About insurance

• Section I. General
  
• Section II. Fundamentals of the insurance activity
  
• Section III. Guarantee of financial stability of the insurers
  
• Section IV. State control over the insurance activity
  
• Section V. Conclusions

Section 1. General

1. Insurance is accomplished in accordance with the present Law, other legislative acts of the Azerbaijan Republic taken on the basis of the present Law and also normative acts of State insurance control body.

2. The present Law determines legal, organisation and economic principles of insurance and regulates relationships between the participants of the insurance act.

The present Law doesn't affect State social insurance.

Insurance represents relationships in protection of the property and the proprietary interests of the insurant or other persons whenever insurance agreement has been concluded in their favour, by way of compensation of caused damages.

In case of events specified in the Law or in the insurance agreement losses are compensated from the resources of funds created at the expense of insurance contributions.

Reinsurance and coinsurance are kinds of insurance.

1. The property and the proprietary interests of physical persons and legal entities which do not contradict legislation of the Azerbaijan Republic are objects of insurance.

Depending on the object of insurance the following types of insurance exist: personal insurance, property insurance and liability insurance.

2. The insurance might be voluntary and obligatory, it may be done by all insurers irrespective of the organisation-legal form and form of property except cases specified in the present Law.

3. General procedures of the voluntary insurance are determined by the insurer in accordance with the present Law.

Kinds and specific terms of the voluntary insurance are defined when concluding agreement between the insurer and the insurant.

4. Types, terms and procedure of implementation of the obligatory insurance are determined by the Laws of the Azerbaijan Republic.

1. The insurants are physical persons (except persons with limited capability or persons whose rights have been restricted by the Law court and also recognised as incapable) and legal entities having concluded agreement with the insurer or being insurants by Law.

2. The insurants have the right to conclude agreements in favour of the third parties.

3. The insurants have the right, when concluding insurance agreement, to appoint any physical persons and legal entities for receiving insurance compensations and also to replace them before the case for insurance arises.

The insurers are legal entities established especially for carrying out the insurance activity which obtained licenses for implementation of insurance activity on the territory of the Azerbaijan Republic in accordance with the present Law.

The insurers must be registered in accordance with provisions of the present Law and shall act based on their Regulations or Charters.

The insurers can't be involved in productive, trade-intermediary and banking activity.

According to legislation of the Azerbaijan Republic the insurers might establish unions, associations and other companies for co-ordination of their activity, protection of interests of their members and implementation of joint programmes. These unions themselves have no right to carry out insurance activity.

After the registration in the State insurance control body insurers' unions act as legal entities based on their Charters.

1. Insurance intermediaries (agents and brokers) are legal entities or physical persons ensuring conclusion of the insurance agreement.

2. Insurance agent represents the insurer. He works for payment within the limits of authority given by the insurant.

3. Insurance broker is an independent intermediary registered as legal entity or businessman in an order envisaged by the present Law. It (he) operates on its (his) own behalf at request of the insurer or the insurant.

Object of the insurance might be insured by several insurers based on single agreement. Terms defining rights and obligations of each insurer are specified in this agreement.

1. Reinsurance is the insurance of part of risk concerning fulfilment of one insurer's obligations as regards the insurant with another insurer (reinsurer).

2. The insurer which has concluded agreement with the reinsurer is fully responsible for its obligations to the insurant.

3. The reinsurer is responsible for its obligations to the insurer.

The insurance agreement is agreement between the insurant and the insurer. According to this agreement, whenever insurance case arises, the insurer undertakes to pay insurance compensation to the insurant or other person — beneficiary within the limits of the insurance agreement, and the insurant undertakes to pay insurance contribution within the specified term.

Based on mutual agreement between the parties other requirements might be put forward: the agreement must comply with the civil legislation of the Azerbaijan Republic.

1. The insurance risk is such expected event which is insured in advance. Event considered as the insurance risk should have signs of probability and fortuity.

2. The insurance case is the case which is the base for payment of the insurance compensations envisaged by the Law or insurance agreement to the insurant or to the third parties.

1. The insurance sum is the limit sum of money intended for payment to the insurant in compliance with the Law or insurance agreement. This sum determines amounts of insurance contributions and insurance compensations.

2. The insurance compensation is the sum of money paid as reimbursement of damage caused to the property or proprietary interests of the insurant whenever the case for insurance arises.

1. Personal insurance is the insurance of the proprietary interests related to life, health, ability to work and provision of pensions to physical persons.

In the agreement on personal insurance the insurance sum is defined by the insurant on agreement with the insurer.

Insurance compensations are paid to the insurant or to the third person irrespective of sums due to him in accordance with other insurance agreements, and also on social insurance, social security and compensation of losses. Whereas compensations obtained by the persons appointed by the insurants are not included into the property inherited upon death of the insurant'.

