Azerbaijan's insurance market From risk to growth

In recent years, Azerbaijan’s insurance market has shown strong performance, despite risks associated with global recession, inflation, and other adverse economic trends. Over the past five years, the volume of the domestic insurance market has doubled, including an 11% growth in premiums in 2024.

According to statistics released by the Central Bank of Azerbaijan (CBA) on May 26, insurance company premiums increased by 8.4% in the period from January to April 2025.

To expand the scale and depth of market coverage, the CBA is consistently reforming the sector—promoting digital mechanisms, optimising the segment of compulsory insurance types, and developing agricultural insurance.

Domestic insurance companies, like all segments of the financial market, went through a difficult period during the manat devaluation, the banking default crisis, and, a few years later, the pandemic-induced economic downturn. As a result, the market shed its weakest players: the number of insurance companies declined from 27 a decade ago to 16 today.

However, this challenging experience became the foundation for reforms implemented by the CBA to rehabilitate the sector. The legal and regulatory framework was strengthened, prudential indicators improved, and the adoption of advanced international standards enhanced reinsurance coverage and increased reserve allocations. These measures have helped to minimise the risks of potential future force majeure events.

As a result of these efforts, the assets of Azerbaijan’s insurance sector grew by 34% over the past three years, while the capitalisation of market participants increased by more than 7%. Notably, the insurance market grew by 15% in 2022 and surged by 26% in 2023.

These positive trends continued last year: with total premiums exceeding 1.353 billion manats ($796 million), the market recorded growth of 11%. In 2024, the combined income of the 16 insurance companies surpassed 1.362 billion manats ($801 million)—an increase of 21.9% compared to the previous year. Meanwhile, insurers’ investment income for the year approached 115 million manats ($67.6 million), reflecting an annual growth of nearly 37%.

Overall, the total assets of Azerbaijan’s insurance sector reached 2.049 billion manats ($1.2 billion) by the end of 2024, marking a 13.4% year-on-year increase.

According to experts, these achievements were driven by improved market conditions, growing demand for insurance services, and, importantly, the CBA’s reform initiatives in recent years.

“As a result of large-scale projects aimed at enhancing insurance literacy, implemented in recent years, the insurance market in Azerbaijan saw growth in both 2023 and 2024. A major contributor to this growth was also the ‘Insurance Festival’ project,” said Elmar Mirsalayev, Executive Director of the Azerbaijan Insurers Association (ASA).

It appears that this positive momentum is set to continue throughout the current year. According to statistics published by the CBA on May 26, the total volume of premiums collected in the domestic insurance market during January–April 2025 exceeded 588.465 million manats ($346 million), reflecting a year-on-year growth of 8.4%.

Encouragingly, the ratio of insurance premiums to gross domestic product (GDP) has also improved: while this figure stood at 1.1% for all of last year, it reached 1.5% in just the first third of 2025.

Unfortunately, despite the impressive growth in premium accumulation in recent years, the penetration rate of Azerbaijan’s insurance market—measured as the ratio of gross premiums to GDP—remains extremely low. According to international standards, this indicator is closely linked to the volume of private sector bank lending and the income levels of the population: the higher these metrics, the stronger the ratio of insurance premiums to GDP.

For comparison, countries such as the United States, China, Japan, and those in the European Union record significantly higher figures in this regard. This underscores the growth potential for local insurers, particularly in the compulsory insurance segment.

Meanwhile, the CBA highlights the growing role of the insurance sector in the country’s financial system: over the past three years, the share of insurance companies’ assets within the total assets of the financial system has increased from 3.2% to 3.8%.

In order to increase the insurance sector’s share within the national financial system, deepen market coverage, and raise the volume of premiums relative to GDP, the CBA outlined strategic mid-term goals for insurance companies at the beginning of this year. These goals include expanding insurance coverage, effectively protecting consumer rights, and, as a result, raising the insurance trust index from the current 66% to 80%.

Plans also include increasing per capita insurance premiums from the current 121 manats ($71) to 195 manats ($114), and enhancing insurers’ solvency to ensure more effective risk management.

For many years, the majority of insurance premiums have come from the voluntary insurance segment. From January to April of this year, voluntary insurance accounted for 76.8% of total premiums—more than 451.855 million manats ($266 million), with a growth rate of 10.1%.

In comparison, premiums from compulsory insurance totalled just 136.610 million manats ($80.3 million) during the same period—almost three times less—and posted a more modest growth rate of 3.2%.

Accordingly, the CBA’s strategy aims to ensure fuller coverage across all five categories of compulsory insurance, a segment that is developing steadily but lacks strong momentum. However, in certain areas—such as compulsory motor third-party liability insurance (MTPL)—penetration levels are close to 100%.

One of the key priorities outlined in the Central Bank’s “Financial Sector Development Strategy for 2024–2026” is the digitalisation of the insurance sector, as the adoption of IT innovations is recognised as an indispensable tool for delivering accessible and high-quality services.

“Digitalisation is a crucial element in the development of the insurance market: the widespread availability of online insurance services, the introduction of electronic contracts, and the advancement of automated solutions have made the process more convenient and accessible for clients,” said Ulviyya Jabbarova, Chairperson of the Supervisory Board of the Azerbaijan Insurers Association (ASA).

“Among these improvements are enhanced mobile applications and revamped websites, as well as increased accessibility of services through the use of artificial intelligence (AI).”

When discussing promising areas of the insurance market, the agricultural segment cannot be overlooked, as its coverage by insurance products was, until recently, very limited. At the recent 4th Agribusiness Development Forum in Baku, Deputy Chairman of the CBA Togrul Aliyev noted that the CBA intends to improve the agricultural insurance system by expanding the range of agro-insurance products, applying innovative risk management methods, and thereby increasing farmers’ trust in this sector.

Since its inception, the Agricultural Insurance Fund has paid out insurance compensation totalling approximately 15 million manats ($8.8 million) to affected farmers and enterprises.

Azerbaijan’s state-supported agricultural insurance mechanism is based on the Turkish TARSİM model and provides 50% government coverage of insurance premiums. According to CBA data, in 2024, the number of agricultural insurance contracts in Azerbaijan increased by 9% compared to the previous year, while the number of insured agricultural items grew by 5%.

The expansion of agricultural insurance is recognised as one of the most effective ways to reduce sector-specific risks, thereby accelerating the involvement of commercial banks in financing the agricultural sector.