In Azerbaijan, a new system is being prepared: if you lose your job, insurance will cover the loan

Another product providing unemployment insurance is being developed in Azerbaijan. Credit risk insurance will provide for the repayment of debt that cannot be paid upon the occurrence of cases stipulated by the approved rules, using third-party funds.

MP Vugar Bayramov wrote about this on his social media account.

The parliamentarian noted that insurance of borrowers for life, death, and loss of working capacity is already applied and regulated by the Central Bank's rules. The new rules being developed specifically provide for insuring individuals who have taken out loans against the risk of job loss.

"In some cases, our citizens take out loans but face difficulties in repaying them due to reasons beyond their control. Our citizen's workplace closes, they are dismissed, or circumstances beyond their direct control change, resulting in difficulties with loan repayment. Credit or credit risk insurance will allow the insurance company to fulfill the obligation when such circumstances arise. Credit risk insurance will protect citizens financially and also reduce risks for banks.

One of the main issues here is the expenses for the borrower in the event this type of insurance is applied. Thus, using insurance means additional costs for the borrower, and obligations can only be covered upon the occurrence of an insured event provided that insurance payments have been made. This makes relevant not only the insurance of borrowers against job loss but also the assessment of changes in the credit cost structure, insurance coverage of loan payments, distribution of obligations between the borrower and the bank, as well as the impact of introducing employment loss risk insurance on the credit market. Given the high interest rates on loans in Azerbaijan, banks could offset the increase in loan costs when introducing this type of insurance by reducing interest rates to a certain extent. In that case, the introduction of this type of insurance would be possible without creating a significant additional financial burden for the borrower.

In any case, it would be advisable to approve the new rules related to credit risk insurance within a shorter timeframe. This will be a progressive change in the banking sector and will simultaneously help reduce risks for banks," he noted.