Mr Simon Forman, AON RE manager for CEE And Mr Matthew Eagle, AON UK Representative Said That The Compulsory Insurance Policies Will Be Affordable
The topic about the national catastrophic programme became actual once more in view of the visit of Mr Eugeni Gurenko, a distinguished risk management specialist working for the World Bank. There have been several forums discussing the topic during these recent months and the last one was organised by AON Bulgaria. Mr Simon Forman, AON RE manager for CEE and Mr Matthew Eagle, AON UK representative and head of the catastrophe modelling and actuary instruments department, shared their opinion opinion on the issue:
Why did you decide to present insurance floods risk projects, not earthquake risk?
Matthew Eagle: The floods risk management project is a new model we have
developed, that is why. We have an already developed earthquake risk managemnt and what is more floods risk management is significant in view of the f of the event. A single strike may not
cause a lot of damage but frequent losses can.
Where do you place Bulgaria among the countries you have developed models for?
Matthew Eagle: The floods risk management model which we developed for Bulgaria will work
as well as it worked for the other countries.
How do you assess the risk in Bulgaria in comparison with the other countries?
Matthew Eagle: That is an interesting question, but I cannot give you an answer yet since we need to have some feedback with the insurance companies about the the insurance exposure, the
average payments they have made and then will we have the answer to this question.
One of the components of your model is the infrastructure of the respective country. What does your model say for Bulgarian infrastructure?
Matthew Eagle: I cannot answer you since we have concentrated on estimating the risk potential. From now on we will collect information about protection measures and the type of
buildings. The model cannot work well and be successful if we have no information about the types of the damaged buildings and the amount of the damage.
Where do you put Bulgaria on the risk scale?
Matthew Eagle: With the assessment of the losses for the last 10 years Bulgaria is placed in the bottom of the scale. There were losses, but the affected territories were not as large as in
Germany or the Czech Republic, for instance. The premia paid in both countries mentioned should be taken into consideration, too. The Danube is as well passing through Bulgaria, but the its
part is relatively short.
Does lower floods risk mean no need of a catastrophe pool and the insurance companies can sell separate insurance products?
Matthew Eagle: As I said the risk in
Bulgaria is relatively low, not absolutely low.
Simon Forman: That is a very good question. Our opinion that it is better to pool the resources.
Matthew Eagle: Yes and thus the insurance policies will be affordable for the households.
Simon Forman: And if the state joins effort with the insurers, the results will be fantastic.
Can you tell us more about the earthquake risk programme?
Matthew Eagle: If the tendency in Bulgaria is the same as in Romania, and we assume it is and we developed the
programme basing it on the results in Romania. The state had its own project and we had ours. If in Bulgaria the same thing happens, if the insurance business and the state join effort for the
project, it will be far better. But we need up-to-date research, all the local knowledge and expertise. Once the seismic records information is processed, it will be used for insurance
purposes.
You probably know that the model in Bulgaria is to include earthquake risk and then add to it other risks, like flood etc.
Simon Forman: Such a scheme is a good scheme,
but the state has to participate in view of the wide exposure. If the insurance is compulsory all of the country will pool the resources and the insurance policies will be affordable for all.
Compulsion meets opposition, one of the comments is that it would be met like a new tax...
Simon Forman: The same was the argument in Romania. Every state provides some resources for repair, but they are enough to cover for the first event. But in case of a second, a third
accident the state takes from the budget for education, roads construction etc.
It is quite important to know that when an accident occurs people always pay - even those who do not want to insure their property. Because when the state does not have enough money to
cover for all the damages it gets a loan and everyone pays back this loan. And when the state is paying back the loan it needs money and it raises the taxes or introduces new taxes. So if a single
flood affects 3-4 000 people living in the North West the people living in the South East pay, too. The idea poses that you pay a small insurance premium now not to pay a lot when the accident
occurs.
Matthew Eagle: The insurance premium is important, but some deduction may be envisaged, deductibles to 5% for instance, i.e. in case of an event 5% of the damage is covered by the fund
and thus the insurance policy becomes cheaper.
If we introduce compulsory home insurance scheme what should the insurance premium be?
Siman Fporman: A very good question. The most important, but I cannot answer it.
Matthew Eagle: The presentation showed that we have a developed model. But we do not have full information about the damage amounts. Once we have that information at hand it would be easy to
make the necessary calculations.
Can you tell the damage amount in case of an earthquake?
Simon Forman: We will know soon. If we estimate the maximum damage, we will have everything we need.
