Historical Development and Current State of Insurance in Uzbekistan

At all stages of Uzbekistan existence, insurance in one form or another protected the property interests of individuals and legal entities. The main periods of insurance development on the territory of modern Uzbekistan are shown in Table 4.1.

Table 4.1. Periods of insurance development in the territory of modern Uzbekistan

Source: Developed by the author on the basis of R. Azimov (2021). Insurance in Uzbekistan: history, current state, challenges in the process of development, insurance of foreign economic activity, p. 168

Historical materials and documents prove the emergence of mutual insurance elements in the first period of insurance development on the territory of modern Uzbekistan – they mainly related to the goods and vehicles, which were pack animals, participants in trade caravans entered into agreements with each other under which they jointly suffered losses arising during the journey as a result of robbery, theft or loss (History of insurance,2023.).

During the reign of Amir Timur, the fundamentals of state insurance were laid. Under Amir Timur governance, the merchant’s losses as a result of robbers’ attack or natural factors impact were compensated with gold from the state treasury, and he was able to continue his activities, i.e. compensation was made in cash. Farmers also received similar protection: if they lost the opportunity to carry out their activities as a result of natural factors impact, the state gave them seeds and agricultural tools, that is, compensation for loss was paid not in cash, but in the form of specific property. Thus, in the era of Amir Timur, along with elements of non-commercial mutual insurance, there were elements of state insurance when the state participated in compensating the damage to merchants and farmers (Code of Timur, 1992).

During the period of early capitalism – from the end of the 19th century until the October Revolution of 1917, representatives of such foreign insurance companies as “New York” and “Equitable” American companies (Kalmykov, 1997), “Urbain” French insurance company, “Russia” and “First Russian Fire Insurance Society” Russian insurance companies (Efimov et al., 1997). There were no national insurance companies in the country in the pre-revolutionary period. The insurance needs of the main population segments were satisfied through a special form of national non-profit mutual insurance – co-participation (hashar) and self-insurance.

In the fourth period of insurance development in Uzbekistan – the Soviet period of the country’s development, insurance was carried out by a single union-republican system on the basis of a state monopoly.

In the fifth period of insurance development in the country – at the time of gaining independence, the socio-economic situation in Uzbekistan was critical:

• since the Soviet period of development, the Uzbek SSR was focused on production of cotton fiber, it received subsidies from the central budget (up to 20% of the republican GDP). Naturally, after independence, these subsidies stopped;
• 2/3 of the population was below the poverty line (had a total income below the subsistence level);
• in order to carry out independent monetary policy, it was necessary to urgently solve the issue with the national currency;
• unfavorable demographic situation (the share of children below working age (under 17 years) in the total population was 40%).

In addition, at the time of gaining independence, Uzbekistan was characterized by significant territorial and sectoral disproportions – large industrial enterprises were concentrated in certain cities, and the majority of the population (more than 60%) was engaged in agricultural production focused on a monoculture (cotton). Most of the industrial enterprises, except mining ones, had an open production cycle and were focused on the Soviet market. When cooperation ties were broken, no one needed these enterprises and their activities practically ceased. The republic imported the overwhelming majority of consumer goods and industrial resources from outside. In the current situation, the payment system collapse and the breakdown of economic ties between enterprises located in various republics of the former USSR led to a significant decline in production and sharp decline in the population living standards.

In the first years of independence in Uzbekistan, all the attributes of independent statehood development were created from scratch. First of all, it was necessary to create national legislation on the basis of the new Constitution, an independent system of public finances and balanced state budget, a national currency, a system and mechanisms of defense and security and, first of all, a national army, Border Protection Committee, to form the foreign policy of an independent state and many more.

The initial period of independent development of Uzbekistan was aggravated by the world’s largest environmental problem related to the unprecedented drying of the Aral Sea and the associated environmental and humanitarian disaster in the Aral Sea region, one of the main reasons for which was the policy pursued in the 60-80s of the last century aimed at increasing the sown areas under cotton. The situation in the initial period of independent development of Uzbekistan was also aggravated by the common border with Afghanistan in a permanent state of hostilities and the civil war in neighboring Tajikistan.

Taking into account the whole range of the problems listed above, the country’s leadership, led by President Islam Karimov, refused from the shock therapy and chose the Uzbek model of development and creation of modern statehood based on 5 principles, characterized by a gradual, evolutionary transition to market relations, rapid modern industrial production development, and the introduction of farming into agriculture, further improving the level and quality of population life through the entrepreneurship development and strong social policy.

Considering that the reform and further development of insurance activities on the basis of market relations had to be carried out in a short time, the country’s leadership has always paid due attention to the insurance market development. The general direction of the state policy in the field of insurance activity in the initial period of independent development of Uzbekistan was the creation of conditions for the rapid development of the insurance market as a necessary element of the country’s financial infrastructure, while liberalization of the insurance business was accompanied by the simultaneous formation of the base for the legal regulation of insurance activity in the republic.

At the time of gaining independence, in Uzbekistan, apart from the USSR Act “On Cooperation”, there were no other laws regulating the activities of non-state insurance companies. The Gosstrakh activities were regulated by regulatory documents of the Ministry of Finance of the USSR and the Ministry of Finance of the UzSSR. Therefore, the task of developing and introducing fundamental laws and by-laws regulating the activities of insurance market entities became urgent.

After adoption in 1993 of the Act of the Republic of Uzbekistan “On Insurance” the real transformation of the insurance market of the republic started. This law formed the necessary legal framework for the activities of non-state insurance companies while maintaining the monopoly of Gosstrakh (evidence of the monopolistic position of Gosstrakh was that the gross premiums written by all other insurers at the end of 1995 was less than one percent from the total collected insurance premiums). In April 1994, Uzbekinvest National Insurance Company (hereinafter referred to as Uzbekinvest) was organized to insure the foreign economic activity risks, and in 1995, Madad Insurance Agency was established for insurance protection of private and small businesses.

At the second stage of reforming the insurance market of Uzbekistan, the state chose the course of establishing insurance companies with state participation on the basis of Gosstrakh, such as Uzagrosugurta and Kafolat state-owned joint-stock companies and reorganization of Uzbekinvest into Uzbekinvest National Export-Import Insurance Company in February 1997.

The third stage of reforming the insurance market of Uzbekistan, which began in 2002 and continued until August 2019, was marked by the adoption of the Act of the Republic of Uzbekistan “On Insurance Activities” replacing the Act of the Republic of Uzbekistan “On Insurance”. The Act “On Insurance Activities” was the first in the legal practice of post-Soviet states to define the rights and obligations of the main subjects of the insurance market. At this stage of reforming the domestic insurance market, measures were taken to:

• develop and improve the insurance legislation of the republic in accordance with advanced foreign experience and the requirements of international organizations in the field of insurance;
• develop endowment life insurance types, develop and carry out innovative insurance products to protect the property interests of private and small businesses, foreign economic activity;
• establish relations between the domestic insurance market and insurance markets of the foreign countries and international insurance organizations;
• further develop professionalism of employees of insurance companies of the republic.
• The fourth stage of radical transformation of the insurance market of Uzbekistan began on August 2, 2019 with the adoption of the Resolution of the President of the Republic of Uzbekistan dated by August 2, 2019 №4412 “On Measures to Reform and Ensure the Accelerated Development of the Insurance Market of the Republic of Uzbekistan” (hereinafter referred to as the Resolution on Measures) and continued till the new edition of the Act of the Republic of Uzbekistan “On Insurance Activities” comes into force, i.e. until February 2022.