2. Property insurance is the insurance of the property of physical persons or legal entities or their proprietary interests in connection with risk for business, banking and other commercial activity.

Insurance sum shall not exceed actual cost of the property at the moment of conclusion of the insurance agreement (insurance cost). The parties cannot contest the insurance cost of the property except cases when the insurer is able to prove that it was intentionally misled by the insurant. If the sum of the insurance compensation determined in the insurance agreement exceeds insurance cost of the property then agreement is considered invalid as regards the excess insurance sum.

Whenever the insurance agreement doesn't envisage specific sum of the insurance compensation insurance compensation payments must not exceed the sum of direct losses caused by the insurance case.

In case when the insurance sum is less than the insurance cost of the property sum of the insurance compensation is reduced in proportion to the ratio "insurance sum: insurance cost of the property" if not specified otherwise by the provisions of the agreement.

3. Liability insurance is the insurance of the proprietary interests related to the compensation of damage caused by the insurant to the physical person or to the property of physical person an also of legal entity.

Terms and procedure of the liability insurance are determined by the Law or the insurance agreement.

1. The insurance contribution is the sum of money that the insurant must pay to the insurer in accordance with the insurance agreement or Law.

2. The insurance tariff is the rate of insurance contribution to be taken from the unit of the insurance sum.

In case of the voluntary insurance insurance tariffs are estimated by the insurer and are specified in the insurance agreement on mutual consent of the parties.

With the obligatory insurance insurance tariffs are specified in the legislation concerning obligatory insurance.

Section II. Fundamentals of the insurance activity

1. To conclude insurance agreement the insurant sends written application to the insurer informing the latter about his (its) intention or informs it personally.

2. If not specified otherwise the agreement becomes valid from the moment of payment of the first contribution by the insurant.

The fact of conclusion of the insurance agreement is confirmed by the insurance certificate of conventional form with enclosed insurance rules given to the insurant.

3. Alongside with general data concerning the parties under the agreement the certificate shall contain the following: object of the insurance, insurance risk, amount of insurance sum and insurance contribution, procedure of insurance payments and payment of insurance contributions, term of validity of the agreement, procedure of changes and termination of the agreement; the certificate must be signed by both parties.

By mutual consent of the Parties Insurance Certificate may include other conditions, including amendments to insurance terms or exceptions from these terms.

1. The insurance payment is accomplished by the insurer in accordance with the insurance agreement or legislation based on the application of the insurant and insurance act.

The insurance act is prepared by the insurer or the nominee of the insurer. The insurer has the right for clarification of causes and circumstances of the insurance case.

2. The enterprises, companies and organisations, including banks and public prosecutor's offices, at request of the insurers shall supply them with information in connection with the insurance case.

1. The following will be the reason for refusal in insurance payment by the insurer:

• deliberate acts of the insurant or other person being the beneficiary under the insurance agreement aimed to creation of the insurance case or deliberate crime directly connected with the insurance case;
• deliberate supply of the insurer with false information by the insurant;
• compensation of losses borne by the insurant when insuring the property from the person responsible for said losses.

2. Provisions of the insurance agreement might include also other grounds for refusal in insurance payment, however these should not contradict to legislation of the Azerbaijan Republic.

3. Decision about refusal in insurance payment shall be sent to the insurant in a written form, with explanation of the reasons.

4. The insurant might appeal to law court or court of arbitration against the insurer' refusal in insurance payment.

1. The insurance agreement is terminated in the following cases:

• expiration of the term of agreement;
• whenever obligations of the insurer with respect to insurant are complete;
• if the insurant fails to pay insurance contributions within the specified term;
• liquidation of legal entity or death of physical person, except cases provided for in the Article 22 of the present Law;
• liquidation of the insurer in an order specified by legislative acts of the Azerbaijan Republic;
• decision of the law court regarding the insurance agreement as invalid;
• other cases envisaged by the laws of the Azerbaijan Republic.

2. At request of the insurant or insurer the insurance agreement may be terminated ahead of time in cases envisaged in insurance agreement and also based on the agreement between the parties. In such case the parties should notify each other at least 30 days before.

3. Whenever the insurance agreement is terminated ahead of time at request of the insurant, the insurer compensates insurance contributions due for remaining term of the agreement less expenses; in case if such request is caused by the violation of the insurance rules by the insurer, the latter shall reimburse the total sum of insurance contributions to the insurant.

Whenever the insurance agreement is terminated ahead of time at the request of the insurer, the insurer compensates total sum of insurance contributions to the insurant; in case if such request is caused by violation of the insurance rules by the insurant, then the insurer shall return insurance contributions for the remaining term of the agreement less expenses.

