SECRETS Insurers talked a lot lately about changing prices for the compulsory house insurance. Even if the Financial Supervisory Authority (ASF) repeatedly said that increasing the premiums or introducing co-insurances or deductibles are necessary for the Natural Disaster Insurance Pool (PAID) to operate securely, the PAID officials keep on rejecting the changes. Which is in fact the reality and how solid PAID is?
Almost everybody in the insurance world was talking in the recent months about an imminent co-insurance or deductible for the compulsory property insurance, but nobody seems to be willing to officially take this measure. More, the PAID director Nicoleta Radu Neacsu has radically changed her mind recently and said she doesn’t know anything regarding price change negotiations. This despite that, in an interview she gave this summer for Capital, she revealed she was discussing with ASF about a 10% co-insurance to be introduced for the compulsory house insurance. The PAID director was also saying during that interview they were also considering increasing the prices.
The co-insurance is often used on the property insurance market. It means the insured undertakes a part of the damage. For the PAID insurance, with a fixed insured value of 20,000 euros, it implies that in case of a total loss PAID will only pay 18,000 euros. It also means that damages under 2,000 euros won’t be covered by the insurer.
A proof the co-insurance will become reality. Will the price go up?
A letter sent in July to the Economics Commission of the Romanian Chamber of Deputies by the Financial Supervisory Authority (ASF) clearly states that introducing a co-insurance or increasing the premiums for the customers not willing to accept the co-insurance are absolutely necessary measures in order for PAID to operate lawful. “As result of the analysis performed by ASF regarding the difficulties faced by PAID pursuant to the level of own capital and also to the lack of correlation between the premiums and the reinsurance costs, ASF identified as possible solution for reviving the PAID’s activity the introduction of a 10% co-insurance for the earthquake risk, giving the customers the possibility to opt for a full insurance, but at a 50% higher rate”, the above mentioned document read.
The PAID director said she doesn’t know anything about this letter and she didn’t have any contribution to it. “It’s ASF’s responsibility”, Nicoleta Radu Neacsu said while taking part at a workshop.
Question marks
The ASF letter indicates the Natural Disaster Insurance Pool might currently operate outside the ASF regulations. The document revealed that in July PAID had own funds of only 21 million euros, which allowed it to close at most 1.2 million insurance contracts. Despite this, at the end of August PAID had 1.6 million active insurance contracts, over 400,000 more than the regulations allowed.
For similar reasons, companies like Astra Asigurari or Carpatica Asig had been placed under special supervision by ASF. In order for PAID to operate under legal and prudential conditions, a capital increase would have been necessary. But, as the PAID director revealed, it didn’t take place. However, Nicoleta Radu Neacsu said, without providing any details, that PAID operates totally lawful and that the Pool had recently signed a new 500 million euros reinsurance contract, which is seen as sufficient for the current exposure level.