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Market Information
 Romania
 Nr.
Domeniu: companies&finances din data 2002-05-21
World
Bank supports mandatory building insurance in Romania
Sorin
Pâslaru
If
an earthquake were to occur tomorrow, 98% of the homeowners
would have to turn to the State for help because they have
no insurance. This scenario is not that highly unlikely, as
Romania is among the top ten "luckiest" countries
in the world in this respect.
The solution is to make earthquake, and possibly, flood insurance
mandatory, which is supported by the World Bank with $80 million.
The World Bank is negotiating with the Romanian authorities
an $80 million loan component that will help finance the launch
of the Romanian natural disasters insurance programme, Eugene
Gurenko, senior insurance officer with the World Bank told
Ziarul Financiar.
This project is actually part of a more extensive financing,
worth some $150-$200 million to also improve the national
emergency response services and retrofit some major public
facilities to make them more resistant to earthquakes and
floods.
Gurenko has been working on this project since last year and
has been helped by Denisa Dumitru, a Romanian-born reinsurance
underwriter in the US market, well known to the local industry.
"Several attempts to put together a system for mandatory
building insurance have been made over the last five or six
years, but all of them failed, unfortunately. Now that the
World Bank is involved in this project, this system stands
more chances of coming through," says Dumitru.
"Overwhelmed" by so many loan applications from
countries hit by natural disasters (Turkey is the most recent
such example), the World Bank has begun to foster building
mandatory calamity insurance systems in the countries with
a high degree of risk.
"It is always better for a country with high risk exposures
to have access to liquidity arranged in advance than scrambling
for cash when it is hit by a calamity and is in dire straits,"
Gurenko explains.
How will this system, which Gurenko estimates to be ready
in no more than a year, work? Homeowners will be bound to
insure their homes against earthquakes, and possibly floods,
with the Romanian companies directly, which will issue the
policies, and provide marketing, distribution, and claim settlement
services.
The insurance premiums, estimated to some $15-$20 for a home
appraised at $15,000, will therefore be collected by the Romanian
companies, and transferred to a domestic catastrophe reinsurance
pool, net of service commissions.
The Romanian insurance companies, due to their limited financial
strength, will be allowed to retain only part of the risk
(probably no more than 1%-5%, but only if they pledge quasi-cash
collateral for the risks undertaken).
The reason behind this pool is simple: to build enough equity
(capital) base over time thus enabling the Romanian homeowners
to have access to affordable and financially reliable insurance
coverage for natural disasters from the Romanian insurance
market.
Therefore, it is important that the money collected be protected
from any other possible use than paying claims.
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