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LIVE: BAKU: "Insurance in Azerbaijan: New perspectives" Conference - Day 1

The annual and most important insurance event within the Caucasus region - "Insurance in Azerbaijan: New perspectives", started today, in Baku, organized by XPRIMM and Azerbaijan Insurers Association, with the official support of the Financial Market Supervisory Authority of Azerbaijan.

For two days, renowned professionals from Europe, Russia & CIS, Caucasus Region, Turkey and Middle East countries will discuss the latest trends in the region, aiming to enhance the development of the Caucasus insurance market, as well as strengthening business partnerships.

Read here the main statements:

Part I - Overview of the Azeri insurance market

Mustafa ABBASBEYLI, Chairman, Azerbaijan Insurers Association

• In the Roadmap for the development of the financial markets in Azerbaijan special attention was paid to increasing the volume of the market especially thru crop insurance and the development of a micro insurance system


Ibrahim ALISHOV, Executive Director, Financial Markets Supervisory Authority, Azerbaijan
  • Penetration of insurance in Azerbaijan's GDP has to increase, according to our sustainable development Roadmap. This document is based on 4 pillars of development, such as microinsurance, medical insurance, health insurance etc. Another major driver for development is also the agricultural insurance
  • In general terms, the market succeeded in increasing the variety of insurance products. This is another one of our priorities. In example, new policies such as electronic system insurance are now available.
  • Consumer protection is also a direction in which we will take several steps in the future together with our international partners. Another goal is to increase the stability of the market
  • We also work towards increasing the awareness of insurance products in the country

Ziyad SAMADZADEH, Chairman of the Economic Policy, Industry and Entrepreneurship Committee, Parliament of Azerbaijan
  • Insurance cannot develop separately, it is a part of national development policy
  • In Azerbaijan, we now have a good legislative foundation that supports a sound development of the local insurance market
  • We predict that by 2020 the market will pass the threshold of 1 billion USD Gross Written Premiums
  • Agriculture is one of the most sensitive topics now. This is major also in terms of food safety and the insurance system can contribute to achieving this goal. Farmers need to be supported
  • We also need to work toward increasing road safety and prevention of accidents. The insurance industry has a major role in this regard.

Fuad KULIYEV, Chairman of the Board, AzRe, Azerbaijan
  • Global insurance market in 2016 exceeded USD 4.732 billion. Reinsurance premiums increased by 8% in 2017 in comparison with 2016
  • A regional reinsurer is one that has more than 75% of its premium volume emanating from its own targeted region
  • Top 40 reinsurers by volume had 95% market share in 2016 in comparison with only 65% in 1995
  • We estimate that 2-3% of the world reinsurance premiums are written by regional reinsurers - this is why they are therefore more and more important
  • At the same time, former state-owned regional reinsurers are gradually being privatized while new ones are starting with private capital. However, for those types of companies, the biggest challenge is achieving scale, as regional reinsurers are pressured by rating agencies to develop outside their comfort zone and geographical area of expertise. Currently, nearly all regional reinsurers are in the "B" (A.M.Best) area. There are even cases when some regional reinsurers are better placed from a rating standpoint than their sovereigns
  • However, business written locally is better than that written thousands of kilometers away
  • In conclusion, regional reinsurers provide stability to their markets, innovation for local products, tailor-made solutions, good security and fair prices broadly unaffected from losses in different countries
Ekaterina TOLSTOVA, Associate Director, S&P Global, Russian Federation
  • 90% of all export of Azerbaijan are related to the oil & gas sector. Some diversification would be therefore necessary
  • GDP/capita is still low in comparison with other developing economies. The overall rating is BB+ (S&P) with a stable outlook
  •  The insurance sector is mainly depended on banking
  •  In local currency terms (AZN), the insurance market increased by 37% between 2013-2017 although in USD terms it decreased by 38% due to local currency de-evaluation
  • There is still some distrust from the population that sees insurance as a tax as not as real protection
  • Financial education remains an area to be improved in Azerbaijan
  • The market is likely to benefit from improvements in macroeconomic conditions but will probably remain highly concentrate on Top 5 players. The markets' growth is like to be higher for life insurance rather than P/C
Anastasia LITVINOVA, Director, FITCH Ratings, Russian Federation
  • The Azerbaijan insurance sector grows mainly through life insurance (+44%)
  • At the same time, the P&C sector grows through retail lines, especially motor. Still, voluntary health insurance remains a major personal line. Life insurance reports profitable growth with a higher ROE due to a low equity base. Actually, life insurance technical provisions exceed non-life ones.
  • In what the Non-life insurance sector is concerned, relative limited competition supports underwriting profit while commercial risks remain dependent on reinsurance with around 27% of GWP being ceded to reinsurers
  • In conclusion, non-life sector underwriting expertise would benefit from stronger competition. Penetration in retail lines might increase if pricing and claims management in compulsory lines becomes more flexible. Also, life insurance growth might turn out to be unsustainable if tax incentives are removed at any point in time in the future. Last but not least, IT solutions would require improvement for retail underwriting.
Part 2 - Closing the protection gap: Opportunities for Azerbaijan