The important element of the fourth stage of reforming the insurance market of Uzbekistan, a new edition of the Act of the Republic of Uzbekistan “On Insurance Activities” came into force in February 2022. The new wording of the above act contains 10 chapters and 72 articles. For the first time in domestic insurance law, concepts such as cross-border insurance, insurance (reinsurance) pools, prudential standards are defined, and concepts such as reinsurance and coinsurance are clarified. However, such an important aspect of insurance activity as mutual insurance is disregarded.

Thus, insurance on the territory of modern Uzbekistan has passed in its historical development through five periods of its development, and the fifth period of development of the insurance market of independent Uzbekistan includes four stages of reforming the domestic insurance market.

In all periods of its historical development, insurance has provided protection for the property interests of individuals and legal entities in one form or another. The role of insurance is becoming particularly significant at the present stage of development of Uzbekistan, since the modernization of the economy leads to the emergence of new, previously non-existent risks for insured, the complication of the insurance market regulation and the emergence of regulatory risks for the insurer itself (compliance risks).

Based on an analysis of the historical development of insurance in Uzbekistan, we can conclude that Western commercial insurance in the pre-revolutionary period appeared on the territory of modern Uzbekistan simultaneously with its colonization by Tsarist Russia. The needs for insurance protection of the local population were met through the local form of non-commercial mutual insurance based on co-participation (hashar) and self-insurance.

During the Soviet period of the country’s development, compulsory types of insurance and endowment insurance were mainly developed due to the presence of significant unsatisfied demand. Also, during the Soviet period of the country’s development, mutual assistance of the population on the basis of co-participation was widely practiced.

Thus, the insurance development in the periods immediately preceding the independent development of the country did not contribute to the insurance culture development, did not take into account local characteristics and did not lead to the creation of a national insurance model.

As it is known, the key macroeconomic indicators of the insurance market are:

• volume of gross premiums written (GPW);
• share of GPW in GDP (insurance penetration level);
• insurance density (the insurance premium amount per capita);
• loss ratio (ratio of insurance claims paid to GPW).

The general methodological principle of the study of the current state of insurance in Uzbekistan was the system-structural analysis of statistical data available in the insurance market of the Republic of Uzbekistan. The study used the methods of system, factor and comparative analysis and statistical processing. Reliability of the research results is ensured by: application of a comprehensive approach, allowing to study in interrelation the main aspects of the research object; use of reliable and extensive information base, including official state, as well as regulatory and instructional documents, scientific and educational materials, articles from periodicals, statistical data; choice of effective methods of information analysis, corresponding to the goals and objectives of the research.

Figure 4.1. Dynamics of GPW for the period 1997-2022 (the 1997 level is conventionally assumed to be equal to one)

Source: Developed by the author on the basis of data from the Ministry of Economy and Finance of the Republic of Uzbekistan

Analysis of the GPW dynamics for 1997-2020, presented in Figure 4.1. showed that in 2017-2022 the GPW increased by more than 1416 times. Meanwhile, the growth of GPW until 2016 was ensured by an optimal combination of voluntary and compulsory types of insurance. The sharp growth of GPW in 2017-2019 was explained by the increase in the volume of imputed insurance, with domestic banks becoming the growth driver of the domestic insurance market. A slight decrease in the GPW dynamics in 2020 compared to 2019 is explained by the consequences of the COVID-19 pandemic.

Figure 4.2. Share of GPW in GDP (%)

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

The leaders in this indicator are Taiwan, where insurance premiums account for 19% of GDP, Hong Kong (17-18%), South Africa (14%), South Korea (13%) and Finland (12%). In the USA and Japan, the value of this indicator is 9.5-10%, in the EU countries the ratio of insurance premiums to GDP is 8% on average, in Latin America, Eastern Europe and Africa – 2-3.5%, in Uzbekistan the value of this indicator in recent years was in the range from 0.32 to 0.5% (Figure.4.2). Such state of this indicator demonstrates that domestic insurance companies satisfy the existing demand for insurance services and practically do not work on its expansion.

It should be noted that the domestic insurance market is significantly younger than the insurance markets of the leading Western countries, many of which have existed for more than 100 years and, as a consequence, no more than 10% of risks are insured in the country, while in most developed countries – at least 90 – 95%. In this regard, there is a strong reason to believe that Uzbekistan’s insurance market has a significant potential for growth.

The most important macroeconomic indicator of the insurance importance is the ratio of gross premiums written to gross domestic product (insurance penetration indicator); in Uzbekistan, the value of this indicator in recent years has been in the range from 0.35 to 0.7% (Figure 4.2).

Figure 4.3. Insurance density in Uzbekistan (USD by official exchange rate)

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

In recent years, the average per capita insurance premium for each person on our planet has been around 650-700 US dollars. At the same time, the average per capita spending on insurance in developing markets is about 150 US dollars, of which 54% are life insurance premiums and 46% are non-life insurance premiums. In the European Union countries, residents spend an average of 3 thousand US dollars per year on insurance. In countries of Latin America and Eastern Europe – 200-600 US dollars. In such countries as Canada and the USA – over 4 thousand US dollars a year. In Uzbekistan, by the end of 2022, the volume of insurance premiums per resident amounted to only 15.3 US dollars (Figure. 4.3).
The insurance significance is determined by the insurance density, in Uzbekistan at the end of 2022, the volume of insurance premium per capita amounted to just over $15 (Figure 4.3).
The current situation in Uzbekistan with insurance penetration level and insurance density is explained mainly by low insurance literacy and insurance culture of the population, and as a consequence, the distrust of legal entities and individuals in insurance as an element of the risk management system. At the same time, the general income level of the population also plays an important role which is significantly lower in Uzbekistan than in the other countries.

Figure 4.4. Share of compulsory insurance types in the gross premiums written (%)

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

Despite the introduction of a new type of compulsory insurance – compulsory insurance of civil liability of the carrier – the volume of total insurance premiums for compulsory insurance types has been declining in recent years and at the end of 2022 amounted to only 8% (Figure. 4.4.). Such a change in this indicator can be explained by untimely execution or absence of compulsory insurance contracts of a significant part of potential insurers due to the lack of a system of effective control over the fulfillment of the requirements of the legislation on compulsory insurance. In order to solve this problem by the Decree of the President of the Republic of Uzbekistan from March 1, 2024 № 108 “On complex measures for further development of the market of insurance services” obligations to ensure timely registration of compulsory insurance contracts are assigned to:

• Tax Committee and Ministry of Transport – on compulsory insurance of civil liability of employer and carrier;
• Inspectorate for Mining, Geological and Industrial Safety Control – on compulsory insurance of civil liability for causing harm to life, health and (or) property of other people and the environment in case of an accident at hazardous production facilities;
• Ministry of Construction and Public Utilities – compulsory insurance of construction and installation risks during construction of facilities at the expense of state funds and loans guaranteed by the Government.

The key point of the structural policy in the insurance services market of the Republic continues to be optimization of proportions in the ratio of voluntary and compulsory types of insurance. The practice of countries with transition economies shows that a significant share of compulsory insurance is inevitable in the period of insurance market formation under conditions of market relations formation, insufficient level of insurance culture development, while ensuring accelerated market capitalization. A specific feature of insurance development in Uzbekistan in recent years remains the fact that the total insurance premium on compulsory types of insurance, despite the entry into force of new types of compulsory insurance, does not exceed one third of the total insurance premium, and the growth of the total insurance premium on the market was provided by increasing collections on imputed and voluntary types of insurance (Figure 4.4). The main type of imputed insurance is insurance of property pledged as collateral.

