Agricultural insurance becoming a priority in Azerbaijan

3 December 2015 — Olesea ADONEV
"No more than 0.8% of the planned expenditures of the Azerbaijan's State Budget for insurance of agricultural products have been used. Between 2007 and 2015 a budget of AZN 7.5 million was allocated in Azerbaijan for such financing, and only AZN 50,000-60,000 have been spent. The reasons of the current of agricultural insurance underdevelopment are both the farmers' awareness low level of about the availability of such possibility and the lack of insurance companies' interest because of high level of risk", stated Rahim NOVRUZOV, Chief adviser of the Finance & Accounting Department of the Ministry of Agriculture, quoted by abc.az.

Agriculture industry occupies an important place in the Azeri economy. About 40% of the working population of the country is employed in this sector and about 1,360 companies are involved in this field. But according to research, in recent years the share of the agriculture (including forestry and fishing) sector in the GDP structure in Azerbaijan was very small and continuously decreasing, from 16.1% in 2000 to about 5% in the recent years.

According to Namik KHALILOV, Head of State Insurance Supervision Service, Ministry of Finance statements to azernews.az, "development of the agricultural sector would provide for solving several social problems in the countryside: the population will be able to earn more, the problem of unemployment and food security would be solved".

In Azerbaijan the preparation of a law on agricultural insurance is on its final stage. For the preparation of the draft of law were analyzed Turkish model of the insurance pool and international experience of the other countries in this area. At the same time, the Ministry of Agriculture and Finance of Azerbaijan is considering, in partnership with SWISS Re, a mechanism of agricultural insurance in the country.

In parallel with drafting of the new law, a complex work is carried out by authorities and specialists, including: collecting of the statistical data in order to determine the degree of risk both by regions and by product, preparation of insurance products for different types of agricultural products, setting of tariffs related to the type, regions and climate conditions etc.

According to the amendments to the "Law on assistance and the development of agriculture in Azerbaijan" approved in the summer of 2007, the state covers 50% of premiums in the form of subsidies for agricultural insurance, but even these measures did not help spread this type of insurance services.

Moreover, the list of subsidies for agricultural insurance of crops production has been expanded and includes: wheat, barley, maize, sunflower, potatoes, sugar beets and vegetables. The average tariff for agricultural insurance in Azerbaijan is about AZN 1,500 per yearand the average profit per hectare of land - about AZN 25 thousand per year. In general, the market potential of agricultural insurance in Azerbaijan is estimated at AZN 100 million.

In 2015, in order to gain interest of insurers for agricultural insurance, the Ministry of Agriculturehas allocated AZN 4.8 million for elaborating the electronic database"e-Agriculture". New system will contain complete dataabout the agricultural industry by the regions, including the amount and types of products grown by farmers for several years.At the same time, the electronic database will be allowed to insurance companies to access information in order to evaluate possible cat risks and to elaborate insurance offers depending of vulnerable region.

Azerbaijani Insurers Association is actively engaged in the organization of training that is to be held by international experts and in the involvement of actuaries in the agricultural insurance sector.

Note:
Flooding affects 300 sq. km, and every other year washes out up to 1 million m³ of soil and causes significant damage. Another 30,000 hectares of land is excluded from agricultural production due to mining operations and other human activities. Economic effects of these events are substantial: during the period of 1978-95, Caspian Sea floods and coastal erosion caused damages of USD 2 billion in Azerbaijan. The cost was USD 50 million in 1997 and USD 490 million during the period of 2000-07 (Sourse: Word Bank).

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