IFC's Public Awareness Work: First Insurance Glossary in

Azerbaijan

Azerbaijan Mortgage Market Development Azerbaijan Mortgage Market Development ProjectProject

June 7, 2011

IFC Azerbaijan Primary Mortgage Market Development Project

Established in 2005;

core components of which are:

(1) to improve the legal and regulatory environment related to mortgage lending,

(2) to build mortgage-lending institutional capacity, and

(3) to raise mortgage awareness.

2

IFC’s Public Awareness Initiatives

- Mortgage Borrowers Guidelines 1 (2008)

- Mortgage Borrowers Guidelines 2 (2010)

3

IFC’s Public Awareness Initiatives (ctd.)

- Insurance Glossary (mortgage

lending)

- Insurance Glossary (securitization)

4

IFC’s Public Awareness Initiatives (ctd.)

Insurance Glossary

100 TERMS necessary for mortgage borrowers!

"Users need to understand sense of terms in the agreements they are signing“!

- First in Azerbaijan;

- Short definition, example, reference to Azerbaijani and international Laws/acts per each term;

- Main target: insurance clients (insured);

- Interesting for professionals, partners (banks), judges, law-enforcement bodies.

5

IFC’s Public Awareness Initiatives (ctd.) 5. DeductibleShort definition: the portion of losses and damages arisen from the insurance event not covered with the

insurance coverage and remained on the insured person.

Example: Deductible amount is defined as AZN500 in the car insurance agreement. The damage in the amount of AZN8900 takes place as a result of the insurance event. In this case, the insurance company shall pay AZN8400 (8900-500=8400) to the insured person. If the agreement had reflected franchise (not deductable), the insurance company would have pay AZN 8900, whereas the damage is more than that amount (AZN500). If the damage is less that deductable amount (for example, AZN489), no payment would be made irrespective of deductable or franchise is defined.

Reference to Azerbaijani Legislation: the portion of losses and damages arisen from the insurance event not covered with the insurance coverage and remained on the insured person (Civil Code, Section 898.2);

In case of franchise, if the amount of damage is more than that amount, no deductible amount is subtracted from the damage amount. In case of deductible, the deductible amount is considered at all cases (Civil Code, Section 898.3).

Reference to international documents: Some policies (insurance agreements) require the coverage of damage’s portions by the insured in the concrete or percent from the damage amount. In case of franchise, the payment is related to the concrete sum of the damage or less; in case of deductible, the deduction is considered at all times irrespective of the damage amount.

(OECD Insurance Secretary, Summary on Insurance and Private Pension sector in the developing countries, 1st book, page 14)

Deductible-the coverage of some portion of the damage by the insured if the damage exceeds the agreed amount.

(Insurance Glossary of International Association of Insurance Supervisors, 2005, page 22).

6

IFC’s Public Awareness Initiatives (ctd.)53. CessionShort definition: the portion of insurer’s risks transferred to the reinsurer.

Example: Insurance Company ”A” insurers the risks in the amount of AZN 300,000 pursuant to the insurance agreement and transfers the risks in the amount of AZN 150,000 from those to the Reinsurance Company “B”. The portion of the risks in the amount of AZN150,000 transferred to Reinsurance Company “B” is called Cession.

Reference to Azerbaijani Legislation: not used.

Reference to international documents: amount of risks reinsured by the insurer; portion transferred to reinsurer.

(Insurance Glossary of International Association of Insurance Supervisors, 2005, page 14).

7

Coming Soon: Encyclopedia of Financial Terms!

T H A N K Y O U !

for comments and questions: aabdullayev@ifc.org

8