The program should set minimum limits of coverage in the range between Euro 20,000 – 40,000 to satisfy the basic insurance coverage needs for most homeowners while keeping the premiums affordable – (e.g. below EUR 50 per year), says the World Bank.
TIRANA, Aug. 12 – Albania should introduce a nationwide earthquake insurance program for homeowners compliant with catastrophe risk management requirements, according to a World Bank report on the financial sector assessment which suggest annual fees of around Euro 50.
“Despite being heavily exposed to earthquakes, the earthquake insurance for homeowners is almost non-existing, thus leaving homeowners and the government financially vulnerable to natural disasters,” says the report, describing Albania as highly vulnerable to natural disasters and climate change, with almost all the country falling into a very high seismic zone, and the standards of construction yet to be desired.
Insurance coverage of natural hazards among Albanian homeowners and small and mid-size businesses is almost non-existent (only 1-2 houses out of 100 currently have private catastrophe insurance coverage), which in case of a major event would have to appeal for government help.
Through this insurance coverage, a typical earthquake portfolio of a small size insurer with minimum capital (EUR 3mm) gets exposed to a risk accumulation of about EUR 380 mm of earthquake risk mainly in Tirana. “Such risk accumulations require proper capacity to ensure that claims are paid in full and insurer remains solvent after the earthquake, which currently is often not the case due to very expensive (hence unaffordable) catastrophe reinsurance for rather small earthquake insurance portfolios with minimum rates-on-line applying despite low business volumes.”
The World Bank report says the compulsory nature of the program will ensure wide public participation, contributing to the better diversification of risk country wide and hence helping to obtain lower rates from the global reinsurance market. “For instance, in the case of Romania, which has a compulsory earthquake insurance program developed with the World Bank assistance, about 60 percent of homeowners buy insurance coverage which guarantees highly affordable premium rates.”
The program should also set minimum limits of coverage in the range between Euro 20,000 – 40,000 to satisfy the basic insurance coverage needs for most homeowners while keeping the premiums affordable – (e.g. below EUR 50 per year), suggests the World Bank.
The role of government in the establishment of the national earthquake insurance program was clearly stated in the Financial Sector Assessment Program (FSPAP) Aide Memoire provided to the government and discussed at length with the Ministry of Finance which expressed support for this measure. The implementation of market development measures in general will also require government support and extensive technical assistance.
The report describes the insurance sector in Albania as remaining small and underdeveloped with gross written premium of about 0.66 percent of GDP. With insurance consumption of Euro 20 per capita, Albania lags behind all countries of Southeastern and Central Europe. Over the last three years, the market experienced little growth in real terms mainly due to weak economic growth, lack of public awareness, low insurance education and fierce price competition among 11 insurers who shared the market of only Euro 64 million in gross premium written (GPW).
