Florentina Almajanu

1. FlorentinaAlmajanu General Director of UNSAR (ROMANIA) Saturday, 28.9.2013

2. “Compulsory Household Insurance Scheme in Romania” Florentina Almajanu Director General September 28th, Hydra

3. Summary • History & Development of the Compulsory Household Insurance Scheme in Romania • Figures – developments during application • Lessons Learned • Food for Thought

4. History & Development of the Compulsory Household Insurance Scheme in Romania 2006 – October 2008: • Grant from the World Bank • Working Group & Steering Committee formed for NatCat research, modelling and for initiating legislation; • NatCat models were run, results being analyzed and approved by the Working Group; • The legislation for NatCat was drafted.

5. History & Development of the Compulsory Household Insurance Scheme in Romania October 2008: • The Law regarding compulsory home insurance for earthquake, landslides and flood was approved by the Parliament (Law 260/2008)  primary legislation Law 260/2008 was a pure political regulation, with a strong social character, not considering technical insurance specificities, hence not profitable for the market players on long term. The state achieved social protection with private capital !

6. History & Development of the Compulsory Household Insurance Scheme in Romania 2009 – July 2010: • The Romanian Insurance Regulator issued secondary legislation (Norms) for implementation of the primary NatCat Law; • The “Pool for Insuring Against Natural Disasters” (PAID) was set-up as a commercial company having as shareholders 13 Romanian insurance companies. Subsidiaries of Major Multinationals refused to become PAID members.

7. History & Development of the Compulsory Household Insurance Scheme in Romania • July 2010: • PAID issued the first compulsory home insurance policy (PAD); • Only PAID members are allowed to sell PAD! • The PAD is compulsory for all household owners. Only PAD is recognized as valid insurance for NatCat risks (the new facultative policies do not qualify as replacements to cover the PAD risks); • The local authorities (mayors) are in charge with ensuring that all households have a PAD policy • The mayors have to apply penalties for non-compliance • Total number of households in Romania: 8.5 mio.

8. History & Development of the Compulsory Household Insurance Scheme in Romania July 2010: • Risks insured via PAD: earthquake, landslides, flood on first loss basis; • Sums insured: EUR 20,000 for buildings made of heat-treated materials (e.g. concrete, bricks etc.) – type A buildings; EUR 10,000 for non-heat treated materials (wood, non heat-treated bricks etc.) – type B; • Premiums: type A = EUR 20; type B = EUR 10; Sums insured have no market valuation rationale. Premiums have no actuarial calculations behind. The scheme has only social/political reasoning.

9. History & Development of the Compulsory Household Insurance Scheme in Romania • December 2010: • No. of PAD policies sold within July - Dec 2010: 367k. • The Law 260/2008 is amended by the Parliament; • Major change: The insurance for the NatCat risks (earthquake, landslides, flood) remains compulsory, however, facultative policies can also be purchased, alongside with PAD, to ensure coverage. • Any facultative policy (with NatCat coverage) issued by any insurance company can replace a compulsory policy. This amendment brought new opportunities for the insurance market.

10. History & Development of the Compulsory Household Insurance Scheme in Romania 2011 – August 2012: • No. of PAD policies sold in 2011: 574k. • No. of PAD policies sold in H1 2012: 331k. • No. of facultative policies end of 2011: 4.3 mio. (UNSAR members’ figures ~ 90% from GWP) • No. of facultative policies H1 2012: 4.2 mio. (UNSAR members’ figures ~ 90% from GWP) PAID coming close to dissolution as compulsory NatCat coverage can be sold by all market players as facultative household insurance.

11. History & Development of the Compulsory Household Insurance Scheme in Romania • August 2012: • The Romanian Insurance Regulator issued a Norm (secondary legislation) in opposition with the Law 260/2008 (primary legislation); This is an illegal amendment as the secondary legislation cannot modify primary legislation clauses. • Major change: the facultative household insurance is not accepted as compulsory NatCat insurance any longer. • Only PAD policies are recognized as valid to cover the NatCat risks (with a fixed Sum Insured). • Facultative policies will have compulsory deductibles of EUR 20,000 or EUR 10,000 as the case may be.

12. History & Development of the Compulsory Household Insurance Scheme in Romania • October 2012: • The Romanian Insurance Regulator has a new President (the former one was withdrawn by the Parliament); • The Norm opposing the Law 260/2008 (issued in Aug 2012) was repealed; hence the new status is as at end of 2010. • UNSAR started discussions/lobby with the local Regulator for amending the legislation related to NatCat. Main targets: Ensure legislation stability, Solve the imminent dissolution of PAID, protect the customers. • Frequent changes of legislation have disrupted the insurance market and the customers (new & potential ones).

13. History & Development of the Compulsory Household Insurance Scheme in Romania December 2012: • UNSAR launched the proposal for amending the NatCat legislation to the Insurance Regulator • Concrete proposal: - The insured will buy a single household insurance policy - The insurance policy will cover both mandatory risks (earthquake, flood, landslides) and facultative risks - Non-proportional co-insurance between PAID and the insurers: the first "layer" to be sustained by PAID and the upper “layer" to be the insurer's liability The proposal is a compromise agreed by UNSAR members and the Insurance Regulator

14. History & Development of the Compulsory Household Insurance Scheme in Romania December 2012: UNSAR proposes two alternatives in case of a major event (severity): Given that the focus is on the social nature - you can’t change the price (20 EUR or 10 EUR) => the State must guarantee the difference between reinsurance capacity that PAID can buy and the required capacity (as per Solvency II requirements) to GUARANTEE financial security in case of a major event (in severity); Otherwise, it should be possible to calculate premiums for PAD on an actuarial basis (A maximum profit margin and a maximum acceptable profit will be defined for PAID)

15. History & Development of the Compulsory Household Insurance Scheme in Romania January – July 2013: • The Insurance Regulator drafted the amendments of the NatCat legislation, forwarded it to the Parliament for approval and made lobby for them, together with UNSAR; • The Parliament analyzed the amendments and modified part of them, although they maintained the compulsory scheme with a limit of sum insured and non-proportional co-insurance between PAID and insurers; • The article that states that for people on social protection, the State covers the premium for compulsory households insurance is maintained.

16. History & Development of the Compulsory Household Insurance Scheme in Romania July 2013: • The Parliament approved the amendments to the Law 260/2008, the main changes being: • Non-proportional co-insurance between PAID and the insurer: the first "layer" to be sustained by PAID and the upper “layer" to be on the insurer's liability • Two policies will be issued: PAD + facultative policy with a deductible (the first “layer”) • The PAD policy can be issued also by insurers which are not shareholders of PAID Collaboration between UNSAR, the Insurance Regulator and the Parliament lead to the best solution for the time being (compromise solution)

17. Figures – developments during application • - 8.4mio households in 2010 • - 8.5mio households in 2011/2012/2013

18. Figures – evolutions during application • - 8.4mio households in 2010 • - 8.5mio households in 2011/2012/2013

19. Lessons Learned • Political solutions are not always applicable by the insurance industry, therefore, the desired results cannot be always achieved. • Political control of implementation is not recommended, especially in election years. The penalties for the non-compliance with the NatCat Law were not charges by the mayors • The State (Government) did not apply the Regulations as issued by the Parliament, by not covering the compulsory insurance premium for people on social protection.

20. Food for Thought • Be proactive! Initiate measures before the legislative bodies do!