Azerbaijan: Agricultural insurance scheme to be established by the end of the year

A new law on agricultural insurance may be adopted before year end in Azerbaijan, Executive Director of the Financial Markets Supervision Authority (FIMSA) Ibrahim ALYSHOV said at the conference "Insurance in Azerbaijan: New Prospects" , organized by XPRIMM and Azerbaijan Insurers Association in Baku.

Thus, agricultural sector, which provides jobs and income for about 40% of the population in rural areas, can become more productive and profitable through increased access to financing.

He noted that, the draft law has already been prepared and sent to the Government. "The draft law is ready and under consideration. I hope very much that the Parliament of the country will approve the new law before the end of 2018," ALYSHOV said.

The current law in force, "on assistance to and development of agriculture in Azerbaijan" (adopted in 2002) regulates state financing of agricultural insurance premiums. In addition to wheat, the list of crops insured at the expense of the state budget includes barley, corn, sunflower, potatoes, sugar beet, etc. "Each year, AZN 1 million are put aside from the state budget for subsidizing the agricultural insurance, but they are returned to the state budget each year because they are unused", has mentioned Firdovsi AGHASHIRINOV, Senior Specialist, FIMSA, Azerbaijan in his presentation at the event.


According to him, among the reasons why the actual system is not working in Azerbaijan is that it is not flexible, the risk is catastrophic, there isn't enough reinsurance and there are poor statistical data. Thus, the actual system, which stipulates that farmers should apply for insurance to the insurance company, which in turn goes further to the Ministry of Finance for the funds, is not viable.

"The reasons to develop agricultural insurance in Azerbaijan: increase production, to increase the GDP level, to reach the growth in the share of the non-oil system, increasing food security, to increase investments in agriculture and to improve the living standard of farmers", stated Firdovsi AGHASHIRINOV. At the same time, he stressed that in 2017, the agricultural insurance market reached a GWP volume of AZN 4,3 million, with a market share of 0,8%. The average loss ratio for the 4 insurance companies selling these products is 96%.

How does the new scheme on agricultural insurance in Azerbaijan look like?

The government of Azerbaijan used Turkey's TARSIM model of agricultural insurance and the best international practice available. According to Firdovsi AGHASHIRINOV, "until now we have established a Task Force after consulting the international experience; we have chosen a model and then drafted the Law on "Agricultural insurance".

Thus, according to the new proposed law on agricultural insurance, the state will establish a specialized Agricultural Pool, and will transfer to this Pool the subsidies for premiums paid by the farmers in order to conclude agricultural insurance policies. The Pool will be managed by an Operating Company. Also, the Pool will sell insurance policies through insurance companies, which will get a commission fee in return. Therefore, the premiums paid by the farmers will go directly to the Pool, which will also compensate them directly in case of a claim. At the same time, the reinsurance program will also be concluded by the Pool, as well as the contracts with the specialized loss adjusters. The FIMSA will supervise the activity of the Pool and of the Operating Company, to assure their proper functioning.

To summarize the flow of the insurance premium, it goes as follows: the farmers will pay insurance premiums to the Pool (through insurance companies), which will also receive state subsidies. From this funds, the Pool will make payments to the farmer in case of claims, will assure the administrative expenses of the Operating Company, will buy reinsurance and will pay commissions to the insurance companies.

For more detailed information about the insurance scheme and Azerbaijan agricultural model please see here the presentation.

More information and presentations held at the agricultural section at the Insurance Conference in Baku are available here (http://www.xprimmevents.com/program/)

Statistics about agricultural insurance in Azerbaijan
The average tariff for agricultural insurance in Azerbaijan is about AZN 1,500 per year (five percent per hectare), despite the fact that the average profit per hectare of land is about AZN 25,000 per year.

The Financial Markets Supervision Authority of Azerbaijan announced that, in 1Q2018, written premiums on the agricultural insurance market amounted to AZN 1.56 million, with payments of AZN 282,900. A large part of the fees and charges in this area fell on the insurance of livestock - AZN 947,700. We remind that in 2017, the agriculture insurance market reached a GWP of AZN 4,3 million, with a market share of 0,8%. Loss ratio is 96%. Four insurance companies are active on this market segment.

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