Specific feature of the insurance development in Uzbekistan in recent years remains that the gross premiums written for compulsory insurance types, despite the introduction of new compulsory insurance types, does not exceed a third of the gross premiums written, and the growth of the gross premiums written on the market was secured by increasing volumes from imputed and voluntary insurance types (Figure 4.4).

Figure 4.5. Ratio of gross premiums written to total insurance liability (average market rate) for 1998-2022 (%)

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

Decrease in the average market tariff from 0.67 in 2002 to 0.18 at the end of 2004 is explained by the transition from normative determination of tariffs to actuarial calculations. The tendency towards some growth of the average market tariff, which has been observed in recent years, is explained by more qualitative processes of analysis and assessment of risks accepted for insurance and improvement of underwriting work of domestic insurers.

The level of rates for insurance services in recent years has been determined exclusively by market conditions (Figure 4.5). At the same time, as a result of the desire of some new insurers to quickly increase their market share through dumping, in the absence of strict standards for the ratio of insurance liabilities to insurance provisions, it often leads to setting rates for insurance services at an insufficiently justified low level.

Figure 4.6. Dynamics of the insurance premium loss ratio in the non-life insurance industry

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

The analysis of insurance premium loss ratio (ratio of insurance payments to insurance premiums) in the general insurance industry for 1998-2022 reveals extremely uneven dynamics of this indicator (Figure. 4.6). The value of this indicator of domestic insurance companies in recent years was in the range from 18.8% to 28.2% (Figure. 4.6), while the loss ratio of Gosstrakh of Uzbekistan for 1991-1996 was at the level of 45-60%.

The value of loss ratio of insurance premium in the range from 10.9% to 17% for 2000-2016 is explained by conclusion of highly profitable contracts of insurance of property pledged as collateral. The peak value of the insurance premium loss ratio of 24.9 in 2002 is explained by mass sales of health insurance and borrower’s liability insurance. The value of the insurance premium loss ratio of 28.2 in 2020 is explained by the effects of Covid.

The insurance development in the republic in recent years has been characterized by high dynamics. The main indicators characterizing insurance as an element of the risk management system for 2015-2022 are presented in Figure 4.7.

Figure 4.7. Key indicators characterizing insurance as an element of the risk management system for 2015-2020

Source: Developed by the author based on data from The Ministry of Economy and Finance of the Republic of Uzbekistan

The increase in the number of insurers from 31 to 41 slightly affected the growth rate of insurance premiums, which also confirms the hypothesis about commercial banks of the republic acting as drivers of growth of the domestic insurance market.

The dynamics of insurance payments also indicates the conclusion of highly profitable contracts of imputed insurance – insurance of property pledged as collateral when obtaining a loan from the bank.

Due to the fact that the legal entities risks are mainly insured, the level of concentration of insurance business in the non-life insurance industry at the end of 2022 continues to remain high – the share of the first 5 companies accounts for more than 53%, and the first 10 companies account for more than 72% of the gross premiums written. Such concentration of the insurance market allows us to characterize its structure as oligopolistic.

Table 4.2. Structure of the insurance market of the Republic of Uzbekistan for 1998-2020

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

The insurance market infrastructure has actually stabilized in recent years, which indicates the saturation of the domestic insurance market, growth is observed only in insurance agents. It should be noted that currently the majority of domestic insurers work with single insurance agents, there are no organized agent networks.

A significant share of the insurance premium at the end of 2022 (more than 31%) was collected by insurance companies with state participation. Over the past few years, insurers with state participation have been among the leaders in the domestic insurance market, but from year to year their influence on the state of the country’s insurance market has been decreasing – the total share of companies with state participation in the non-life insurance industry has decreased from 97% in 1997 to 31% – based on the results of 2022.

Table 4.3. Leading companies by market share in the non-life insurance industry for 2015-2020

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

As a result of the fact that mainly risks of legal entities are insured, the level of concentration of insurance business in the general insurance industry at the end of 2022 remains high – the share of the first 5 companies is more than 53%, and the share of the first 10 companies is more than 72% of the total insurance premium. Such concentration of the insurance market allows characterizing its structure as oligopolistic.

A significant share of the insurance premium at the end of 2022 (more than 31%) was collected by insurance companies with state participation. Over the past few years, insurers with state participation have been among the leaders in the domestic insurance market, but from year to year their influence on the state of the country’s insurance market has been decreasing – the total share of companies with state participation in the non-life insurance industry has decreased from 97% in 1997 to 31% – based on the results of 2022.

In 2022, compared to 2021, the increase in the insurance market share was observed among companies with state participation – Uzbekinvest EIIC JSC – and private company Apex Insurance JSC. The significant rise in the volume of gross premiums written of Apex Insurance JSC (+102%) brought this company from third place in 2021 to the second one at the end of 2022 (Table 4.3).

The insurance market of Uzbekistan is characterized by very high geographic concentration (Table 4.4). This is explained by the fact that although the insured objects are distributed throughout the territory of the republic, almost all financial flows are concentrated in the capital. The main share of the insurance premiums (more than 50%) is still collected in Tashkent which indicates the predominance of domestic corporate insurance in the insurance portfolio.

The issue of providing regions with insurance services is solved by the presence of insurers’ large number of divisions (branches and offices) in the regions with a head office in Tashkent.

Table 4.4. Share of insurance premiums per regions

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

The insurance market of Uzbekistan is characterized by very high geographic concentration (Table 4.4). This is explained by the fact that although the insured objects are distributed throughout the territory of the republic, almost all financial flows are concentrated in the capital. The main share of the insurance premiums (more than 50%) is still collected in Tashkent which indicates the predominance of domestic corporate insurance in the insurance portfolio.

The issue of providing regions with insurance services is solved by the presence of insurers’ large number of divisions (branches and offices) in the regions with a head office in Tashkent.

Figure 4.8. The total amount of authorized capital of domestic insurers for 2010-2020 (billion Soums)

Source: Developed by the author based on data from the Ministry of Economy and Finance of the Republic of Uzbekistan

The current stage of the domestic insurance market development is characterized by insignificant size of authorized capital of insurers both in the non-life and life insurance industries. The size of the total authorized capital of insurance companies in Uzbekistan as of January 1, 2023 amounted to about 1.8 trillion Soums.

The dynamics of changes in the total authorized capital of insurers of the republic (Figure 4.8) indicates the state policy effectiveness aimed at increasing their capitalization until the authorized capital size of the insurers in Uzbekistan reaches the international standards level.

The insurance products offered in the domestic insurance market are actually standardized, since the main product providing insurance premiums growth is the collateral property insurance. Insurance of risks existing in the foreign economic activity is mainly carried out by Uzbekinvest JSC insurance company.

The definition of “foreign economic activity insurance” in this study means the use of a set of insurance mechanisms to protect the property interests of subjects of various types of foreign economic activity (hereinafter referred to as FEA). These types of foreign economic activity primarily include:

• international goods transportation (insurance of vehicles and goods transported by them, carrier’s civil liability insurance, and etc.);
• financing of foreign economic activity subjects (credit insurance, borrower’s liability insurance, insurance of the bank’s entrepreneurial risk, and etc.);
• foreign investments on the territory of the republic and Uzbek investments outside the country (investment risk insurance, property insurance, civil liability insurance, business risk insurance, and etc.);
• participation in international trade, industrial and other exhibitions, opening of trading houses of Uzbekistan outside the country and trading houses and representative offices in Uzbekistan (property risks, civil liability, business activities insurance, and etc.).