1. The insurance agreement is considered invalid from the moment of its conclusion in the following cases:

• whenever such agreements are concluded with incapable persons and those recognised as incapable by law court;
• if the object of insurance is the property to be confiscated at the decision of the law court;
• whenever such agreements are concluded after the insurance case takes place;
• whenever such agreements are concluded with persons that have no right to conclude agreements on behalf of the insurer.

2. Decisions about recognition of the insurance agreement as invalid are taken by the law court or court of arbitration.

1. The insurant must:

• pay insurance contributions in time;
• inform the insurer about other insurance agreements existing in connection with the object of insurance;
• on commencement of the insurance case inform the insurer in term specified in the insurance agreement;
• take measures for prevention and decrease of losses;
• on conclusion of the agreement inform the insurer about the circumstances which are important for estimation of risk and subsequent significant change of risk.

2. Insurance agreement might also include other obligations of the insurant.

1. The insurer must:

• advise the insurant about the insurance rules;
• after the insurant takes measures intended for decrease of risk of insurance case and amount of possible damage to the insured property, or on increase of actual cost of the property
• reconclude the insurance agreement accounting for the above circumstances;
• carry out insurance payment within the term specified by the agreement or law. Otherwise the insurer shall pay penalty to the insurant in the amount of 0,2 percent of the insurance sum for the first 5 days and after that 1 percent for each day of delay;
• reimburse expenses of the insurant on prevention or decrease of damage to the insured property if this is specified by the insurance regulations; expenses exceeding amount of losses shall not be reimbursed;
• keep confidential information concerning the insurant and its proprietary conditions, including information which constitutes commercial secret. The insurers shall be responsible for confidentiality of this information according to legislation of the Azerbaijan Republic.

2. Insurance agreement might also include other obligations of the insurant.

1. In case of death of the insurant who concluded agreement about property insurance his rights and obligations pass to his heir.

In case of sale, exchange, present, lease of the insured property rights and obligations of the insurant, at the insurer' consent, pass to the person that accepted the property if not specified otherwise by the agreement or legislation.

2. In case of death of the insurant who concluded agreement on personal insurance in favour of the third person his rights and obligations pass to this person at his consent. If this person cannot fulfil obligations under the insurance agreement his rights and obligations might pass to the persons fulfilling, according to legislation of the Azerbaijan Republic, obligations on protection of rights and legal interests of the insured person.

3. If during the period of the agreement' validity the insurant has been recognised incapable by the law court or if his capabilities are limited then his guardian or trustee undertakes rights and obligations of such insurant. Liability insurance is terminated from the moment of cessation or restriction of the insurant' capability.

4. In case of reorganisation of the insured legal entity during the period of validity of the insurance agreement rights and obligations of said legal entity under said agreement, at the insurer' consent, pass to respective successor in an order specified by the Azerbaijan legislation.

The insurer which paid insurance compensation as per the property within the limits of the sum paid by him obtains the right of the insurant or other person for compensation from the person responsible for caused damage.

The insurers are liquidated in an order envisaged by legislation of the Azerbaijan Republic.

State insurance control body must be immediately notified about the decision to liquidate the insurer.

At consent of the insurer' constitutor liquidation commission is established by the State insurance control body.

Section III. Guarantee of financial stability of the insurers

Paid partnership capital, insurance reserves and funds and also reinsurance system provide the basis of financial stability of the insurer.

1. To cover expected insurance payments as per undertaken insurance obligations the insurers at the expense of insurance contributions establish insurance reserves according to legislation of the Azerbaijan Republic.

Likewise the insurers may establish reserves aimed to financing measures on prevention of possible insurance case and also necessary expenses for prevention and decrease of losses resulted from the insurance case.

2. Using the profit remaining after payment of taxes the insurants might create additional funds for financing their activity.

3. Budgetary payments shall not be done from the insurance reserves and funds.

4. The insurers have the right to invest or to use in some other way the insurance reserves.

5. The insurers are subject to taxation in accordance with tax legislation of the Azerbaijan Republic.

1. To provide their solvency the insurers should keep to the established ratio between the sum of assets and sum of insurance obligations less sums paid for reinsurance. Method of calculation of these ratio and normative amounts of said sums are established by State insurance control body.

2. If the insurer cannot fulfil its obligations at the expense of its own resources and reserves it must provide implementation of respective part of these obligations by way of reinsurance. Otherwise, to keep to said established ratio the insurer must either replenish its partnership capital and reserve fund or reduce its insurance operations.

1. Procedures of accounting for the insurer, indices and report forms, registration of insurance operations are established by the State insurance control body on agreement with the Ministry of finances and State Committee on Statistics of the Azerbaijan Republic.

2. Upon auditor' confirmation of the accuracy of data containing in annual balances, income statements the insurers publish the results.

Section IV. State control over the insurance activity

1. State insurance control body carries out control over the insurance activity in the Azerbaijan Republic with the objective of protection of rights and interests of insurants, insurers, other interested persons and also states, fulfilment of requirements of the insurance legislation.

