IIC - LEADERSHIP ON RISK RETENTION

Exclusive interview of Chairman of Supervisory Board of International Insurance Company (IIC), Mr. Khayal Mammadkhanli

IIC is three years old this year, have you achieved goals which you planned during company's establishment?

It is true that we completed third year of our establishment and receipt of license in this year. As you know, IIC was established in February 2002, but on April 1 the license was issued by the Ministry of Finance of the Republic of Azerbaijan for implementation of insurance activity. For three years IIC realized the major part of goals that were planned. As it was mentioned at my previous interviews the first aim was not becoming the leader or take the first place for collection of insurance premiums. The major goal was the creation of high-qualified staff, to prepare all insurance packages of company, their initial test in the market, carrying of some marketing researches, to define the company's development strategy. Today we can say proudly that all of these were achieved by us during past three years. Company's new goal for the future is to achieve a leading position at insurance market in Azerbaijan. For its realization we will use all our present opportunities.

Which successes did your company achieve in 2004?

The company's main success in 2004 was the increase of insurance premiums in comparison with 2003 almost for 2 times. If there was collected 14 bn AZM of insurance preniums in 2003 then in 2004 this figure was 25,3 bn AZM.

The company's other success was the completion of preparation of necessary insurance products by all types of insurance for which we received the license. At present, IIC provides its insurance services on the base of all stated packages. Among the successes of company I would like to note the fact that we formed and completely gathered the staff and company's structure.

There is often said that Insurance Companies (IC) should be a friend to consumers in their bad days, i.e. while the insurance claim have to be close to its customers and support them morally and materially. Stated factor is reflected in the figure of insurance claims paid to our consumers in 2004, - 2,4 bn AZM. It is very serious sum. More than 80% of this sum was paid for Casco-insurance claims and it means that we have always been close to our consumers and tried to fulfill our promises in front of our customers for the expenses they had.

Which projects are planned by IIC for perspective and what is the situation with development of branch network?

At present IIC considers the certain offers and projects. So, recently we have leaded the meeting in round table with the IT-companies and have discussed the opportunities of information technologies' application in insurance business. We also plan the introduction of innovations in medical insurance, at the same time branches network expansion, expansion of IIC agents' network. For this purpose the new structure engaged in sale of our services via affiliated structures will be formed. It is the project, which we would like to implement in the nearest future.

I have always been asked when we will open branches and I have always answered - first of all, we should form structure and business of head office, then it is possible to think about branches. Today, I can precisely define - as appreciating the result of three years activity, in forthcoming 1-2 years we think about the creation of several branches and representations, either in regions of Azerbaijan where the development rate is high enough and in large cities as Gandja and Shaki.

One of the important plans in this aspect is the formation of IIC representation in Moscow. You will ask me why this question appeared on agenda? As you are aware, International Bank of Azerbaijan - Moscow is operating for some years in Moscow. The bank provides modern banking services not only to Azerbaijanis living in the Russian Federation, but also to other people and companies in Russia. Taking it into consideration we would like to participate in the insurance of certain portfolios, including the businesses of our nationals living in Russian Federation, and to implement this mission by providing various kinds of insurance services.

At present we deal with legal aspects of formation and the format or structure of Moscow branch. I think that as well as IBA-MOSCOW it will be independent insurance company too and we probably will act as a founder. However, the decision will be accepted in view of cumulative opinion of both management and lawyers, and in view of the Russian insurance market researches. If there is no any delays till the end of the current year we will strive to finish this project.

Have you agreed with development rates of insurance in Azerbaijan?

We carried out the operations of public orientation concerning of stated question. General dynamics of Azerbaijan insurance market's development is acceptable for us. But if we consider the separate kinds of insurance, then panorama will change. For instance, I am very disturbed by the non-development of life insurance. This kind of insurance is one of the leading figures in the world, the general statistics shows that in insurance companies' development of the advanced European states life insurance takes 60% of collected insurance premiums.

The one of main advantages of life insurance consists that this kind of insurance is usually long-term and funds entering to the insurance company play the certain long-term investment role.

Other question is the lack of operation mechanisms of several laws on compulsory insurance in Azerbaijan. You know that there has already accepted about 7 compulsory insurance laws. It is natural that some of them are in state monopoly, for which only the state insurance company is engaged. But there are also other laws such as on compulsory medical insurance (in 1999), compulsory ecological insurance, compulsory fire insurance, compulsory insurance of passengers and etc. The level of operation Laws is not acceptable for us. If we consider the insurance figures of these laws the percentage will remain low from the general insurance portfolio.

