Policy brief on Compulsory insurance of real estate

The Law on insurance of real estate of legal and physical entities starting from 2020 is on the agenda. Although the Law on compulsory insurance was approved in 2011, only the insurance of motor vehicles was organized and is already applied. Therefore, since the percentage of penetration in compulsory insurance of vehicles public liability in Azerbaijan is approaching the maximum, approximately 100 million manats are collected from automobile users during the year. Insurance of real estate of legal and physical entities is not fully formed because of objective and subjective reasons, and the provisions of this Law are observed only in the process of purchase and sale of houses, as well as in cases of apartments purchased on mortgage terms. This is 9-10% of the market potential amounted about 300 million manats.

Taking into account the seriousness of this problem, “Uluchay” SEIC planned to conduct a broad awareness campaign in order to inform the population about this field. Submitted document contains important provisions of the Law “On compulsory insurance”, objective and subjective reasons preventing the solution of the problem, as well as the opinions and suggestions of professional specialists in this field.

  1. Level of awareness of population about the compulsory insurance:
  • There is no detailed information on the insurance of real estate of legal and physical entities and no extensive and comprehensive measures are taken for people to understand this system fully.
  • Most people do not have any information about the compulsory insurance of real estate of legal and physical entities, as well as its essence (mainly in regions and rural areas).
  • Most of informed people do not understand the essence of this.
  • Part of population come out against the existence of this insurance system, which is mainly due to the concern that they will not be able to pay the insurance amount.
  • Another group of population doesn’t believe in this. One of the main reasons for this is that there are a lot of disputes in getting the insurance and its long term.
  • A certain part of population considers this insurance system important and welcomes it.

2. The majority of population does not have any information about the compulsory insurance of real estate of legal and physical entities.

  • The provision of any insurance coverage established by the Law dated on June 24, 2011 (№165-IVQ) in the contract of voluntary insurance contract in full or in part is without prejudice to any liability that persons who are obliged to carry out compulsory insurance under the relevant provisions of the Special section of this Law resulting from failure to perform this duty (article 77.2.).
  • Compulsory insurance applies to everyone and is mandatory (article 3.1.1.).

3. Principles of compulsory insurance:

  • Protection of persons, whose health and (or) property is damaged as a result of insurance accidents in the amount and order stipulated by this Law;
  • Stimulation of prevention of cases caused by insurance accidents;
  • Elimination of the consequences of insurance accidents, as well as ensuring the use of insurance payments for these purposes;
  • The compulsory insurance contract is made for a period of 1 year and a certificate is issued confirming it.
  • The rights and duties of the insurer and the insured are regulated by Articles 22 and 23 of this Law.

4. Main reasons hindering the full implementation of compulsory insurance of real estates and mainly of residential houses of legal and physical entities and duties and obligations of relevant state bodies in this field:

  • Documentation of residential houses in the country has not yet been fully carried out. This process is more evident in regions. In regions, the technical passports of both old houses and most of newly built houses are still either not received or are old. Therefore, first of all, relevant government agencies should find solution to this problem urgently. Thus, the state bodies responsible for this field should not prefer their personal interests to the state ones. Without solving this problem, it seems impossible to increase the penetration rate of real estate insurance system. If these problems are solved, real estate insurance can be applied as well as the insurance of vehicles.
  • Without implementing this, it is risky to impose fines on population for not insuring their property, and is not reasonable (the penalty for not insuring the property is defined in the amount of 30 manats, and if the owner does not insure his/her property within 20 days, he/she will be fined 30 manats again. If this continues till the end of the year, the total amount of property owner’s fine will be 540 manats. Collection of fines make those who are fined, to collect more fines, rather than to solve the problem radically.

Penalties applied for non-conclusion of compulsory insurance contract:

  • – to physical entities – 30 manats;
  • – to officials – 80 manats;
  • – to legal entities – 200 manats.

5. Insurance accidents include: (Article 44)

  • Fire caused by the use of electric or gas appliances, or the results of measures taken to prevent such a fire;
  • Gas explosion;
  • Short circuit in electrical wiring;
  • Flooding as a result of an accident on water, heating and sewer lines;
  • The effect of any subject or its parts in such forms as falling, throwing, hitting, destruction, discharging and etc.

6. Insurance amounts: (Article 47)

Insurance amounts payable:

  • Minimum insurance amount for Baku city – 25 000 manats;
  • For Ganja, Sumgayit, Nakhchivan cities – 20 000 manats;
  • For other places – 15 000 manats.

Insurance fee payable:

  • For Baku city – 50 manats;
  • For Ganja, Sumgayit, Nakhchivan cities – 40 manats;
  • For other cities and regions – 30 manats.
  • Insurance fees on compulsory insurance of properties of those who receive targeted social assistance will be paid from state budget.

7. What insurance companies should the population contract with?

  • Insurers are free to choose any insurer who has permission to carry out the appropriate type of compulsory insurance.
  • According to experts, the fact that citizens are free to choose insurance companies will lead to the emergence of competition among insurance companies and it will affect the price of services provided.

8. Suggestions and recommendations:

  • Documentation of unlicensed houses should be stimulated by the state;
  • Promotional strategy should be developed on compulsory insurance of real estate of legal and physical entities;
  • It is necessary to organize the delivery of information to population through social media;
  • Media and social media should constantly promote this;
  • Continuous educating measures should be carried out.

Additions:

https://isb.oz/wp-juntent/upluods/2015/03/bo-jhixarish2.pdfExtract from the Law of the Republic of Azerbaijan “On compulsory insurance” about the compulsory insurance of real estate

https://isb.oz/wp-juntent/upluods/2015/03/qoydalar_72.pdfThe procedure for determining insurance rates on compulsory insurance of real estate