Vasilis KATSIPIS, General Manager, Market Development, A.M. Best - MENA, South & Central Asia

  • In the MENA region, emerging markets grew faster than mature markets; among them, insurance markets of oil-rich states in the Middle East have grown faster than the rest
  • Relatively recent introduction of compulsory covers has been a key contributor to the emerging markets' growth
  • While there are strong similarities in most common compulsory covers, in less common covers one can see a great variety; Health insurance is compulsory only in oil rich markets
  • Life insurance has a lower penetration in the MENA markets, while the importance of Health business accentuated due to market demand (eg. Lebanon) or compulsory covers (eg. Saudi Arabia); in fact, the markets which introduced compulsory health insurance ARE the only ones increasing penetration in recent years
  • Still, profitability of health business is marginal at best and in early year is mostly due to lack of insured information; on longer term profitability depends on tariff pricing, medical inflation, misuse and fraud
  • Profitability of compulsory insurance can pose a challenge to the industry

Musa BAHAR, Natural Disaster Insurance Institution (TCIP), Turkey

  • The international NatCat experience shows that less loss of lives in the countries with stringent building codes; also, while multiple events are not unusual secondary risks (tsunami, liquefaction, nuclear damage) may cause damages as severe as the main one
  • Modeling has it's limitation and in many cases we have seen underestimated scenarios
  • There is still a lot of ambiguity on expectations from insurance industry
  • From the insurance industry standpoint, operational capacity is as important as financial capacity; procedures must be simple and lean
  • There is a high necessity for collaboration between industries, companies and public offices, cities-countries, especially in case of a major event, but also in building the necessary preparedness for successfully dealing with such an event
  • TCIP has developed a Cat management platform providing for multi-level notification and loss adjuster appointment, multi-level loss assessment, smart transactions, simple and easy indemnity payment etc.

Safder JAFFER, Managing Director & Principal, Middle East, MILLIMAN, United Arab Emirates

  • Life insurance is the most prolific microinsuranceproduct in developing countries according to the number of policies sold; most of this is credit life insurance, typically compulsory and covering the outstanding balance of a loan on the death of a borrower.
  • Term life insurance is easy to provide and has already proved to be profitable. Many MFIs offer mixed credit and life insurance.
  • There is high demand for life insurance that provides more substantial coverage in case of death of the breadwinner.
  • Almost all surveys have shown that health insurance is the most demanded product by low income groups
  • Microinsurance has a significant role to play in property and agricultural insurance ; yet, providing coverage for theft, fire and flood is difficult in low income markets because of informal housing, high costs of claims handling, fraud risks etc.
  • Catastrophic losses to property and agriculture are lately becoming more visible, a trend attributable in many respects to climate change; big reinsurers became very active in this respect
  • Index insurance may be a good solution to problems of property insurance, especially for drought in agricultural insurance and the flood and earthquake risks in property
  • Microinsurance products need to be simple, properly responding to the specific clients' needs (demands research), easy to understand and accessible (need of an extended distribution network) etc.

Zeynep STEFAN, Senior Risk Manager, Germany

  • Inequality is one of main triggers for InsurTech initiatives to get involved in microinsurance schemes; it is widening faster than ever, because lack of affordability, as well as lack of awareness on the demand side and, on the supply side, because of transaction costs, adverse selection and moral hazard, as well as the hindering institutional obstacles and shortcomings
  • Keys for an effective micro-insurance market: "Me, Free, Easy" - a real customer centricity is needed
  • InsurTech initiatives can answer to the three dimensions of efficiency in micro insurance business: need for speed in production introduction; decreasing IT infrastructure costs; standardized and efficient processes
  • A 10-Year Projection shows the following trends: expanding customer pool; downtrend in protection gap; more personal configurations; decrease of intermediation; increased affordability; "Self-made" as key of efficiency; no need for financial literacy

