Mr Eugeni Gurenko, A Distinguished Risk Management Specialist Working For World Bank
World Bank expertise shows that the organisation of a catastrophe pool is a difficult task. There are several challenges the states are facing: first it should be clear that the repairs resources
are paid mainly by the people, then the state and finally exterior resources. Approximately 93% of the losses are covered by the state as the numbers change by the year. That is why it cannot be
predicted how much would be actually needed for the damage exposure. A very topical question is why the cabinets do not insure - most governments do not have management risk knowledge.
Secondly, the people not always want to give money for insurance against eventual damage.
Third comes the political momentum - the state institutions do not want to collect the resources since someone has to manage the money.
Insurance penetration is very low and the people do not have trust in the insurance system. In the long run, however, the people expect that the state will pay for the damage no
matter if they have or hav enot bought insurance. And I am sure that Bulgaria has faced some of the same challenges.
Why is the state unwilling to buy insurance?
The state has a certain fiscal reserve which can cover the damage in case of a catastrophe event. In case of a major accident, an earthquake for instance, the exposure can cost billions and thus
the budget may collapse and have a very negative impact on the economy. Even if the state can provide for all the damage and find resources from abroad it will have to pay cash to the citizens
whose suffered the loss. The first three months are the most critical. That is why it is better if the state has priorly pooled resources.
There are 4 catastrophe pool schemes:
1. The state priorly buys insurance.
2. The establishment of a national catastrophe risk programmes, transferring the risk to insurance and reinsurance companies.
3. Several countries organise a common pool as the risk is placed on the reinsurance market and in this case the premium amount will be lower.
4. The state invests in prevention instruments.
The estimate of the catastrophe risk is based on the eventual losses as GDP percentage. These calculation take into consideration the territory of the country as well as the economy evaluation. The
calculations suggesting a single catastrophe event for 250 years Bulgaria will not suffer the greatest damage possible. In Germany, for example, a single flood costs 0.2% GDP while in Albania it
would cost 73% GDP. In Bulgaria the damage exposure would come to 18% GDP which is much for Bulgaria's economy.
Statistics read that after the year 2000 there are 10 catastrophe events a year.
6 months ago World Bank commissioned a survey to be conducted in 10 East European countries (including Bulgaria) in order to find out how these state would cover the damages. The results show that
the resources provided for the floods damage cover in 2005 should be multiplied by 21 to show the actual sum enough to cover all damage exposure. 21 times is not that bad compared to 577
multiplication in case of an earthquake in Moldova.
World Bank suggests 2 ways for the organisation of a catastrophe pool:
1. The state organises the pool with physical persons and legal entities taking part and the pool is
reinsured on the international markets.
2. The cabinet insures the state budget against catastrophe risks.
Mexico can be given as an example where a special budget reserved is stored. The Caribbean has adopted another scheme - 18 smaller states organised a common pool. Third option is domestic
insurance, the idea Bulgaria shares. The Turkish catastrophe pool, organised in September 2000, is a fine example. Compulsive dwellings insurance against earthquakes was introduced and other risks
were added to it. Every citizens pays and the risk is transferred to the reinsurance industry. The insurance premium is a constant amount, it does not change by the year, its average amount is USD
46 for USD 30 thousand cover. World Bank says the Turkish manner is successful. World Bank's records read that only 2% of the dwellings in Bulgaria are insured, the Association of Bulgarian
Insurers stands for 8%.
