Roumen Galabinov Chairman

Currently about 8% of the 3.6 million homes in Bulgaria are insured against natural disasters as earthquakes and floods. Although the mortgage boom pushed up this percentage from the much lower level recorded few years ago, the last years of economic crisis led to a decrease both in the number of mortgage loans and insurance policies. Some insurers have launched cheap products, for the price of BGN 20 (EUR 10). Such small policies provide coverage for an insured amount of only up to BGN 2,000 (EUR 1,000) and refer to only a fire or water damages, but the risks of an earthquake and flood are not covered.

Bulgarian property insurance market has a very low insurance penetration for catastrophe risk covers. Local insurance companies have an insufficient capital base to support high catastrophe risk retentions. Government tradition is to provide “”financial aid” to the victims of disasters. Homeowners have low risk awareness and undeveloped insurance culture. Low incomes of the population and poor standard of living.

Catastrophe insurance penetration in disaster prone areas in Bulgaria is very low and tends to decrease further. Effective catastrophe insurance solution is needed. Alternative risk transfer like catastrophe insurance pool created as a public/private partnership is a way to go.

There is a political and social deadlock over when and how to move forward towards the Bulgarian catastrophe insurance pool. In the absence of a major recent event, creating such a program may prove politically and socially highly unpopular, less than a year before the elections. A potential political payoff from an investment into a national catastrophe insurance program may come too late for the ruling political power.

From the local insurance industry point of view the creation of a catastrophe insurance pool may result in the loss of catastrophe risk premiums. For some local insurers that regular front the catastrophe risk premium for international reinsurers, creation of a catastrophe insurance pool may result in the loss of reinsurance commissions. The government sponsored catastrophe insurance pool may reduce the insurance market catastrophe premium income and reduce the annual profits of the insurance companies during the years without major events.

The politicians have to understand that the catastrophe insurance pool will reduce government fiscal exposure to natural disasters while leaving enough room for them to provide again some subsidies to the disaster victims. The insurance industry has to understand that the catastrophe insurance pool will generate much more sales opportunities and claims benefits for the insurance companies than just a small loss in premiums. Homeowners have to understand that the catastrophe insurance pool will offer affordable catastrophe insurance cover backed by strong government and international reinsurance support.

Bulgarian catastrophe insurance pool has to become a political priority of the government natural disasters policy.

Thank you!