Lisbon, Nov. 19, 2024 (Lusa) - Portugal's Insurance and Pension Funds Supervisory Authority (ASF) said on Tuesday that it will soon be submitting proposals to the government for the creation of a mechanism to protect against seismic risks.
The ASF is holding its annual conference in Lisbon today, and the president, Margarida Corrêa de Aguiar, considered that seismic risk is one of the most important catastrophic risks in Portugal, despite the fact that there is no national coverage system for such events.
Corrêa Aguiar said that the ASF would soon be presenting a project to the government with proposals to this end.
"A first document with concrete proposals on this matter is expected to be submitted to the government soon. It would make it possible to reduce the existing high national 'protection gap' and create mechanisms for the accumulation of ex-ante funds that can be channelled to reimburse potentially systemic losses resulting from the occurrence of an earthquake," said Corrêa de Aguiar.
Present at the opening of the ASF conference, the minister of finance, Miranda Sarmento, said that the government "looks forward" to the conclusions of the ASF's work on this matter, not least because in the event of a catastrophe and major financial losses, the state will be called upon to bear major losses.
"And the state that, at the end of the day, could be the 'bailout' for all these losses," he said.
According to the minister, disasters such as the recent floods in Valencia, Spain, demonstrate the importance of robust prevention mechanisms and the existence of a national system for comprehensive coverage of physical phenomena, in which both public and private agents participate.
This year's ASF conference is dedicated to the "role of the insurance sector in managing natural disaster risks", such as floods, prolonged droughts, storms, forest fires and earthquakes.
According to the president of ASF, the insurance sector is important not only in the financial mitigation of losses following a disaster of this kind, but also in the identification, measurement, management and monitoring of risks and the adoption of behaviours and practices that reduce exposure to risks.
Currently, she said, there is a high 'protection gap' (the difference between the potential for risk coverage and the coverage that exists) in Portugal, as there is worldwide. According to an ASF study updated to 2023, 80% of homes in Portugal do not have insurance cover for seismic risk.
The intention to create a fund for seismic risk is decades old. Back in 2010, under the PS government of José Sócrates, a legislative draft for the creation of such a fund was put out for public consultation, but it was not followed up in the wake of the economic crisis.
A year ago, the Portuguese Insurers' Association (APS, which brings together insurers) advocated making seismic risk cover compulsory in home insurance. The APS also advocated the creation of a seismic risk fund to be managed jointly by insurers and the state.
"The initial capacity would be €8 billion. On day one [of a seismic catastrophe], the insurance sector would be able to respond to the recovery of homes to the value of €8 billion and if the catastrophe reaches €9 billion, the state would put up the remaining €1 billion," explained the president of the APS, José Galamba de Oliveira.
Galamba de Oliveira said that this figure would have to be recalculated, as it comes from a study carried out in 2018, which in the meantime needs to be updated both for inflation and other costs.
The association that brings together insurers operating in Portugal showed a study by Swiss Re, according to which Portugal is the country in Europe most exposed to seismic risk (including ahead of Italy). The greatest risk is in Lisbon and the Algarve.
Also according to APS, in a severe event, such as the Lisbon earthquake of 1755, losses could reach 20% of Gross Domestic Product (GDP).
In October 2023, António Costa's PS government published an order instructing the ASF to develop a system to cover the risk of seismic phenomena. Initially, the regulator was expected to present the report by the end of the first quarter, but the deadline was postponed until the end of the year, with the ASF justifying the technical complexity of the process.
IM/AYLS // AYLS
Lusa