State insurance control body acts in accordance with regulations approved by the Cabinet of Ministers of the Azerbaijan Republic.

2. Main functions of the State insurance control body are the following:

• issue of licenses for accomplishment of insurance activity to the insurers;
• keeping joint state register of the insurers, insurance companies and insurance brokers;
• control over validity of the insurance tariffs and solvency of the insurers;
• establishment of rules of formation and placement of the insurance reserves of the insurers;
• development of normative and methodical documents connected with insurance activity, within the limits of authority delegated by the present Law;
• generalisation of the insurance practice, development of proposals on development and improvement of the insurance activity.

State insurance control body has the right:

• to receive from the insurers data and reports about their activity, reports about their financial situation, to check reliability of these data, how they fulfil the requirements of the insurance legislation, to apply to banks and other credit organisations and enterprises in connection with the insurers' activity;
• whenever violations in provisions of the present Law are revealed in the activity of the insurer, to give recommendations on elimination of said violations, and if the insurer fails to fulfil the recommendation — to restrict or suspend the action of the insurers' license;
• in case of multiple violations of the insurance legislation of the Azerbaijan Republic by the insurer to appeal to the court of arbitration requesting the insurer' liquidation.

The insurers, their unions and insurance brokers are registered by State insurance control body in accordance with legislation of the Azerbaijan Republic.

1. The license for carrying out insurance activity is issued by the State insurance control body based on the application of the insurer with the following documents enclosed:

• constituent documents;
• registration certificate or its copy;
• reference about amount of paid partnership capital;
• indices of economic activity;
• insurance rules for various kinds of insurance;
• determination of the insurance tariffs.

2. Within 30 days from the date of presentation of the documents the State insurance control body must either issue the license or refuse, having specified the reasons in a written form.

3. Inconsistency of the documents enclosed with the application of the insurer with the requirements of legislation of the Azerbaijan Republic might result in refusal in license for insurance activity.

4. The insurer might appeal to the law court in case of refusal in license.

5. The insurer must notify the State insurance control body about all changes and amendments introduced into the constituent documents within 30 days from the date of their registration in an established order.

State Committee of the Azerbaijan Republic on antimonopoly activity and support of business activity together with the State insurance control body provide prevention, restriction and termination of monopolism and unfair competition in the sphere of insurance.

Section V. Conclusions

1. Foreign legal entities have the right to establish insurance organisations on the territory of the Azerbaijan Republic together with local legal entities only in the form of joint insurance companies or stock companies in an order stipulated by the legislation of the Azerbaijan Republic.

Share of foreign investors in the partnership capital of these organisations shall not exceed 49 percent.

2. Joint insurance companies get registered, obtain licenses in

an established order and carry out activity in an order and on conditions specified by the present Law.

Foreign citizens, stateless citizens and foreign legal entities on the territory of the Azerbaijan Republic have equal right for insurance (protection) with citizens and legal entities of the Azerbaijan Republic.

Whenever provisions of the international agreements of the Azerbaijan Republic differ from regulations specified by legislation of the Azerbaijan Republic then provisions of the international agreements shall apply.

All disputes in connection with the insurance are settled in the law court, court of arbitration within the limits of their authority.

National Assembly of the Azerbaijan Republic decides:

1. To bring into effect the Law of the Azerbaijan Republic “About insurance” from the date of its publication.

2. To instruct the Cabinet of Ministers of the Azerbaijan Republic, within 3 months:

• to present to National Assembly of the Azerbaijan Republic proposals concerning bringing existing legislation into line with the Law of the Azerbaijan Republic “About insurance”;
• to bring decrees and orders of the Cabinet of Ministers of the Azerbaijan Republic into line with the present Law;
• to provide revision and annulment by ministries, state committees and agencies of the normative documents, including instructions contradicting the present Law;
• to approve regulations on State Insurance Control Body of the Azerbaijan Republic and State Insurance Commercial Company of the Azerbaijan Republic;
• to approve procedure of registration of legal entities involved in insurance and requirements to constituent documents and other documentation necessary for their registration.

3. To advise the President of the Azerbaijan Republic to bring his decrees into line with the Law “About insurance”.

4. To establish minimum amount of paid partnership capital for obtaining licenses on insurance activity for insurers —5 mln roubles and for reinsurers — 35 mln roubles.

5. To specify that State Insurance Control Body withdraws to Republican budget from insurers and reinsurers 100 thousand roubles for each initial license and 50 thousand roubles — for each repeated license.

6. To specify that insurers which before the present Law was brought into effect did not keep to normative ratio between the sum of assets and taken responsibilities, in term agreed with the State Insurance Control Body, must either increase their partnership capital or reinsure part of the risks with respect to fulfilment of their obligations, or use other means for support of their solvency not contradicting legislation of the Azerbaijan Republic.