To provide comprehensive insurance protection for foreign investments, based on its characteristics and financing features, a specific insurance program is being developed, and the program may contain the following main insurance types:

1. Insurance of property owned or used within the framework of investment project (buildings, structures, equipment, transport, raw materials, finished goods, etc.).
2. Civil liability insurance (enterprise being investment object, its top management and employees, etc.)
3. Cargo insurance, including equipment purchased for the investment project implementation during transportation and installation, transportation of raw materials and other materials necessary for the investment project realization.
4. Insurance of investment project business risks (risks of loss of funds invested into investment project, loss of planned revenue or additional expenses incurrence).
5. Insurance of construction and installation risks if the investment project includes construction work.

If foreign investments require provision of various types of guarantees, then it is advisable to add guarantee insurance to the main insurance types listed above, and such an insurance agreement or section of comprehensive insurance agreement provides for the insurer’s liability for the period of guarantee validity.

When realizing foreign investments generating significant cash flows, it is advisable for a foreign investor to insure financial risks related to:

• improper fulfillment or total failure by the counterparty to fulfill its obligations under the investment project, which consists in the supply of raw materials, consumables, equipment, goods, and etc.;
• violation by the investor’s counterparty of the terms of installation and commissioning of machinery, equipment, construction and installation work, and so on.

Potential investors, of course, are interested in the question of how reliably foreign investments can be insured. To increase such insurance reliability, firstly, it is necessary to identify the entire system of existing risks and conduct its comprehensive analysis. Secondly, determine the conditions for their acceptance for insurance or rejection. For some reason there is an unspoken rule: any risk can be insured, it all depends on the conditions. It is impossible to save on insuring foreign investments; it might bring significant losses.

For example, Centerra Gold, a company with Canadian registration, which has assets in Canada, the USA, Kyrgyzstan and Turkey, a third of which is owned by the government of the Kyrgyz Republic (KR), insured liability and property risks for the Kumtor gold mine, but decided to save money: there were no political and environmental risks insured. The State Commission of the Kyrgyz Republic identified serious violations of environmental legislation in the activities of Centerra Gold’s subsidiary, Kumtor Gold Company CJSC, which was directly involved in the gold mining and extraction. The damage from its activities was estimated at almost 4.2 billion US dollars. As a result, the authorities of the Kyrgyz Republic decided to appoint an external manager to Kumtor Gold Company CJSC for three months and Centerra Gold announced its intention to begin bankruptcy proceedings for its subsidiary. As a result, Centerra Gold shares lost 6.6% in price from May 12 to May 18, from $9.26 to $8.65 per share, and the company decided not to invest extra 2 billion US Dollars in works to extend the mine life.

It should be noted that one of the reasons for the low insurance development of investment projects in Uzbekistan is the shortage of specialists with required skills in insurance companies. However, this does not mean that there are no prospects for insuring foreign investments in the domestic insurance market. Two circumstances allow us to predict a significant increase in such insurance in the republic:

• growing investment attractiveness of Uzbekistan;
• rapid growth of external and internal investments in the Uzbek market;
• the possibility of forming attractive insurance premium even for small investment projects.

Insurance of export operations in Uzbekistan market is primarily carried out by Uzbekinvest Export-Import Insurance Company JSC. The company is entrusted with the functions of the state agency for export credit insurance (ECA) of the Republic of Uzbekistan by relevant decisions of the leadership of the Republic of Uzbekistan (Resolution of the President of Uzbekistan, 2018 аnd Resolution of the President of Uzbekistan 2019).

The company is a full member of the Prague Committee of the Berne Union. As part of membership in this reputable organization, whose members account for approximately 13% of world trade (Berne Union, 2020), cooperation has been established with state export credit agencies of about 30 foreign countries. Today the Company provides a wide range of insurance products to protect interests in the foreign markets against political and commercial risks (Uzbekinvest Insurance Company, 2024). The main indicators of Uzbekinvest Export-Import Insurance Company JSC for export credit insurance for the period 2018-2022 are shown in Table 4.5.

At the end of 2022, Uzbekinvest Export-Import Insurance Company JSC concluded 743 insurance agreements with the volume of the company’s insurance obligations equal to 2 135.0 million US Dollars, which is covering 11.1% of the total exports of the Republic of Uzbekistan for 2022 (Statistics Agency under the President of the Republic of Uzbekistan, 2022.) or 32% of non-resource exports (Table 4.5.).

Table 4.5. Key export credit insurance indicators for the period 2018-2022

Source: Developed by the author on the basis of the reports of JSC Export-Import Insurance Company “Uzbekinvest”.

The share of “Uzbekinvest” insurance coverage in exports has increased more than 22 times in recent years due to effective management and client-oriented marketing policy of the company.

Despite the wide range of insurance products for insuring the risks for foreign economic activity offered by domestic insurers, small and private businesses do not make enough use of insurance opportunities and this is one of the reasons for their low participation in foreign economic activity of Uzbekistan. At the same time, in developed countries, the main share of export potential is generated by private and small businesses (with the exception of the raw materials sector of the economy).

Procedural difficulties and the lack of knowledge opportunities among many potential clients make it necessary, together with development of insurance products aimed at protecting private and small businesses from the foreign economic activity risks, to provide them a range of services to promote and support export-import procedures, as well as find optimal solutions for non-standard situations. Insurance of foreign economic activity risks can have a positive impact on growth of export transactions; for this, domestic insurers should offer not just one or another insurance product, but a full range of relevant services, while the client should be offered the opportunity to choose the most appropriate option for him.

Goals and Objectives for the Insurance Development in Uzbekistan Considering the Priority Modernization Areas of the Country’s Economy

By 2030, Uzbekistan intends to achieve GDP growth by 2.1 times, GDP per capita by 3 times, increase life expectancy to 78-80 years and fully provide the population with housing. This was provided for by the Concept of socio-economic development of Uzbekistan until 2030 (Decree of the President of the Republic of Uzbekistan, 2020). To achieve the target indicators defined by the Concept, “Road Maps” were developed for the mid-term (2022-2026) and long-term (2027-2030) periods.

The following priority areas were considered as the main factors in achieving the Concept goals:

1. Maintaining macroeconomic stability;
2. Accelerating the process of transition to a market economy;
3. Strengthening social protection and increasing the living standard of the population, transforming the factor of outpacing demographic growth into the factor of effective economic growth;
4. Determining the role and place of the state in the modernized economy;
5. Creating conditions for the effective development of regions of the country with maximum use of regional factors;
6. Carrying out targeted investment policy to ensure the economic growth of the country and structural transformations of the modernized economy;
7. Increasing the environmental management efficiency.

Below are the goals and objectives of insurance development in Uzbekistan in relation to each priority area.

The main purpose of insurance when solving the issue of maintaining macroeconomic stability in the country is to protect the property interests of the state and business when addressing the issues of economic modernization through the use of insurance mechanisms. In this case, for particularly large enterprises and financial-industrial groups, the insurance objectives are to use classical insurance mechanisms with reinsurance of risks accepted to reliable domestic and foreign reinsurers. At the same time, agreements are concluded for voluntary insurance of property, civil liability, investment risks and compulsory insurance with significant insurance amounts and, accordingly, insurance premiums. In most investment projects with foreign participation, insurance and reinsurance from leading foreign reinsurers with a high rating are mandatory conditions for investing into the project.

In the modern insurance market of Uzbekistan, the essential insurance conditions and insurance rates, if it is necessary to place risks accepted by domestic insurers outside the country, are determined by the foreign reinsurers, and actuarial calculations are carried out by foreign specialists who are not familiar with specifics of Uzbekistan on the basis of average statistical data. At the same time, the results of actuarial research by foreign specialists are rarely corrected or challenged by local actuaries due to their insufficient qualifications.

