Catastrophe risks and property insurance Roumen Galabinov

What are the catastrophe risks? –Earthquake –Windstorm –Flood –Hails, wild fires, terrorism, other (pandemics, etc)

What are the catastrophe risks in CEE? Flood: key peril for CZ, SK, PL, HU, RO, BG. Very important economic and insured losses. Very high loss potential due to high insured values. Minor insured losses but important economic losses. Earthquake: key peril for RO, BG Last major earthquake: 1976 (M 7.6) and 1990 (M 6.9 and 7.2) quakes produced minor damage. Wind: relatively less important in most of the countries. Kyrill produced some losses in CZ. Other perils (landslide or hail): do not have a major loss potential

What is the property insurance development in the region so far? The property insurance market has a low penetration for catastrophe risk covers. Local insurance companies have an insufficient capital base to support high catastrophe risk retentions. Governments tradition is to provide financial aid to the victims of disasters. Homeowners have low catastrophe risk awareness.

What is a catastrophe insurance pool? A pool would pay for the losses of the people if there are catastrophes. It’s exactly the same as an insurance company but on a larger scale. What happens without a pool? Usually the government is the insurer of last resort – if a very large event happens and people are not insured then the state budget has to pay those affected. What difference does a pool make? Instead of the government paying out, the pool would pay out. This allows the government to reduce its catastrophe risk liability. Why doesn’t everyone have one? Pools are only appropriate if the country has a large exposure to catastrophes, and if the government doesn’t want to bear the liability.

What is the reaction of the local insurance companies? From the local insurance industry point of view the creation of a catastrophe insurance pool may result in the loss of property catastrophe risk premiums. For some local insurers that regular front the property 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.

What are the potential benefits of a catastrophe pool? Reduces the government catastrophe liabilities. Increases insurance awareness and insurance penetration. Improves the building codes and building standards. Introduces national catastrophe modelling in the country. Makes property catastrophe insurance affordable and available to everyone.

What are the potential problems of a catastrophe pool? If it is a voluntary pool then not everyone will use it – this means that there will be anti-selection and the government will still be liable for some losses. If it is a compulsory pool then the premium can be seen as a tax or obligatory fee. The government is never free of its obligation to be the insurer of last resort – state will still be liable if there is a big disaster.

What is the international experience in catastrophe risk pooling? Algeria Catastrophe Insurance Pool / ACIP Turkey Catastrophe Insurance Pool / TCIP Romania Catastrophe Insurance Pool / PAID Norway Natural Perils Pool / NNPP Florida Catastrophe Fund / FCF Taiwan Residential Earthquake Pool / TREIF France NatCat Pool / CCR Spain Consorcio de compensation / SCC Caribbean region Fund / CCRIF Indonesia Maipark EQ Japan Earthquake JERe New Zealand EQC

Thank you!