Benefits and Opportunities of Europa Re Programme for the Insurance Industry

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1 Europa Re 2nd Regional Insurance Conference "New Generation of Insurance Solutions" Benefits and Opportunities of Europa Re Programme for the Insurance Industry KLIME POPOSKI BELGRADE, O CTOBER 2 014

2 Natural catastrophes and man-made disasters in 2013 Source: Swiss Re Economic Research & Consulting

3 Source: Geo Risks Research, Nat Cat Service Loss Events Worldwide Overall and insured losses

4 Natural Disasters in South East Europe (SEE) SEE is significantly vulnerable and exposed to natural disasters. In the last 30 years, reported economic damages from natural disasters in SEE exceeded 70 billion dollars. (Source: UNDP, UNISDR and World Bank, 2008). Earthquake Flood Source Albania Macedonia Serbia : 2.3 billion dollars loss caused by floods, earthquakes and drought. UNDP, UNISDR and World Bank, 2008 earthquake in Skopje, 1963 (6.1 on the Richter Scale): leaving more than people homeless and making total economic damage estimated at 1 billion dollars at that time. 5 million dollars from losses caused earthquakes in the period floods of 1962 and 1979 resulted in economic losses of 7% of GDP, ,4% of GDP UNDP, UNISDR and World Bank, 2008 over 50 per cent of the territory in Serbia is vulnerable to earthquakes of magnitude 7 Serbia floods from 2014: billion EUR EBRD estimation

5 Risks of natural catastrophes- projections Projections for climate changes Temperature increase by 1.9 degrees by Shortage average precipitation -5%. Summer periods -17%. Increased use of pesticides and diseases of crops, shortages of water and food. Macedonia: The probability to occur earthquake within 50 years is 10% economic damages that can exceed 3 billion euros Flood likely to occur once in 250 years Total economic losses can reach about 900 million euros Households- approximately 250 million euros. Extreme droughts could be repeated every 3-4 years occurring on more than 40% of territory of Macedonia.

6 SEE insurance markets main development indicators Albania Macedonia Serbia Insurance penetration degree (% in GDP) 0,63% 1,52% 1,77% Insurance density (EUR/capita) 21,84 56,47 77,60 Share of foreign entities in GWP 63,0% 85,3% 91,0% Number of Insurance undertakings [total/non-life] 11 / 9 15 /11 28/ 21 Share of property insurance in GWP Albania 14,5% 19,1% 23,1% Macedonia 18,3% 19,9% 18,3% Serbia 22,0% 22,2% 21,6%

7 Insurance against catastrophic risks - Macedonia Share in non-life GWP Residential insurance No. of residences 3,46% - Only 3,46% of the nonlife premiums refers to CAT risks - Only 0,24% of the households have earthquake insurance - Only 0,14% of the households have flood insurance

8 Starting points in developing CAT and Weather Risk Markets in SEE Low level of insurance penetration Lack of supply for standalone catastrophe insurance products Lack of awareness and insurance culture Perception that the state is the only solution for absorbing the risk effect Lack of appropriate risk modelling to map catastrophe risk exposure and provide sound product pricing Lack of available and affordable alternatives for risk transfer.

9 Project development World Bank programme named SEEC CRIF Europa RE establishment Contracts with local insurance undertakings. Companies are provided with: Fully designed products Appropriate expertise and technical support Appropriate reinsurance coverage.

10 Benefits and opportunities from Europa Re Provide local insurers with adequate reinsurance capacity, required to develop a mass market of affordable, well-designed and actuarially priced insurance products; Introduce and promote a modern insurance market infrastructure, including riskbased regulatory framework; Create and enhance demand for catastrophe and weather insurance products in member countries; Increase public awareness and financial literacy about the risks of natural disasters; Considerably reduced administrative expenses in processing policy sales and managing the risk of catastrophe insurance products; Improved credit quality of insurance products; Efficient, reliable and fast claims settlement processes; Improved regulatory compliance;

11 Europa Re in Macedonia Insurance Supervision Agency (ISA) the regulatory body for the insurance industry in Macedonia is appointed as implementing agency Europa Re representative office March 2013 Training workshops for insurance agents and personnel of the local partner insurers April, 2014 Introduction of the First Property Catastrophe Insurance Product - April, 2014 Introduction of the first Innovative Agriculture Yield Index Insurance Product September 2014 Full-scale PR and Marketing Campaign has started September 2014

12 Marketing activities

13 Regulatory challenges Assessment of solvency requirements based on premiums or claims method not suitable Higher CAT risk concentration due to increased portfolio No additional requirements on the aggregate net retention ISA is going to enact new regulatory framework on cat insurance Similar approach to the methodology proposed in the cat module from the SII standard formula, adjusted for the local market Results from the CAT model developed by AIR Risk based supervision

14 Further challenges Limited participations of the local market in the program Increasing the public s disaster risk awareness and knowledge Introduction of alternative insurance distribution channels Ensuring expert support to strengthen the regulatory capacity Expending the agriculture insurance premium subsidies Pros and cons for mandatory property insurance for residential against earthquake and flood risks

15 Thank You INSURANCE SUPERVISION AGENCY Vasil Glavinov No.12, TCC Plaza, 2nd floor 1000 Skopje, Macedonia Tel: Fax: contact@aso.mk