The state is minded to line pockets at uninsured citizens’ expense in 2020

Starting from January 1, 2020 each of approx. two million owners of apartments, houses and/or summerhouses in Azerbaijan may be penalized for non-payment of insurance policy on compulsory real estate insurance. It ought to be noticed that the Law on Compulsory Real Estate Insurance was adopted in Azerbaijan on July 24, 2011, came into effect in a month; however, it will be enforced in 2020 unless President annuls the Law or extends its moratorium.

Bearing in mind that an average household consists of five members, it is obvious that 2 million families out of total 10 million-strong population of Azerbaijan live in apartments, summer- or country-houses. Remark though that rich men are in possession of several aparttments, cottages and summer-houses while poor men have to live in rental apartments, so it’d be appropriate to take this number of landowners as conditional unit. It follows from what has been noted above that 2 million citizens should make insurance contracts with one of 12 licensed insurance companies. If so, insurance companies will gain 500 million manats from the state investing not a dime into country’s economy (not counting tax deductions).  

The point to be emphasized is that in 2018 when citizens could avoid real estate insurance, compulsory insurance service charges made up 30 mln 364,500 manats (8,7% growth from 2017), payments – 4 mln 25,200 manats (42,3% growth). In other words, net profit constituted more than 26 mln manats. It has to be kept in mind that underwriters produce no foods ans commodities nor build houses; they create no value added nor risk their business while their excess profits anounted to 650%!

Particular empghasis needs to be placed on the fact that with their excess profits the insurance companies are not minded to pay money to citizens for real estate losses in apartments caused by fires, flood, earthquake, blasts, landslide, accidents in sewage, water supply and electric systems, thunderbolt, natural disasters. Let’s look at the widely spread in Azerbaijan accident – failure of a dweller’s  waterpipeline and subsequent covering of a neighbor’s apartment with water. Compensation falling on damage of walls, roofs and ceilings is valued at not more than 25, 000 manats (at minimum 50-manat worth insurance policy). Note that a payment in Gyanja, Sumgait and Nakhchivan amounts to 20, 000 manats; in other populated localities – 15, 000 manats. One must note that losses worth less than250 manats are subject to no compensation (franchise). Note that the contract does not cover a property inside apartment.

It is worth pointing out that the mechanism of penalizing «persistent defaulters» remains unclear. Under the said Law, this duty has been placed executive power bodies. In an interview for 1news.az a representative of the Bureau of compulsory insurance said that the BCI was a not a supervisory body in executing the Law at issue. In all probability, a responsible structure will be specified in the first months of 2020.

It is worth remembering that social networks, press and TV give a wide coverage of expert estimates. Thus, carowner Rena Khalilova is distrustful of insurance companies: over 9 months she failed to receive insurance from АТА СЫГОРТА for her damaged car. She is not going to insure her apartment: «It is foolish to insure my apartment against myself? », she asks in social network.

In turn, Sabina Kuliyeva featured the situation as «Ponzi scheme».

Also, lawyer Farkhad Mehtiyev believes that it is impossible to implement the Law on a mass scale, for it is deficient in many crucial components. How is that possible that owners of three-storied marble villas, on the one hand, and those of two-room flats and wood cottages, on the other hand, must pay one and the same insured sum – 50 manats and receive one and the same compensation from the insurance company?  That’s not fair, so a differentiation is to be made in the Law depending upon quality and even freshness (depreciation) of real estate.

Added to this can be that while on the air Mehtiyev touched upon the fiture Law as saying that in principle the state has no right to interfere with a citizen’s right to independently decide on his attitude to property. If a citizen considers it unnecessary to insure a flimsy dwelling, he is entitled to tackle a subject at hiw own discretion.

It must be borne in mind that to Mehtiyev’s thinking a widely spread thesis on application of the Law in other countries is ungrounded. For instance, earthquakes occur frequently in Turkey (as well as frequent floods in the central part of Russia and in European Venice– К.А.), whereas these natural occurences are rare for Azerbaijan. He quoted statistical 2018-data when the compulsory real estate insurance was executed voluntarily in the country. There occurred 1376 fires in terms of 2 million dwellings across the country which is down one percent of all apartments and houses.

It will be remarked that F. Mehtiyev offers the state to decline from the Law on Compulsory Real Estate Insurance or essentially reduce a mandatory insurance payment to thus urge citizens to settle with insurance compasnies.

To sum up, under a Plan of actions on insurance sector development in 2019-2021ratified by the Cabinet of Ministers dated May 21, 2019, it is stipulated to integrate the Bureau of compulsory insurance electronic system into electronic systems of public bodies. In other words, insurance companies will have information about there being or not being insurance policy automatically, without applying to landowners.

Judging from the fact that no queues are lined near offices of insurance companies, approx. 2 million uninsured real estate owners will receive penal noitces. In so doing, the state either will earn hundreds of millions of manats or be forced to decline from Law execution for fear of public anger.

Under the Code of administrative misdemeanours (Article 469.1), a penalty for failure to make a compulsory insurance contract is 30 manats. Should a landowner fail to insure his real estaste within two days after penalization, he would be repenalized for the same amount, and tghat will continue each 20 days.