By Aynur Jafarova
Azerbaijan needs tax and financial incentives for the development of agricultural insurance, Khayal Mammadkhanli believes.
"The problem of underdevelopment of this type of insurance in the country is rooted in the funding and the lack of a mechanism for agricultural insurance in general, although farmers are ready and interested in insuring their risks," the expert in the field of insurance told Trend Agency.
The farmers in the European countries are provided with preferential loans and loans for business activity to promote the agricultural insurance in case of existence of insurance for agricultural products.
Azerbaijan can take similar measures by providing subsidies for agricultural insurance, preferential loans and other financial resources.
"The government can stimulate agricultural insurance by persuading fiscal policy, that is, if deducting the insurance expenditures from income, it will lead to the reduction of the tax base, which is also an incentive. Currently, farmers have to pay these expenditures in the expense of income," he noted.
Agricultural insurance is usually classified based on the risks of insurance of animals, plants and machinery and equipment, assets of farmers, and investment risks.
Mammadkhanli thinks today there is a significant need in insurance of products from natural disasters, pests, as well as insurance of agricultural machinery (machines, equipment and tractors) in Azerbaijan.
According to the amendments to the law 'on the assistance and development of agriculture in Azerbaijan" approved in summer 2007, the share of public financing in the agricultural insurance premium was increased from 25 to 50 percent.
Besides wheat, barley, maize, sunflower, potato, sugar beet and vegetables were included to the list of agricultural crops, insured by the funds of the state budget.
The average tariff on agricultural insurance in Azerbaijan amounts to around 1,500 manats per year (five percent per hectare), while the average profit per hectare is about 25,000 manats per year.
Each year Azerbaijan's officials in charge of state budget determine the funds for covering 50-percent cost of the insurance contract with the farmers, but, unfortunately, it is almost never used by 100 percent.
The expert also noted one of the reasons for the underdevelopment of agricultural insurance in Azerbaijan is lack of awareness of farmers about insurance and their opportunities.
Not all companies are willing to engage in agricultural insurance due to the specificity of this trend and the big risk.
Orkhan Bayramov, the Chairman of Azerbaijan Insurers Association (AIA), believes for the development of agricultural insurance it is necessary to implement it on a voluntary basis.
He said currently, introduction of compulsory insurance will not be effective due to the large risk to insurers. However, the introduction of mandatory agricultural insurance is inevitable.
Otherwise it will be impossible to ensure the development of this field. This will cover the risk of 'bad' areas at the expense of 'good' areas, because not all of them have the same weather conditions.
Currently, the market capacity of agricultural insurance in Azerbaijan is estimated at 150-200 million manats.
Some 28 insurance companies are working in Azerbaijan. AIG Insurance (now Chartis), AXA, Miracle Insurance and Financial Group, Basak, Glencarron Group Limited are the largest international players in Azerbaijan's insurance market.
Also, Slovenian Sava Re reinsurance company, German Munich Re insurance company, Russian ROSGOSTRAKH, ROSNO companies have shown great interest to Azerbaijan's insurance market.