Damages from the hailstorm will exceed BGN 70 million

Following the floods of Varna’s Asparuhovo Residential District and Dobrich, the city of Sofia was hit by a devastating hailstorm. Have you ever seen so many damaged cars in one place? The pictures from Wednesday were shocking.

- The last major hailstorm hit 9 years ago but it is beyond comparison to what we experienced on July 8. The damaged buildings run in the dozens while the number of the cars damaged by the storm exceeded several thousand. The situation was really dramatic. We alone registered 2099 claims on the first day after the occurrence. It is admirable that 390 of these were submitted online.

- There have been people waiting in line in front of Armeec’s headquarters since midnight. Have they calmed down now?

- We set up temporary desks at the offices of the largest importers of Mercedes, Audi, Volkswagen, and BMW so that people could have their cars inspected. Right now people’s major concern is that the shops will run out of windscreens and other spare parts and they will have to wait for their vehicles to be repaired. There is little we can do about it. The repair shops have limited capacity and there are certain technological constraints that have to be taken into account. Besides, there are customers whose vehicles have sustained unrelated damages but they still need to be fixed. In other words, the situation is complicated and all interested parties must have patience.

- Can you give us an average figure for the compensations you are paying out?

- It is high - about BGN 2000 due to considerable damages. There are cases where we will have to pay the full insurance amount. It’s mainly where vehicles have sustained water damage. This ruins the onboard electronic systems and renders the vehicles useless. In other cases vehicles must undergo full body re-spray or have their panels, doors or wings replaced with new. All of this means that repair shops will take the brunt of it. As I said, we alone received 2099 claims for damaged vehicles on the first day after the storm. If we add to those the customers of the other insurance companies the number can swell up to 10 thousand. I assume that the number of the damaged vehicles will rise up to 50 or 60 thousand. Everyone will be rendered with compensations but the main question is how much time it will take for that many cars to be repaired and what kind of quality of service will be offered?

- The initial forecast was that insurance companies will have to pay out about BGN 40 - 50 million.

- No, the actual figure will be considerably higher. According to my calculation the amount will exceed BGN 70 million because there are a lot of public and residential buildings that were damaged.

- Will you pay for broken glass?

- Of course, whether it is provided for in the terms and conditions of the policies.

- What about damages to the buildings’ heat insulation? There are buildings whose insulation is literally shredded.

- Yes, if the property is insured against storms and hailstorms.

- Are there any insured buildings in Asparuhovo?

- The situation there was catastrophic but our exposure is small. So far, we have registered 145 claims yet.

- Which means that there were some insured buildings there?

- Yes, but the actual problem is slightly different. For example, we have insured one of the kindergartens there – the Valentina Tereshkova Kindergarten. The water entering the building was about 1.7 meters deep. It damaged floorings, walls, the finishes, everything. However, as it turns out the building was insured for a mere BGN 71 158. With a total floor space of 513 square meters, this means that there will be only BGN 138 per square meter where the actual costs are in the neighborhood of BGN 300-350. In other words, instead of all the damages we will cover about 39%, as the building was actually underinsured.

-How is that possible?

- Unfortunately this is a common poor practice in our country. Can you guess how much the building of the Council of Ministers is insured for? It is insured based on its balance-sheet value but not on its market value. It seems that the government does not take proper care of its own assets but requires everyone else to do so. Real property is typically underinsured. There are even worse examples. We have an insurance policy for an entire school with an insurance amount of just BGN 7 thousand. Infrastructural sites and sites of national importance are not insured and in case of catastrophic occurrences no one will get anything. In 2013 there was a case like that where we made an exception for a school and covered the actual amount of the damage. Unfortunately, we cannot do that every time. We are not a charity after all.  

- The question on everyone’s mind right now is whether the insurance companies will be able to pay for the full amount of the damages. In other words, do they have the financial resource to do so?