It should be noted that the relevant specialists of domestic insurance companies, when placing risks abroad, are mainly guided by the market considerations of the global insurance and reinsurance market and do not take into account long-term statistics, reliability indicators and other technical information on the insurance object accumulated over the years of independent development of Uzbekistan. This state of affairs may lead to unreasonable outflow of reinsurance premiums outside the country, and therefore we consider it appropriate to create a national reinsurance company and national reinsurance pools.

It will enable more professional selection of risks for outgoing reinsurance and will increase the efficiency of the insurer’s work as a whole.

Insurance mechanisms for managing risks of the population, industry and the state in the above cases must ensure reliable protection of their property interests by compensating for losses (damage, harm) caused as a result of the occurrence of insured risks types related to natural disasters, man-made accidents and disasters, third parties’ intentional actions and so on, simultaneously reducing the burden to the state budget.

Thus, in this case it is justified to turn to classical insurance.

The purpose of insurance in accelerating the process of transition to competitive market economy is to create comfortable business conditions through effective risk management for individuals and legal entities. At the same time, the objectives of insurance are to improve underwriting processes and improve the quality of pre-insurance examination. These tasks, depending on the required degree of protection of property interests, can be solved both within the framework of classical insurance and within the framework of the national model of commercial insurance with return of the insurance premium part to the insured at agreed level of loss ratio (insurance with insured’s participation in the insurer’s profit).

In this case, the terms and conditions of the insurance contract may provide for the return of a part of the insurance premium paid by the insurer upon completion of the insurance contract in the absence of insured events (participation in the insurer’s profit), as well as reduction of the insurance premium for the next insurance by this amount.

As the framework of this study, we propose a three-tier national insurance system, which is described in detail in the next chapter.

It should be noted that the introduction of a three-tier national insurance system helps to involve entrepreneurs and the population in the insurance sector, improve their insurance culture and reduce paternalistic moods in society.

In most cases, economic modernization is accompanied by risks of increased social tension in society, primarily due to the complication of the risk environment of individuals and legal entities (see Chapter 1 of this study) during the transition period. The specific feature of Uzbekistan is that significant part of the population with a per capita daily income of less than 10 US dollars (in Soum equivalent) are homeowners (house on the land or apartment in apartment building) and in case of serious damage or loss of housing as a result of the risks of the modernized economy they often experience significant financial difficulties in repairing or restoring it. This, in turn, leads to an increase in the burden on the state budget which could be significantly reduced through the introduction of a national system of non-profit mutual insurance based on neighborhood (mahalla) using the financial co-participation principles.

It should be pointed out that as the welfare of the country’s population grows, there will be an overflow of its affluent part to the national model of commercial insurance and classical insurance. Consequently, the level of insurance culture of the population will increase.

Improving the state role in developing market economy is related to the insurance uniqueness – it ensures not only the protection of the property interests of individuals and legal entities but is also a strategic sector of the economy, allowing to:

• reliably protect the property interests of individuals and legal entities by paying them insurance indemnity (insurance coverage) upon the occurrence of insured event;
• reduce the burden on the state budget as damage resulted from the occurrence of insured risks is covered at the expense of insurance provisions accumulated by insurers and reinsurers, and not from the state budget funds;
• mobilize internal investment sources since temporarily free funds of insurance provisions and insurance funds are invested in various investment objects permitted by law;
• ensure socio-economic stability in society, since insured members of society will receive insurance payments in case of damage to their life or health, and will also be able to accumulate certain financial resources in accordance with concluded insurance agreements.

The role and place of the state in the modernizing insurance market of the country is determined by creation of conditions for further development of insurance activity and effective protection of rights of insured people. Considering the insufficient level of insurance culture of the population and business representatives, in our opinion, preference should be given to compulsory types of insurance introduced by the relevant law of the Republic of Uzbekistan and the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan and imputed types of insurance.

In relation to the above, the insurance market in the world practice is quite strictly regulated by the state; the state sets licensing requirements, requirements for the solvency of insurers, and standards for carrying out insurance business. In addition, specially authorized state bodies for regulation and supervision of insurance activities (ASB) constantly monitor the insurance companies functioning.

The purpose of insurance in implementing priority direction, together with strengthening state regulation of insurance activities in accordance with the standards of the International Association of Insurance Supervisors, is to develop mechanisms for self-regulation of insurance activities, strengthening the role of non-governmental non-profit associations and unions of insurance activities professional participants. To achieve the above goal, insurance must provide solutions to the following tasks:

• outpacing development of insurance legislation;
• development, adoption and strict compliance with ethical standards in insurance business.

Currently, regional insurance in Uzbekistan is in its infancy and therefore realization of the priority direction related to the effective use of the regional factor determines the purpose of insurance to increase the insurance culture of the population of the regions, as well as owners of private and small businesses located locally. In this case, insurance culture means understanding the necessity of insurance expenses and implementation of such spending.

For this purpose, the following insurance objectives should be realized:

• widespread introduction in the regions of the national model of non-profit mutual insurance based on mahalla using the financial co-participation principles;
• application in the regions of the national insurance model with return of the insurance premium part;
• introduction of modern technologies for selling insurance products in the regions;
• carrying out extensive explanatory work on the benefits of insurance protection and obedience of the national insurance model with the mentality of our people.

Investment opportunities for domestic insurance are limited by “short” money – insurance premiums generated in the non-life insurance industry. Until recently, endowment insurance types in the life insurance industry, due to the predominance of payroll insurance schemes, were also sources of “short” money. The purpose of insurance in implementing the priority direction of the domestic economy development in the need for investment to ensure economic growth and structural transformations of specific sectors of the economy, is to provide access to long-term money through the development of cumulative long-term insurance types meeting the traditions and mentality of our people.

Accomplishment of the above goal can be achieved by solving the following tasks:

• development and introduction of such types of long-term endowment insurance as accumulation of funds for the real estate purchase, organizing events, and for the children education;
• providing conditions for the effective use of temporarily free funds accumulated in special mahalla funds within realization of the national model of non-profit mutual insurance based on the financial co-participation principle.

In relation to increasing the efficiency of environmental use, the domestic insurance market offers insurance products against natural and climatic risks, natural and man-made disasters. Environmental risks and risks related to inefficient use of the environment are practically not insured due to their high cost. The purpose of insurance for this priority direction is to ensure the protection of the property interests of individuals and legal entities from environmental risks and the risks of natural and man-made disasters.

To achieve this goal, the following tasks must be solved:

• development of affordable insurance products for insuring environmental risks;
• formation of domestic insurance pool to insure the risks of natural and man-made disasters.

Taking into account the considerable sum insured and the corresponding insurance premiums, these problems can be solved within the framework of classical insurance with reinsurance of risks accepted to reliable reinsurers both within the country and abroad.

Thus, summarizing the above, we can determine the following goals for the insurance development in Uzbekistan, taking into account the interests of the modernized economy:

• ensuring macroeconomic stability in the country by protecting the property interests of the state and business when solving the issues of economic modernization through the use of insurance mechanisms;
• accelerating the process of transition to competitive market economy by forming comfortable business conditions through effective risk management for individuals and legal entities;
• strengthening state regulation of insurance activities in accordance with the standards of the International Association of Insurance Supervisors, developing mechanisms for insurance activities self-regulation, strengthening the role of non-governmental non-profit associations and unions of professional participants of insurance activities;
• increasing the level of social sustainability in society by ensuring access of the general public to quality healthcare and education through the use of insurance mechanisms;
• developing regional insurance by improving the insurance culture of the population of the regions, as well as owners of private and small businesses located locally through the implementation of a three-tier national insurance model;
• increasing investment potential by providing access to long-term money through the development of endowment long-term insurance types meeting the mentality of our people, as well as the effective use of temporarily free funds accumulated in special mahalla funds within implementation of the national model of non-profit mutual insurance based on the financial co-participation principle.
• ensuring the protection of property interests of individuals and legal entities from environmental risks and risks of natural and man-made disasters.

