BiH: introducing a form of compulsory insurance for residential buildings is under consideration

29 January 2020 — Daniela GHETU
Establishing a national disaster insurance scheme is one of the main features of the UNDP's NAP for Bosnia & Herzegovina. Improving BiH's preparedness for dealing with Nat Cat events is instrumental considering the expected increase in flood losses and the very low current insurance coverage.

Over the past eighteen years the country has had 7 years of drought and 5 years of flooding, specifically in 2014 when major flooding caused damages equivalent to 15% of the country's GDP for that year, an article prepared by the UNDP reads. Moreover, according to the European Environment Agency, annual flood losses in BiH are expected to increase five-fold by 2050 and up to 17-fold by 2080.

As such, the UNDP BiH NAP (National Adaptation Plan) project understands that more attention should be paid to educating locals - especially young people - to this reality. It also recognizes that more action is needed in the field of flood risk insurance and other natural disaster risk mitigation mechanisms.

"Establishing a flood and other natural disaster insurance system for legal entities, farms, public, and residential buildings can contribute to reducing the risk of floods and other natural disasters. Through project activities, we encourage discussion between key stakeholders in this area to define the risk management assurance model applicable in BiH," Raduska Cupas, UNDP Project Manager, said.

UNDP's material reminds that due to the lack of a comprehensive mechanism for insurance against natural disasters, only 14.9% of the total estimated losses from the 2014 floods were covered. Of these losses, less than 1% was covered by budgetary reserves, and less than 2% by insurance; the vast majority of losses were never recovered. In 2014, only six citizens in BiH were covered by flood insurance.

Within the NAP project, a new risk mitigation product is in preparation, to insure property against damage from natural disasters correlated with climate change, including floods, landslides, earthquakes, and extreme weather events. The product includes the introduction of a form of compulsory insurance for individual residential buildings against these four common types of disasters.

This insurance product was developed as part of UNDP's climate change adaptation portfolio, in collaboration with the Association of Insurance Companies in the FBiH. Representatives from UNDP, the FBiH Insurance Industry, the Federation of Insurance Companies of the FBiH, and local experts took part in product development. This type of compulsory natural disaster insurance is in line with EU requirements, and is already being implemented in a large number of both developed and developing countries.
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