As, in return of above mentioned, for instance in automobile insurance, property insurance, voluntary medical insurance, high dynamics of development is observed.

Summering of above stated, it is possible to tell that general dynamics of insurance market's development is stable, but on separate kinds of insurance there is seen the various pictures.

What do you think about the problem of non-development of life insurance in Azerbaijan?

The main objective reason of non-development of life insurance is age of Azerbaijan insurance market. The second problem appears from that population does not trust to insurance in general. It is connected with inflation, which has lived on a background of collapse of the former Soviets, when millions of funds accumulated in State insurance in one instant have devaluated. Our population is still afraid of this precedent, as the life insurance contracts are concluded for multiple years. For a one year the events and inflation can be foreseen by consumer too. But for the life insurance concluded for the period of 10, 15, 30 years, population is suspicious yet for the stability of Azerbaijan insurance companies and do not "trust their lives". I think some period of time is necessary for the solution of these problems. We will try during the possible shortest time to gain our clients trust, so we plan to realize certain projects regarding life insurance in the country.

The other barrier for Life insurance is connected with taxation. In the world for stimulation of life insurance several taxation mechanisms exist. Today, the life insurance stimulation upon the tax mechanisms practically does not function in Azerbaijan.

I think that the State program for social economic development of regions authorized by a management of the country, income from oil to the country for the forthcoming years, the development of non-oil sector, and other factors, will stimulate the rates of life insurance development in our Republic.

Your company has the highest charter capital (CC) now; would you like to enlarge it more?

We have such kind of idea. You are right we have the highest Charter Capital at insurance market of Azerbaijan. When our company was established in 2002 this figure ($5 mln USD) made 43% of total CC of all insurance companies in Azerbaijan. But today this percentage reduced (approx. 20%), because of Azerbaijan government's decision ICs should increase their CC. At present, the minimal requirement of existing CC for ICs in Azerbaijan defined at 2,5 bn AZM, but for new ICs at 5 bn AZM. Till 2010 the level of CC for all Azerbaijan ICs should be reached up to 5 bn. That means our weight in combined CC of Azerbaijan ICs will be continued to reduce. But today our CC gives us the leadership in Azerbaijan on risk retention. At present, on the base of each contract we are able to retain risks up to $500.000. We are transferring to reinsurance only excess part than stated sum. For other Azerbaijan companies this sum in maximum case can make $200.000. Nevertheless, in the nearest future we plan to increase our CC up to 10 mln euro.

You are leading the Union of Azerbaijan Insurers, which tasks done and which kind of plans within the Union?

A few days ago two years passed since establishment of the Union of Azerbaijan Insurers. During these two years within the frames of union were realized tens of projects, different conferences and seminars. We inform our people about insurance opportunities, communicate the insurance problems and panorama of Azerbaijan to whole world and deal with study of insurance market.

The events of social and sport character were held by us that contributed for creation and enhancement of relations among the insurers in Azerbaijan.

Furthermore, the Union expressed its position on the base of accepted laws on insurance, within the process of their acceptance created working groups, working mechanisms, and participated in their discussions. Within the framework of the Union were signed Cooperation Agreements with the same structures in Russia and Turkey. I think that for two years the Union of Azerbaijan Insurers could do enough works which would contribute for insurance market's development tomorrow.

This year we plan to increase the number of new members of the Union, continue the organization several social-cultural and sport events, and carry regional conferences. It is planned to hold the Forum of CIS countries' Insurers in Azerbaijan. Taking into account that organization of such kind of forums is time and money consuming, we will try to realize the project.

Which kind of nearest plans do you have at international level?

On May there will be held the Forum of Finance Club in Ankara (Turkey) where will take part the representatives of financial sector of 20 countries of the world. Taking into consideration that I am president of finance sector of the Azerbaijan - Turkish Businessmen Association (ATIB) together with ATIB within the frame of mentioned forum we will hold the presentation and perspectives of Azerbaijan Finance Sector including the banking, insurance and leasing.

In conclusion, awarding of Caspian Integration Awards in nomination of professional company of the year in insurance I appreciate as the result of hard working of the International Insurance Company within last years and stable, strict and purposeful development.