The following objectives shall be realized in order to achieve the above goals:

• development and implementation of a three-tier national insurance model, including classical insurance, national model of commercial insurance with the return of the insurance premium part and a national system of non-profit mutual insurance based on mahalla using the financial co-participation principles;
• improvement of underwriting processes and the quality of pre-insurance examination within the framework of classical insurance and the national model of commercial insurance with return of the insurance premium part;
• development and implementation, within the framework of a three-tier national insurance model, of insurance products providing access of low-income segments of the population to quality healthcare and education;
• widespread introduction in the regions of the national model of non-profit mutual insurance based on mahalla using the financial co-participation principles;
• application in the regions of the national insurance model with return of the insurance premium part;
• introduction of modern technologies for selling insurance products in the regions;
• carrying out extensive explanatory work on the benefits of insurance protection and obedience of the national insurance model with the mentality of our people.
• providing conditions for the effective use of temporarily free funds accumulated in special mahalla funds within implementation of the national model of non-profit mutual insurance based on the financial co-participation principle.
• development of affordable insurance products for insuring environmental risks;

formation of domestic insurance pool to insure the risks of natural and man-made disasters.

Digitalization of Insurance Business in Uzbekistan

In world practice, the insurance business has been one of the most traditional and conservative industries for many years. According to experts, in the near future, insurance companies will not be in demand in the existing form. The global digital transformation is beginning to dramatically change the mechanism and structure of the insurance business as insurance companies begin to introduce new digital technologies and approaches to remain competitive in a rapidly changing market.

As part of the ongoing reforms in Uzbekistan as well as the New Uzbekistan Development Strategy for 2022-2026, special attention is paid to digitalization of the main areas of activity and building a true information society where insurance industry plays an ever-increasing role.

A powerful catalyst for this was the adoption in October 2021 of Decree of the President of the Republic of Uzbekistan “On Additional Measures to Digitalize the Insurance Market and Develop the Life Insurance Sector” which became significant impulse for the insurance industry development and its digital transformation (Decree of the President of the Republic of Uzbekistan, 2021).

Based on the above Decree, a unified automated information system for insurance policies registration has been developed and put into operation in Uzbekistan which is maintained by the ASB with the Insurance Payments Guarantee Fund.

Also, from July 1, 2022, it is allowed to carry out all insurance types in electronic form. Since January 2023, the practice of issuing paper insurance policies for all compulsory insurance types has been canceled. In addition, in order to implement the tasks outlined in the Decree the Cabinet of Ministers of the Republic of Uzbekistan introduced in 2021-2022 a number of resolutions outlining the order and mechanism for the implementation of electronic insurance types.

Following the trends of active introduction of digitalization in all spheres of state and public life in the country, Uzbekinvest company launched digital online insurance platforms and became a pioneer in Uzbekistan in introducing Face ID digital biometric customer identification technology into all information systems and mobile applications. As a result, more than 307 thousand customers during 2022 were able to feel the convenience of instant registration and purchase of insurance services using Face ID technology. At the end of six months of 2023, the number of clients who used the company’s digital services amounted to more than 406 thousand people.

The introduction of new, relevant digital insurance products and innovative solutions for individuals to the market has become a flagship in ensuring high growth in insurance premiums collection which by the end of 2022 were eight times higher than in 2017 (Uzbekinvest Insurance Company, 2024).

Uzbekinvest company has become the technological leader in the field of the insurance market digitalization of the republic. Uzbekinvest, for the first time in the insurance market of the Republic of Uzbekistan, together with Click electronic payment system, implemented “20% Big Cashback” special promotion for potential clients for all electronic policies independently purchased by insureds through Insurance.uz platform or mobile applications. For the convenience of insureds, all Uzbekinvest electronic platforms provide services for filing online insurance claim. This service allows to settle insurance claim online without visiting the office and receive insurance indemnity for it. Uzbekinvest company has developed and implemented its own computer security system ensuring the safety of the company’s database.

Uzbekinvest company is constantly working on modernization and expanding the range of insurance products offered to clients. For example, if in 2017 Uzbekinvest offered 90 insurance products to potential clients, then according to the results of 6 months of 2023, 211 insurance products are offered, at that 79 insurance products developed by the company were temporarily suspended as not being in demand.

Uzbekinvest company together with Glow Byte LLC has developed a Digital Transformation Strategy (hereinafter referred to as the Strategy) according to which perspective business development directions are identified and priority business processes are determined for subsequent digitalization. In accordance with the Strategy, it is planned to introduce functional to conduct pre-launch checks in real time using Talys.SDE software. This will allow based on analytical models in a split second to process and calculate a large amount of data received from external services, internal sources and databases.

The Strategy implementation will make it possible to optimize and automate the risk assessment process when insuring clients through the introduction of decision-making system with predictive models. The use of machine learning models will enable to more accurately identify potentially high loss-making clients and, accordingly, select more low-risk clients into portfolio. The decision-making system, in turn, will allow this process to be automated, taking into account all the features of the insurance company’s business processes, and as a result, increase the business profitability.

In Uzbekistan, at the beginning of 2023, the insurance sector was represented by 42 insurance companies, 8 of which are life insurance companies. Also, 26 insurance companies have licenses to carry out business on compulsory insurance types. At the same time, the volume of insurance premiums per capita was 104.0 thousand Soums per person (about USD 9.0).

In modern conditions, the introduction of innovative insurance technologies will lead to higher protection of the insurance services consumers’ rights and will undoubtedly contribute to a deeper insurance penetration into various population segments which in turn will have a positive impact on reducing the operational and financial risks of insurance service users. This circumstance implies further and full consideration of the existing problems in the field of improving the insurance services provision to both legal entities and individuals in order to increase their level of accessibility and convenience, and, in particular, to improve the quality of the insurance services provision to the population in conditions of digital transformation.

The main issues of the insurance market of Uzbekistan at the digitalization stage include the following:

1. Low insurance culture among the country’s population.

The population of the regions of Uzbekistan, especially in rural areas, is practically not involved in property, health and life insurance operations which is confirmed by the country’s insurance market concentration indicator, 52% of which is concentrated in Tashkent with a population share of 7.7% of the total country’s population (Azimov, 2021). At the same time, in developed countries the population plays a major role in the formation of the gross premiums written.

The main reasons for the population’s ignorance of insurance are:

• low level of public confidence in insurance companies;
• insufficient insurance culture level, lack of system explaining the advantages and benefits of participating in insurance operations;
• insurance companies’ unwillingness to systematically and massively engage in selling low-income insurance products, such as health and liability insurance for individuals, accident insurance, especially in rural areas;
• there is practically no deliberate involvement of small businesses and private entrepreneurship in the insurance against property and commercial risks.

The main reasons for such state of affairs are poor work on insurance services marketing promotion and the absence of stimulating factors for the development of this perspective insurance direction.

