Government incentives lacking as insurance void poses threat

There are many reasons why Greece should not be the most underinsured country in the eurozone. The wildfires which torched tens of thousands of acres in northeastern Attica, close to Athens, a week ago, added another one. However, things may get worse if the government opts to beef up tax revenues in the short-run at the expense of more important medium-and-long term benefits. The wildfires that burned forestland and farmland in the suburbs of northeast Attica and other parts of the country revealed not only the unsatisfactory level of preparation and coordination of all people and units involved, they also brought to the fore the issue of property insurance, especially homes, which is much smaller in Greece than in other eurozone countries, according to executives of insurance companies. «Insurance premiums in general and property insurance in particular are very low in Greece relative to the average levels in other eurozone countries,» says Nikos Halkiopoulos, senior official at European Reliance Insurance Company. According to figures published by the Greek Association of Insurance Companies, the total amount of insurance premiums represented 2.05 percent of the country’s gross domestic product (GDP) at the end of 2007, compared to 2.03 percent in 2006. The country’s per capita insurance premium was equal to about 419 euros at the end of 2007 compared to 389 euros a year earlier. It should be noted there are no figures available for 2008 or 2009 but whatever increase there was will probably only be marginal, judging on past experience. Insurance against fire and damages from natural causes was the second largest in general insurance with a market share of about 17 percent at the end of 2007, with car insurance having the lion’s share with 46.30 percent. Property insurance, which provides protection against the risk of fire, earthquakes, theft and other risks, is generally affordable since the premium accounts for about 0.27 percent of the value of the property insured every year. This amounts to about 270 euros per annum for an insured property of 100,000 euros. The low level of property insurance became known after the wildfires of Peloponnese in the summer of 2007, in which 65 people lost their lives and even parts of Olympia were burned. Insurance companies said at the time that they would disburse only small amounts of compensation, as most houses in the area were not insured. Only a number of homes bought or built on bank loans had property insurance at the time. Of course, the percentage of houses in southeast Attica which are insured is likely to be much higher, as many of them have been acquired or built on the basis of mortgage loans. It should be noted in this regard that banks have made it mandatory for mortgage holders to insure their property against certain types of risks, including fire, for the duration of the loan. Nevertheless, the problem is that a large number of residential properties, estimated at more than half the total, remain uninsured. Some may attribute this to the perceptions of the average Greek, who tends to underestimate risks and then panic when unforeseen events, such as fires or earthquakes, take place. To some extent they would probably be right. However, the state bears part of the responsibility because it has not provided the necessary incentives for people to insure their property and save for their retirement years. On the contrary, the state appears to be considering the idea of scrapping the current tax-free insurance allowance of 1,200 euros per person in order to beef up its revenues and cut the budget deficit. It is an idea which, if implemented, will discourage people from buying insurance and hurt long-term savings, as for example in the case of life insurance. Of course, it will also hurt the state in a different way, since insurance companies frequently use the premiums to buy government bonds, helping Greece fund its borrowing requirements. Greece was the most underbanked economy when it entered the eurozone but has made many strides since then to fast approach the EMU average. There is no reason why it should lag so far behind its eurozone peers in insurance. The wildfires showed even to the Greeks, who underestimate the risks of disaster from natural causes, why property insurance is so important. It is up to the state to encourage an insurance culture rather than kill it.