Menekse UCAROGLU, President of the Board, IUC Group, Turkey

  • Benefit Plans are provided in Turkey by a «Network Management Company» which is offering several benefit plans to its clients with top quality services and affordable prices much lower then the market average.
  • Especially certain health care costs are not insured or even if they are insured, individuals will be subject to pay heavy premium charges for a service perhaps they may not need for that year.
  • Benefit Plans are organising daily life expenses in form of benefit plans and providing substantial cost advantage; they are easy to explain and easy to sell; distribution is made by a wide network of service providers throughout Turkey and Northern Cyprus
  • Benefit Plans are not an insurance product; therefore there are no heavy procedures, forms, restrictions and deductibles.
  • Benefit Plans are targeting customers of over 30 years of age, with an average level of education at minimum, regular income, people who has budget constraints
  • İn 2018 there are 37 insurance companies, with over 5 million customers using Benefit Plans


Part 3 -Developing new drivers of the market growth - impact of the new technologies

Alexandru CIUNCAN, Member of IRSG & OPSG of European Insurance and Occupational Pensions Authority

  • Now, more than ever - the global insurance industry is being affected by 3 main driving forces of change: Consumer needs and preferences, technological advances / digitalization and regulation. All these are making a difference in how the insurance market is developing.
  • According to an Insurance Nexus study made on 1.000 insurance CEOs, digitalisation (and consumer focus) is the real game-changer for the industry and also a priority worldwide.
  • This frenzy takes place because of an abundance of DATA (becoming info) and technology.
  • This brings challenges, challenges that the industry did not face until now (not at this level) but also opportunities: I guess this is exactly why everyone seem to be investing in InsurTech nowadays: both new and traditional players.
  • Because many people saw these opportunities: right now, there are over 1,000 InsurTech start-ups according to Venture Scanner map.
  • Digitalization is fundamentally reshaping the insurance value chain, from PRODUCT DESIGN > SALES > UW / PRICING / POST-SALES SERVICE / CLAIMS MNGMT. So, my point here is that digitization is inevitable.
  • Jacques ATTALI said that "in 2025 two industries will dominate: insurance and entertainment. Every business and every nation will organize themselves around these two needs."
  • Insurance can be the industry of the future and it will continue to resist only if it adapts and offers appropriate solutions. Solutions that are in line with the customer demands, that are modern and appeal to the young generation and that make use of new technologies.

Alexey PERSIANOV, General Director, ADV/web-engineering co., Russian Federation

  • it's "comfortable" for your company to work offline: Clients do not disturb you, the company can afford yourself to be slow, it can afford yourself to have garbage instead of data, while you cannot see the fraud.
  • While your company is online, you are directly connected to your client, you can control all data and processes, you can supply personalized products - all clients have a different risk. At the same time, your client works instead of your employees (self and P2P services), while you can provide the best price and service.
  • There are few players in insurance.
  • New players going to become market leaders by online marketing. Insurance products are changing - benefits, price model, etc.

Gaetan HUILLET, Area Managing Director, SOLERA, Middle East, Greece, Turkey, Azerbaijan

  • The automotive industry is constantly evolving. In 1990 there was only one model of Hyundai Elantra with 10 submodules and 5,000 spare parts. Today, we have six models, more than 100 sub models and more than 150,000 spare parts. I think it is quite challenging for insurers, especially on the claims side.
  • Digital estimation / claims management solutions can help insurers on this side. Such a solution can provide facilities as vehicle damage assessment, can provides material structure, operation times & parts data directly from the manufactuer etc.
  • As result? Improved & transparent workflow, right first time estimating, safety through correct repair methodology, increased customer satisfaction, leverage trust between insurance and bodyshops.

Catalin CAMPEANU, Deputy General Manager, Institute of Financial Studies, Romania

  • According to US Bureau of Labor Statistics by 2026 11 jobs will disappear. Of these - claims adjusters and investigators (-1.5%), Underwriters (- 5.2%).
  • According to McKinsey Report in 2018, in the following 10-15 years: basic cognitive skills, which include basic data input and processing, will decline by 15 percent. At the same time, technological skills, the smallest category today, will rise by 55 percent.
  • Wearable devices, Block-chain, E-payment, Cryptocurrencies, Robotic, Biometrics and Internet of Things - the main drivers of transformations. As result? Different weight in the future impact from the employers' point of view. At the same time, we have a pressure of customers' expectations?
  • What's next? Acquiring talent with non-traditional profiles, setting up apprenticeship programs for employees & continuous learning for workers and a shift to more cross-functional and team-based work.


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