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MeneameChile's securities and insurance regulator SVS is considering issuing a catastrophe (cat) bond or raising catastrophic funds as financing alternatives against natural disasters, as well as developing lower-cost earthquake premiums, SVS head Fernando Coloma told a panel.
According to Coloma, Chile - despite being an earthquake-prone country as shown in the powerful 8.8-magnitude earthquake that shook the country in February - does not have a strong insurance culture. In fact, 76% of the country's homes did not have insurance protection against the earthquake, he said.
SVS is thus studying ways to expand earthquake coverage for homes, such as low-cost, simple coverage plans for the poorer sectors of the population, or subsidy alternatives, such as the one used for agriculture insurance in the country.
"I think the market would be willing to do it, because now the system's consciousness has changed," he told reporters after the event.
NEW MARKET RULES
Next year, SVS will carry out a study to develop an evaluation model of earthquake risk in Chile. Following the study's results, the regulator will review the insurers' catastrophic technical reserves and capital solvency requirements, he said.
Given that there was a shortage of claims adjusters after the earthquake, SVS will also demand that both insurers and adjusters have contingency plans to respond more efficiently in these cases and will design a procedure to settle and pay claims prompted by disasters, Coloma said.
The three largest players in Chile's earthquake insurance market as of end-June were the local P&C units of Spain's Mapfre, UK insurance group RSA and Spain's Santander (NYSE: STD), according to SVS data.
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