2. Insufficiently attractive insurance products and insurance programs, including digital ones.

Unfortunately, domestic insurance companies practically do not develop insurance product lines, insurance products currently offered in the domestic insurance market are practically standard.
Nowadays, most insurance companies in Uzbekistan offer customers online a narrow selection of digital insurance products with standard insurance conditions, such as compulsory motor liability insurance (CML), accident insurance, travel insurance and property insurance. Today, 90% of all online sales are made from compulsory motor liability insurance (CML). At the end of 2022, more than 1,841 thousand car owners of the country purchased CML policy online (The Ministry of Economy and Finance of the Republic of Uzbekistan, 2022). By the experts’ opinion, a small part, or rather no more than 10% of all online policies fall on other voluntary insurance types such as travel insurance (5%), health and accident insurance (3%), liability insurance (2%) and individual property insurance (1%).
For other types of voluntary insurance, attractive insurance products are practically not developed on the market; in most cases, the insurance products offered do not consider local specifics.

3. Undeveloped infrastructure and low computer literacy.

According to “We Are Social” and “Kepios” agencies annually releasing global reports on the use and state of the digital sphere in the countries, Internet penetration among Uzbekistan population in January 2023 was 76.6%, as well as the average age of persons using Internet was 22-27 years (Simon Kemp, 2023).
However, it should be noted that the average age of the target clients of insurance companies is 35-45 years. Thus, low information and computer literacy of the older generation, lack of experience and fear of shopping via the Internet, the formed habit of touching when buying paper insurance policies are additional barriers to the penetration of new digital insurance technologies among the population.

4. Organizational and financial problem.

It should be noted that there are other factors constraining the digital technologies penetration into the business processes of the insurance companies. In Uzbekistan, not all insurance companies are yet ready to invest into development of new digital technologies, their own online platforms for selling policies and often are limited to selling only compulsory insurance types through a single database of the regulator (www.e-osgo.uz).

The key reasons for insufficient digital technologies’ penetration into activities of insurance companies include the high cost of programming services for the introduction of new digital technologies, lack of qualified personnel to develop new digital technologies, and, as a result of low insurance culture, the lack of steady demand from the population on digital insurance programs that ultimately affects the return on investments.
The low demand level for digital insurance programs can be related not only to the low level of insurance penetration into the economy of our country, but also with the low level of digitalization of economic sectors as a whole, and with its growth we can expect an increase in digital insurance programs demand.

5. Lack of qualified personnel in the insurance labor market.

Owing to digitalization of the insurance market, it is expected inevitable cutoffs of jobs where back and front office personnel performed functional duties, who as a result of innovative technological solutions introduction will lose their significance.
On the other hand, there is unsatisfied demand for qualified specialists with skills and competencies related to solving high-tech problems (IT specialists, programmers), specialists with skills in using modern gadgets and computer equipment, and employees of insurance companies of appropriate qualifications, ready to work in today’s digital environment.
Taking into account that the main personnel shortage in regional and district divisions is associated with a lack of sales specialists – this group of personnel makes up 63% of all specialists in demand, and the average age of employees of insurance companies varies between 38-45 years, the problem of professional retraining of insurance companies’ employees in view of the future digitalization of the insurance business is becoming very crucial (Azimov et al., 2023).
The introduction of technological innovations, automation of insurance services selling processes, smooth transition to direct sales and step-by-step shift from the agent sales channel in the retail segment, reduction of personalized actions and personal customer service will lead to decrease and retraining of front personnel which in turn will bring to financial expenses.
Due to these trends, transformation of insurance companies’ organizational forms will also be observed. The important aspect of increasing the efficiency of personnel training and retraining is the active introduction of distance learning methods. Since 2010, within Uzbekinvest company Insurance School performs its activities offering, through its digital information platform moodle.uzbekinvest.uz training and advanced training for employees and insurance agents.

6. Imperfect legislation.

Another significant problem for insurance business entities is the adoption of new legal directives and observed changes in regulatory and legislative acts that are not sufficiently developed in terms of the specifics of the domestic insurance market. For example, the requirements of articles of the Act of the Republic of Uzbekistan “On Personal Data” restrict processing and transfer of data about the insured to the third parties (Law of the Republic of Uzbekistan, 2019), Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated by December 05, 2022 №694 “On Approval of the Regulation on the Order of Implementation of Electronic Types of Insurance Services” prohibits payment of commissions to insurance agents which in turn limits the development of digital sales agent channel in the form of insurance aggregators, mobile applications, telegram bots and online stores (Decree of the Cabinet of Ministers of the Republic of Uzbekistan, 2022).

7. Poor quality of claims consideration.

Given the current practice of doing business, the significant part of domestic insurance companies considers the insurance policies sale and insurance premiums collection as their primary task, while timely, undisputable and accurate fulfillment of obligations in insurance payments is considered as secondary issue for them (this is evidenced by the loss ratio).

The processes of evaluating insurance claims occurred and paying out insurance claims are unreasonably bureaucratic, inefficient requirement of papers or unnecessary documents has become the norm, the absence of strict regulations and approved procedures extend for many months, thereby bringing to distrust to obligations fulfillment by the insurance companies. All this leads to the population and business representatives’ numerous complaints, court appeals in order to protect their rights in receiving insurance compensation.

As electronic signatures and digital forms are gradually introduced in the country, customers are expecting that many activities by insurance company will be performed remotely using digital tools – from buying the policy, renewing it to receiving insurance payment.

For example, Uzbekinvest insurance company has introduced on all digital platforms a service for filing online claims application which helps to settle insurance event online without visiting the office and receive insurance payment.

Thus, based on the above, we can conclude that there are a number of issues in digitalization of the insurance business in Uzbekistan requiring step-by-step and systematic solution in the coming years.

In relation to the above, we consider the following suggestions to be appropriate:

1. Development and implementation of the state program for the insurance culture development of the population providing for an active advertising and marketing campaign among the population, explaining the prospects, advantages and benefits for the population in property, life and health insurance in understandable and systematic manner, developing a complex of measures to highlight the advantages and benefits of insurance among representatives of small and medium enterprises, improving the insurance literacy of the younger generation, attracting students in universities to the insurance system, ensuring information transparency about the insurance market development and the activities of insurance companies.
2. Development of individual digital insurance products and product adaptation to individual needs of the insured. This has become possible due to advances in technology, especially in the field of Big Data analysis, risk assessment and decision-making systems (DMS), artificial intelligence technology and computer learning.

For example, “pay-as-you-go” insurance programs are such insurance products in which customers are charged based on the actual use of the insurance service. The most common form is pay-as-you-go car insurance charging customers based on the number of miles they drive, or travel insurance as they enter and exit overseas charging customers based on the number of days spent abroad. The development and use of mechanisms to encourage customers to change their driving habits in order to reduce the risk of insurance accidents will increase the attractiveness of the product.

3. Today in Uzbekistan there are more than 30 imputed insurance types, the purchase and availability of which is necessary to gain access to certain types of activities, for example, the compulsory insurance of appraisers, accountants, auditors, notaries, pharmacists, and etc.

The development by insurance companies of various partner programs of imputed insurance for this segment, their digitalization, introduction of various loyalty programs and provision of bonuses will lead to the expansion of sales channels and increase the sales level which will also be the first step towards the introduction of “built-in insurance”.

4. The practice of foreign insurance companies has shown that together with development of digital insurance types for individuals and corporates, these companies have created eco-systems around their digital products.

Applying experience and current modern trends, insurance companies need to start creating eco-systems for each product line on their own or partner digital platforms, for example, banking eco-systems, telemedicine, smart home systems, e-commerce marketplaces and payment systems.

