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FIAR 2010, Sinania PAID: Reconciling Affordability and Financial Sustainability Requirements

FIAR 2010, Sinania PAID: Reconciling Affordability and Financial Sustainability Requirements. May 25, 2010. Ensuring product affordability: consumers. Product appeal to consumers Premium rates are low Deductibles are low Sums insured are low No averaging – first loss .

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FIAR 2010, Sinania PAID: Reconciling Affordability and Financial Sustainability Requirements

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  1. FIAR 2010, SinaniaPAID: Reconciling Affordability and Financial Sustainability Requirements May 25, 2010

  2. Ensuring product affordability: consumers Product appeal to consumers • Premium rates are low • Deductibles are low • Sums insured are low • No averaging – first loss

  3. Prerequisites of financial sustainability: coverage features Insurance product • Actuarially sound premiums (based on true risk costs). • Deductibles to align incentives of insured with those of insurers and achieve affordable premium rates. • Restricted terms of coverage/no contents. • Automated and easy to administer policy issuance process.

  4. Prerequisites of financial sustainability: insurance market Market capabilities in product distribution and claims settlement • Sustainable insurance commissions achieved through cross-sales and advanced IT infrastructure • Public outreach – agents networks • Fraud control (unique policy IDs and ability to track policies in real time; real time sharing of underwriting data) • Adequate and cost effective claims management

  5. Prerequisites of financial sustainability: reinsurance market Reinsurance • Risk data sharing with the reinsurance market to reduce premium uncertainty. • Meaningful risk retention to reduce the moral hazard premium. • Adequate reinsurance protection • selection of an appropriate return period for PML • avoiding basis risk

  6. Ensuring financial sustainability of PAID: role of government and regulator Role of government • Ensure adequate regulatory framework (amendments to the law) • Effective and ongoing public information campaign • Effective law enforcement mechanisms to ensure coverage take-up (local governments) • Government financial backing for PAID’s retention before and after reinsurance (role of MoF) Role of CSA • Ensure adequate reinsurance protection • Ensure PAID solvency • Ensure adequate pricing of PAID products

  7. World Bank position on the PAID Does the Bank support the PAID? • Absolutely, as long as it manages in the end to strike the right balance between the affordability and financial sustainability requirements! • Although it is not an easy task we are confident that the PAID Team, the CSA and the Romanian market will ultimately find the reconcile these two opposites.

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