis. Now confidence in banks is recovering, the situation in the sector is improving. At the same time, one can talk about changing the deposit insurance model only after solving the existing problems.

Yes, many problems in the financial sector have already been resolved, but some are still awaiting solution. But, most importantly, financial stability has been achieved in the country today. Also an end has been put to dual power in the financial market. The new mega-regulator represented by the Central Bank has all the possibilities to solve the remaining point problems. And it has to do it as soon as possible: time does not wait.

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