Compulsiveness is a good idea, but this raises the level of responsibilities and of technical performance very high, says Eugene Gurenko, lead insurance and risk management specialist in the World Bank
Having in mind Romanian and Turkish example in putting up national catastrophic programs, do you think that Bulgaria is lagging behind them?
- I definitely think that Bulgaria
will benefit from increase of catastrophic risk coverage among population and businesses. If we look at the penetration numbers of natural hazards coverage in Bulgaria, although one can really
argue on the figures because no formal survey have been carried out, but according to my estimate the penetration can simply not be higher than in Romania, which has somewhat higher GDP per capita
and better developed insurance market. And we have seen from the comprehensive survey of Romanian households, conducted by XPRIMM media, that the catastrophy polices in a country of 20 million
people are 7800. I would be very very surprised if Bulgaria has much better record. I do not believe that more than 3 to 4% of the households in Bulgaria are currently insured against natural
disasters. And even that number is in the high side.
You have your pros and cons regarding the Romanian model. Could you reiterate what risks do you see in it? It can be a useful example in our case.
- In all government
supported programs or in public-private partnerships, involving government, in insurance industry the process becomes politicized at the end and the technical consideration, typical for any sound
insurance business, gets lost or abandoned or forgotten or distorted. And that’s the biggest risk. And to be precise, the biggest risk in Romanian program is that in the end rather than looking in
the results of highly sophisticated models, the government – rather parliament - just decides to override them and come up with rates and deductibles that have nothing to do with actuary
assessments, but are a purely political decision.
And the statement was ‘let’s have the law and next year we shall correct it’. That was a point I could not understand.
- Well, I personally also do not think that bad law should be passed in the hope that it would be rectified later. But again, life is never black and white, it is compromise, and I’m hoping that
the parliament will come up with at least minimal preconditions for building this program on sound bases. Which is already happening - the debate now is not about zero deductibles like it was last
week, but about 5 or 10% deductibles, which is already bringing the program closer to the way it should be to be technically sound.
Do you say that we may use the Romanian approach, but very carefully?
- Every country has its own traditions, different risk exposures, different conditions, different development state of the insurance market, it would be simply wrong to imitate someone else’s
example. One has to be creative, to think what is best for the specific market.
Well of course, I didn’t mean to copy it…
- I think what Bulgaria should consider is several fundamental questions. Question A is how to increase catastrophy insurance coverage among the population; what are the means to get there – from
let’s say 3-4% to 30-50%, to… 100%; and what will it take in a country with Bulgarian level of economic development and of development of insurance market to get to this goal. And there are
political sensitivities – in certain countries people like solidarity, like in France, in others, like America, they hate solidarity. In Bulgaria perhaps you will find your way. One thing is clear:
no matter what you do, you have to think very seriously how to increase insurance coverage against natural hazards among households and small businesses.
Several days ago you had a working meeting with Bulgarian institutions and business representatives. What was your impression? The discussion on national catastrophic program is several
years old, but at certain point I got the feeling that it is starting anew…
- What was clear to me after my short trip to Sofia was that the insurance market is divided. Some
companies want the pool and others don’t.
For different reasons…
- …for different reasons. That’s not very unique, because every country I have done on this specific topic has its own opposition, its own opponents. And I have never seen a market, except for
Indonesia, united on the issue whether they should have catastrophy program or not.
Everybody in Bulgaria agrees that we should have. The issue is what exactly it would be.
- If we dig further down, the question of compulsiveness is I believe the issue of
contention. Compulsory insurance has its major pluses and minuses. From the insurance professional point of view it’s a great idea, because it gives great solidarity, low premiums, improves the
quality of insurance portfolio, high penetration, uses cost of running this program. But the negative side is the perception - people may consider it a tax. The problem is that when the program is
fully run and becomes more politically than technically driven, then it truly becomes a tax, with the profits of this tax been used less than wisely, just like the case in Florida I have shown. I
would say in the end: yes, compulsory is a good idea, but when you say it’s compulsory, the level of responsibilities and the level of technical performance that need to be reached by this program,
is raised very high. Because if compulsory, the program has to deliver to the best expectations and has to be technically run so the insurers do get the best value without really voting
regressively against the entity, which they would be able do if it was not compulsory.
Romanian model is in fact 6 years old – since they started building the model in 2001, the preliminary work adds several years more. We are talking for several years, but we haven’t really
started yet. Will it take us like 10 years? What is your assessment?
- I can tell you this: when there was an earthquake in Turkey in August 1999, the government asked the WB to
provide assistance in designing a program. The program was designed in few weeks and the government implemented it in 6 months.
It’s not a wishful example…
- It’s just an example what can be done if there is a will.
Let God not allow this happen to us!
Will the World Bank support a Bulgarian program?
- The bank will be very happy to support any effort that helps to increase risk awareness and increase insurance penetration in
Bulgaria. And we certainly will be very happy to support government’s interest in that regard. But for us is important to have institutional engagement, we need government expressing interest in
such an assistance from the bank.
Can you encourage that interest? Somehow?
- Next time I will be in Sofia I’ll try to organize a subsidiary workshop with the government to explain where the bank stands with its services in this regard. And perhaps that will help wet the
government appetite in that area.
Will that happen before the end of the year?
- Yes, in November or early December.
See you in Sofia then. Thank you.
