Explained: Earthquake Insurance
Since the February 6 earthquake, Syrian officials have discussed the need for an insurance policy for natural disasters. The idea for such a policy developed rapidly and may soon be put on the market.
Home insurance policies are considered essential to protecting properties from various risks, such as fires, theft and leakages. However, insurance specifically for earthquakes requires a separate policy in regions that often experience tremors. Such insurance could prove useful if a home collapses, even if most earthquake insurance policies contain many exceptions, making them useless in some cases of partial collapse or damage to unreported furnishings.
Syria’s insurance market is still relatively small. The only mandatory insurance policy in place is for third-party car insurance, covering all types of vehicles. Some insurance companies have also offered policies for homes, offices, and private companies to protect them and their contents from certain risks, especially fires and theft. However, these policies are not yet widespread, especially for homes.
The Syrian government’s enthusiasm for bringing forth an earthquake insurance policy has come as official talk of establishing a national disaster management authority or fund waned. On April 03, Qassioun newspaper, the mouthpiece of the People’s Will Party, reported that the new insurance project would solidify government irresponsibility towards people impacted by potential future disasters and be biassed toward the owners of the companies.
On February 14, Ibrahim Al-Adi, an economics professor at Damascus University, told the state-owned Al-Baath newspaper that mandatory home and building insurance could lighten repair costs for people during natural disasters. However, he added that the mandatory insurance should only be for new homes and buildings, as well as bridges, roads, and other large structures, and should be a requirement for obtaining a construction permit. Mr Al-Adi also suggested that the insurance money should be within state-affiliated insurance companies.
On March 08, the state-owned Tishreen newspaper published an article in which the manager of the Syrian Insurance Supervisory Commission confirmed that a month after the February 06 earthquake, the state-owned Syrian Insurance Company and private insurance companies were expected to pay no more than SYP 2 billion in compensation after inspecting earthquake-related damage. This low compensation to quake-affected policyholders is due to low coverage for natural disasters, according to the manager of the commission.
The Syrian Insurance Supervisory Commission, headed by the Minister of Finance, is the body that regulates Syria’s insurance and reinsurance sector. Syria has 12 private insurance companies, one public company (the Syrian Insurance Company) and one reinsurance company, the Arab Union Reinsurance Company. All these companies are part of the Syrian Insurance Federation.
Insurance expert George Ashqar told Tishreen on March 08 that the government’s natural disaster insurance initiative is essentially a call to share the costs of future disasters. He added that this type of insurance has specific characteristics and requires certain conditions and regulations to be in place before being sold. The most important of these conditions is that buildings considered for insurance must be earthquake resistant. This condition must be confirmed by an official body that issues a document proving the structural resistance of any building in question.
Mr Ashqar added that if the government is looking to provide compensation and rebuild and restore buildings destroyed by natural disasters, insurance companies should bear some responsibility by selling policies that cover such risks at prices that must undergo long-term study. However, because the potential damages from natural disasters are enormous and costly, insurance companies cannot bear the full risks. As such, they must forge ties with reinsurance companies to help bear a part of the risk with them, Mr Ashqar added. Reinsurance is insurance that one insurance company buys from another to protect itself from the risks incurred by large compensation claims.
But the Syrian government appears to be rushing to introduce this new policy. A technical committee from the Syrian Insurance Federation has already put together a study on the new insurance policy and made several proposals about the value of instalments and the maximum compensation ceiling.
According to the semi-official Al-Watan newspaper, on March 28, the Ministry of Finance and the Insurance Supervisory Commission discussed the technical committee’s proposals, including the implementation mechanism, tools and statistics, sources of information and data, and the difficulties such a programme might face, mainly a lack of options for foreign reinsurance. Al-Watan did not clarify the reason for this lack of options, but it appears to be related to sanctions. In addition, foreign reinsurance companies will not accept financial transactions in Syrian pounds, while Syrian insurance companies will receive the value of insurance policies in Syrian pounds.
On March 29, Ammar Nasser Agha, dean of the Faculty of Economics at Damascus University, told Al-Watan that Syrian insurance companies could not bear the risks of earthquake damages. He added that an earthquake insurance group should be established. Here, insurance funds for homes could be collected and a portion of it given to local reinsurance companies, which would provide a portion of the money to foreign companies for reinsurance. The insurance money can then be invested over the medium and long term, with the investment going toward assets that can be quickly liquidated in the event of an earthquake.