Insurance Congress / Baku / 20-21st of June 2018

Frankly speaking, I did not know much about our sister country, Azerbaijan, its economic structure and insurance sector. (Please find a SWOT analysis of the country in my page) The kindly invitation of Xprimm for the Insurance Congress in Baku 20-21 of June 2018, converted this knowledge gap to a valuable opportunity for learning more from 200 audiences and speakers in the event.

The two-day conference started with the key note speeches of colleagues from regulatory body and they draw a very clear image of what the business currently has and how they imagine an insurance business within next 10 years. They underlined their economic dynamics and they already know even if the economic scale of the country is increasing faster, it should be supported with a solid insurance industry.

Fiscal incomes of the country are mainly concentered on its natural hydro-carbon sources. This concentration risk is found as the main threat of the economic conjuncture. The penetration rate of insurance business is already very low and there is another concentration issue among insurance companies. One insurance company produce nearly half of total gross written premium (GWP) just by itself. Diversification of insurance products (life or non-life) is low and the country still has a very long way on its financial deepening journey. (Please get in touch with me for more details of financial deepening and insurance business). Current, GWP mainly comes from compulsory insurance products and awareness for benefits of having any coverage is not sufficient.

In the first day of the conference, we discussed mainly about insurance business, penetration rates and how awareness should be increased (the traditional issues!). As I already underlined during my key-note speech, micro insurance can be a key for almost all obstacles in the market.

Not just for low-income countries, micro insurance can be very crucial also for developing and mid-income countries like Azerbaijan. (I already presented this idea during a two-day product roadshow in 2016. However it did not found enough “fancy” by my European colleagues :))

Notwithstanding, the current situation is changing dramatically. The magic touch of InsurTech is coming also for micro insurance and it will be the main converter for a “financially sustainable” micro insurance market. I would like to underline again the term of “financially sustainable”, because in today’s insurance industry, micro insurance projects are mainly performed for social responsibility and insurance companies do not (cannot) expect any financial benefits. The products are not profitable, processes still need manual touches and projects need extra financial support from contributors.

The main issue is, how InsurTech will change this picture? (As I tried to explain during my speech) First, with disruptive technologies, like AI, IoT and BlockChain, processes (mainly UW, claims, and collection) will be digitalized and operational costs will be mostly decreased. Insurers won’t need any traditional distribution channels for reaching their low-income customers. UW analysis and claims will be handled by AI programs which can be uploaded to smart phones. (In traditional side, every 30 cent of 1 dollar premium (%30) is spent for operational costs). In other words, main processes will be outsourced to customers. (Examples can be diversified) With its widening customer base, insurance companies will have more stable cash-flows (law of large numbers), they will be supporters, and in future business partners, of developing economies.

Last but not least, these mostly automatized business models will be references also for traditional channels and contribute to their transformation. Above all, all these changes occur in relatively very short time period.

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