Rush for Coverage Boosts Insurers in Earthquake-Struck Croatia

(Bloomberg) -- Croatian insurers are reaping a windfall as residents rush to sign up for protection after two destructive earthquakes last year left them to rebuild without private coverage, the head of the country's industry association said.

After escaping billions of kuna in payouts because most property owners lacked earthquake insurance, companies like Croatia Osiguranje d.d. and Euroherc Osiguranje d.d., Allianz SE and Vienna Insurance Group AG now see demand for premiums soaring following a March quake in Zagreb and a Dec. 29 temblor further south, said insurers' association President Robert Vuckovic. In January, coverage is estimated to have doubled from a year earlier. Premiums for earthquake damage jumped 30% last year, spurred by the March tremor. Exact figures will be released later this month, he said.

Croatia lies on the northern edge of the quake-prone Mediterranean Sea region that includes Italy, Greece, and Turkey, a geological area that experiences tremors almost every day, though most are too mild to be noticed. As decades have gone by without major shocks in the former Yugoslav nation, many Croats opted against earthquake policies, largely sparing the 47 billion-kuna ($7.5 billion) insurance industry from devastating payouts.

“We see a large increase in private policies as a trend for the whole industry,” said Vuckovic, who's also a management board member of Croatia Osiguranje, the nation's biggest insurer, in an interview in Zagreb. “The awareness of the need for earthquake protection has gone up steeply, especially after the second earthquake.”

The 5.3-magnitude Zagreb temblor, which struck just as the country was locking down against Covid-19, left a child dead and damaged 25,000 buildings, many in the 19th-century center. It was the country's worst in 140 years -- until the even-bigger 6.3 magnitude quake an hour's drive away added further destruction in December. The latest tremor was felt as far away as Vienna, Budapest and Rome.

The seismic double-whammy brought home the risk for many Croatians, who have traditionally avoided financial protection against earthquakes because of habit and price, said Vuckovic. Only about a fifth of homeowners held policies against such damage before the March quake, he said, with the average insurance premium per capita in Croatia totaling 342 euros ($412) in 2019, less than a fifth of the European Union average of 2,170 euros.

The damage of the Zagreb quake was estimated last month by the Economy Ministry at 86 billion kuna, or about 60% of the annual budget of the country of 4.2 million people. Yet, only 7,300 insurance claims were filed and insurers will eventually have paid about 400 million kuna in damage, a fraction of the total cost.

The plan is to rebuild Zagreb mostly with state and regional government funds, helped by 683.7 million euros in special EU assistance. The government of Prime Minister Andrej Plenkovic will also finance the entire cost of rebuilding the region shaken in December, among the poorest in the country.

With the prospect of more seismic activity to come, the government plans to retrofit buildings, many of them constructed of stone and brick, to make them more resilient. Some commercial banks have already included compulsory earthquake coverage in insurance policies as part of mortgage approval processes.

“There are a number of cultural and material reasons why people have avoided buying insurance,” Vuckovic said. “Under communism, there was an expectation that the state would take care of everything and after the war in the 1990s, many people didn't have the money to pay for the insurance. But all this is now changing.”

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