5. On the base of the Professional Participants of the Insurance Market Association of the Republic of Uzbekistan, the development of a program and conduction of short-term training and retraining courses for specialists in the insurance industry including the combination of traditional education forms and training using information technologies, taking into account real market demands based on the analysis of what knowledge, skills and abilities are expected by insurance companies from specialists.

It is offered that it would be advisable to include certain subjects in the universities curricula to train specialists for the insurance market, to define a new structure of insurance courses in accordance with the requirements of the developing insurance market, taking into account the trend towards the integration of education and business communities. Teaching insurance in educational institutions should be closely linked to the practice of insurance companies, using real products, technologies and business processes currently in the market.

Also, it is suggested for insurance companies to develop their own structured plans for professional training and retraining of their employees, which include, in addition to training in educational institutions and workplace, educational programs for advanced training and training abroad.

6. Development and implementation by insurance companies of digital solutions for collecting documents, step-by-step transition to electronic document management, establishment by the insurance companies of specific, clear and strict regulations for insurance obligations fulfillment, as well as use of severe penalties in case of their violation, providing for unconditional obligations fulfillment by insurance companies on the basis of strict regulations.

Changing the mode to collect data, integrating databases with relevant ministries and agencies, insurance companies can make the process of receiving payments and claims consideration more efficient ultimately leading to increased customer satisfaction.

Despite the fact that insurance in Uzbekistan has certain specifics, its development direction correlate to global trends. The insurance industry transformation into strategic sector of the national economy, creation of a more effective system of insurance protection in the conditions of the Republic of Uzbekistan requires the joint work of the insurance companies, National Agency for Advanced Projects, Central Bank of the Republic of Uzbekistan, the Ministry of Economy and Finance of the Republic of Uzbekistan and other interested ministries and departments.

In many ways, the success and speed of digitalization processes of the insurance business in Uzbekistan as an infrastructure institution will be determined by the pace of digitalization of the country’s economy, while the insurance culture development of the country’s citizens, the effectiveness of the insurance mechanisms implementation in corporate risk management systems and finance will have a significant impact.

Conclusions on the Fourth Chapter

1. Insurance on the territory of modern Uzbekistan passed through the following periods in its historical development: the first period – the early Middle Ages – was characterized mainly by mutual non-commercial insurance of trade operations; the second period – the period of Amir Timur reign – there were rudimentary of state property and personal insurance; the third period – the period of early capitalism before the revolution of 1917 – on the territory of Uzbekistan, commercial insurance was carried out by foreign insurers, the insurance needs of the main segments of the population were satisfied through non-commercial mutual insurance; fourth period – the Soviet period of the existence of Uzbekistan – the monopoly position of Gosstrakh, insurance of the property interests of individuals and cooperatives. State property was not insured; the fifth period is the period of development of the insurance market of independent Uzbekistan including five stages of the domestic insurance market transformation.

Classical commercial insurance appeared on the territory of modern Uzbekistan simultaneously with its colonization by Tsarist Russia. The needs for insurance protection of the local population were met through a local form of non-profit mutual insurance on the basis of co-participation. During the Soviet period of the country’s development, compulsory insurance types and cumulative insurance were mainly developed due to the presence of significant unmet demand. Also, during the Soviet period of the country’s development, mutual assistance of the population on the basis of co-participation was widely practiced.

Thus, the state of insurance in the periods immediately preceding the independent development of the country did not contribute to the development of insurance culture, did not take into account local characteristics and did not lead to the creation of national insurance model.

2. The state of the insurance market in Uzbekistan today is characterized by the following positive trends: high growth rates of gross premiums written (at least 10% annually); the presence of more than 40 insurance companies in the market in non-life insurance industry, including two companies with state participation with more than 20 years’ work experience and being actually national brands – Uzagrosugurta and Uzbekinvest Export-Import Insurance Company joint-stock companies – as well as 8 companies in the life insurance industry; relatively high degree of insurers’ presence in the regions of the country through branches and offices (more than 7 thousand).

However, along with positive trends, it is necessary to note the negative aspects of the domestic insurance market development: state is the main reformer of the insurance market, self-regulatory function of the market practically does not work; insurance premiums are growing due to compulsory and imputed types of insurance; the main growth drivers in Uzbekistan insurance market are domestic commercial banks; domestic insurers have practically no sales channels for insurance products aimed at the population of the republic; insurance companies work mainly with corporate clients; until recently, cumulative types of insurance sold “payroll” insurance; domestic insurers are practically not working to improve the insurance culture level in the country.

3. The main issues of the domestic insurance market constraining the use of insurance as an element of risk management for individuals and legal entities include: the low level of insurance culture among representatives of private and small businesses, as well as among the population. In this case, insurance culture means a conscious perception of the financial expenses for insurance as reasonable and necessary; low level of insurance coverage of the population (negligible volume of retail sales for voluntary types); underdevelopment of compulsory insurance types; weak capitalization of most insurance companies; insufficient level of life insurance development; a limited range of actually offered insurance services not reflect the current and future needs of both legal entities and individuals; the absence of a large, well-capitalized national reinsurer; lack of mutual insurance; insufficient level of state regulation and supervision of insurance activities, especially in matters of the regulatory ratio of liabilities and provisions; the practical absence of self-regulatory organizations in the insurance market of Uzbekistan.
4. The catch-up strategy of extractive development of the insurance market of Uzbekistan made it possible to create the institutional foundations of the insurance business in the country, but felt short of the expectations related to it: in terms of main macroeconomic indicators, the domestic insurance market is considerably below not only economically developed countries, but also developing countries; the state of insurance as an element of the risk management system allows us to classify the insurance market of Uzbekistan as the so-called “soft” insurance market characterized by a relatively large number of participants and low insurance premium rates, sometimes at the level of dumping; the level of insurance culture in the country is low, the population is practically excluded from voluntary insurance. To increase the efficiency of insurance as an element of the risk management system for individuals and legal entities, we consider it appropriate: to develop a strategy for the inclusive development of the domestic insurance market based on the national insurance model, taking into account the characteristics of Uzbekistan; increase requirements for the financial stability and solvency of domestic insurers in general and the size of authorized capital in particular; radically improve the underwriting in domestic companies; provide conditions for accelerated digitalization of the domestic insurance business.

The implementation of the above measures will allow: to ensure the solution of urgent problems in the development of insurance mechanisms for protecting the property interests of individuals and legal entities and to strengthen the systems of state regulation and supervision in the insurance sector; increase the level of protection of the state, enterprises and the population from the consequences of the occurrence of various groups of risks of the modernized economy and increase the quantity and quality of actually offered insurance products for risk management of individuals and legal entities; increase the investment attractiveness of the domestic insurance market in general and individual insurers in particular; create conditions for the accelerated development of life insurance and, accordingly, insurance mechanisms for managing the risks of individuals in a modernized economy; ensure the creation and further development of a legal system for insurance protection of property interests of the population, enterprises and the state.

5. Despite the fact that insurance in Uzbekistan has certain specifics, its development direction corresponds to global trends. Transforming the insurance industry into strategic sector of the national economy, creating a more effective insurance protection system in conditions of the Republic of Uzbekistan requires the joint work of the insurance companies themselves, the Ministry of Economy and Finance of the Republic of Uzbekistan and other interested ministries and departments. In many ways, the success and speed of the processes of digitalization of the insurance business in Uzbekistan as an infrastructure institution will be determined by the pace of digitalization of the economy, while the development of the insurance culture of the country’s citizens and the efficiency of the insurance mechanisms use in corporate risk and financial management systems will have a significant impact.