- Let’s not make the mistake of equating insurance companies to banks. Banks have assets and liabilities whereas we have reserves which are backed up by considerable reinsurance programs. Our reinsurance plan is for 16 million euro. In other words, we have more than enough. This is done all over the world to deal with the effects of catastrophic occurrences such as cyclones, hurricanes, and earthquakes. In reality the risk is distributed across the entire insurance market and damages in excess of a certain amount will be handled by the reinsurers. This is what allows us to pay for new parts and replace the heavily damaged ones with new instead of repairing them and run the risk of reemergence of defects or customer complains down the road. If, for example, a car needs to be repainted a second time, it will not only cost more but it will test the patience of both sides.

- There have been claims that there are faster and more innovative technologies that allow the dents caused by the falling ice pellets to be pulled out?

- This is true but where the impact zone is too large such methods cannot be applied.

- What do people need to know so they do not get disappointed and feel that their insurance compensations have been rather stingy?

- People need to know that when they pay their premium in installments they will be required to pay the full amount of the premium in order to become eligible for compensation because they have assumed the responsibility to pay before an insurance event has taken place. There is another thing that I feel is important to be mentioned here. The summer vacation season is almost upon us. It would be a good idea to file their claims now. If they need to have their windscreens replaced, they should do it immediately but for everything else it would be wiser to wait a while because the repair shops are extremely busy. There is nothing stopping you from having your vehicle repaired in September or October since the statute of limitation on the repairs is 3 years. This is not affected by whether or not you are still with the same insurance company or whether or not you still have a Casco insurance or anything else along those lines. That’s why I would advise people to stay calm and use common sense.

- What conclusions, if any, are there to be made by policymakers? Isn’t it time to create a catastrophic pool or fund to be used for dealing with the aftermath of natural disasters?

- The storm that struck us showed that this would not be an efficient solution. If a major natural disaster were to strike the main problem would be how to settle the damages. Currently there are 15 to 20 different insurance companies handling the situation in Sofia. They conduct surveys, fill out paperwork and do a tremendous amount of work. My question to you is: If an earthquake struck how would this entity (which will most likely resemble the Health Insurance Fund) be able to do all that? It will lack the capacity, the office space, the manpower and the good commercial practices to do the job. It is not enough to collect people’s money. What is more important here is what will happen then and will the insured receive adequate services in exchange for their money. This is why I am against the establishment of such catastrophic pools and mandatory insurance.

- What will happen if we are struck by a major catastrophic event? It is obvious that the government does not have the resources to provide adequate relief.

- With time people will learn that the government cannot help them and that it is their job to look after their own property. In Bulgaria the road tax for powerful vehicles is larger than that in Germany. Why is so? Are our roads better because of it? Do we have more highways? Is service better when we are involved in accidents or breakdowns? The state should use the money it charges people to improve and maintain the infrastructure. I believe that most people will object to using such funds to repair the private property of the afflicted.

- Obviously insurance companies are equipped to deal with the whims of Mother Nature, but how do you deal with the political instability?

- Fortunately for us our business functions well no matter what happens and strives to provide quality service to people. The drive to succeed and the intense completion do not allow anyone to slack off. Having said that, a stable business environment is in the best interest of everyone involved.

- There are politicians who claim the state is going to fail. Is there a threat to financial stability?

- I believe that the crisis in the banking sector was avoided thanks to the quick and adequate action of the Bulgarian National Bank. Bulgarian banks are stable. The problem with CTB could have been avoided if the money had not been withdrawn.

Unfortunately, people did not use common sense. During the first days of the crisis they yielded to panic and started withdrawing their deposits. Friday was a bit surreal; people were withdrawing their money from one bank only to deposit it into another. When people understood that they would be able to get all of their money and that they would not lose it, the panic subsided. The important thing to keep in mind is that Bulgaria is a member of the European Union and would not be left helpless. We all saw what happened with Greece and Cyprus – they got help and got stabilized.

Now the most important thing for all of us is to put an end to the political instability and to build a strong government. This is important for the business. The Interim Government is also very important; the president must act in the best interest of all Bulgarians.

Interview with Rumen Georgiev for the Pressa Newspaper