Albanian Insurers’ Association criticize Albanian government’s draft low on mandatory housing insurance: “The state is a supervisor and regulator, not an actor”

1 November 2023 — Daniela GHETU
The Albanian government's draft law on ”Mandatory insurance of housing against earthquakes” continues to be the subject of discussions in the local market, the Association of Insurers of Albania raising several objections to the draft law’s provisions.

The creation of a state-owned company is considered a violation of competition in the market, as Albania has liberalized the insurance market for several years, having 8 companies, which have been offering insurance packages to citizens for years. "Aren't we returning to the nationalization of services, with such a project, when in the meantime we have a liberalized market?", asks Mimoza Hajdarmataj, General Secretary of the Association of Insurers of Albania.

According to her, in the draft law presented by the government, there is mentioned no involvement of private companies, which leaves their contribution to the project under a big question mark. "We have our objections to this initiative. We think that the state is a supervisor and regulator and not an actor in a market that has been considered consolidated for years”, explained Mimoza Hajdarmataj in an interview for an Albanian TV channel.

But why does the Association of Insurers of Albania oppose this draft law? Some of these objections are summarized below, in an article published on the Albanian Insurers’ Association website:

  • The draft law provides for a completely state-wide mandatory earthquake insurance scheme, which none of the European Union countries have. Even in Turkey or Romania (reference countries in the explanatory report of the draft law), the scheme is not completely state-owned, as it includes private insurance companies in the sale of this product;
  • The proposed insurance scheme brings increased and unjustified costs to citizens. This is because the insurance companies operating in the market have the necessary experience and expertise in the field. They have established the necessary infrastructure for offering insurance products to citizens and have human resources specialized in insurance. The creation of a new state entity or company, as proposed in the draft law, would bring huge expenses to raise these capacities from scratch, expenses that will ultimately be transferred to the citizens;
  • Finding the right reinsurance programs from strong global reinsurers would bring much higher costs to the state entity/society, while insurance companies have been supported for years by reinsurance programs from strong global reinsurers and have the ability to withstand claims; This was proven by the very positive reaction received by the citizens who had their houses insured by the Insurance Companies, they were compensated in record time, that is, the insurance market and their international partners passed a very positive test by paying around 40 million Euros in the case of the 2019 earthquakes.
The content of the draft law also raises questions about its constitutionality, as:

  • violates the basic principle of free economic activity, - violates the principle of legal certainty, regarding the legitimate expectation that insurance companies have in a free economic market, in the conditions when the state intervenes, turning from a market regulator to an operator - violates the interests of the owners of real estate/housing that they have insured against the earthquake with insurance companies for periods of several years.
  • The draft law bypasses the legal framework for regulating the insurance market, provided by law no. 52/2014 ”On insurance and reinsurance activity".
  • The draft law favors foreign entities with additional costs in the provision of consultancy, management and operational administration related to obtaining insurance and handling the payment of damages, etc. This may have been initiated by previous projects initiated by foreign consultants of international organizations, but which directly harms the interests of Albanian citizens by increasing the cost of earthquake insurance as well as simultaneously taking into consideration the exclusion of operators of of the insurance market in the Republic of Albania, the ranking of the image of an already consolidated financial market with investors and insurance companies of the European market. This action, among others, will harm the integrity of the insurance market in Albania at home and abroad, as well as reduce the interest of citizens to be insured in voluntary insurance, harming the work of the market and the Financial Supervision Authority, which has verified insurance companies.
The insurance industry in Albania, liberalized since 1996 and supervised by the Financial Supervision Authority, is now in a consolidated stage. Citizens are already familiar with the private insurance market for years. Insurance companies have paid around EUR 40 million in damages caused by the 2019 earthquakes, which is an indicator of the capacity and financial stability of insurance companies operating in the market.

The intervention of the state in the insurance market through this draft law, transforming its mission from a regulator that must guarantee an optimal environment for this market, to a direct actor in this market, directly affects the economic freedom of insurance companies and therefore, it does not fulfill the goal it aims to achieve”, emphasizes, among other things, the General Secretary of the Association of Insurers of Albania, Mimoza Hajdarmataj.

We remind here that, in addition to the Association of Insurers, the American Chamber of Commerce has also been critical of this bill.

According to ”AmCham Albania", the draft law was drafted without consulting especially with insurance market operators, but also with experts in the field who can offer good solutions based on their experience, repeatedly neglecting a regular consultation process. and comprehensive.

According to her, the insurance provided in the law is incomplete, as it only provides insurance against earthquakes, and not from other natural disasters such as fires or floods, and only insures the dwelling and not the injuries and indirect damages that can be caused by disasters.