Europe on fire: fires raise insurance premiums and empty state budgets

A major earthquake near Slovenia has sparked urgent discussions about mandatory insurance for buildings, with officials warning of potential economic devastation. According to reports from the Agency for Insurance Supervision (AZN), a recurrence of the 1895 Ljubljana earthquake, rated at magnitude six on the Richter scale, could result in damage to between 42,000 and 102,000 buildings, with direct losses estimated at between €2.5 billion and €16.6 billion. The median cost of property damage alone would reach approximately €7.2 billion, representing around 15 percent of Slovenia’s GDP in 2019. These figures exclude indirect costs such as temporary housing arrangements, population displacement, infrastructure disruption, and lost productivity due to workforce absence. Currently, less than 75 percent of households in Slovenia are insured against natural disasters, while coverage for flood risks stands at around 60 percent. A working group was established two years ago to explore measures aimed at reducing the gap in insurance coverage for natural disaster risks. Comprising representatives from insurance companies and ministries of finance and natural resources, the group studied successful models from other countries. They concluded that the fastest way to reduce this gap is the introduction of mandatory insurance for multi-unit buildings, which should be accompanied by subsidized premiums for vulnerable groups. Other options include establishing a national disaster fund or creating a state-run insurance company specialized in natural disaster coverage, though these require more time to implement. The implementation of such measures will take several decades, according to AZN. Therefore, individuals are urged to reduce their financial exposure to seismic risk today, primarily through the purchase of appropriate insurance. According to Triglav Insurance, only about one-third of residential buildings in Slovenia are earthquake-insured, while roughly a quarter of commercial and industrial structures are covered. “Owners of multi-family buildings often rely on the insurance policy of the building manager,” says Triglav Insurance. In Slovenia, there are between 20,000 and 25,000 multi-unit buildings, of which approximately 40 percent remain uninsured, and over 80 percent lack earthquake coverage. The company emphasizes that awareness of earthquake danger and the proportion of insurance coverage tend to rise after strong earthquakes nearby, such as the 2020 earthquake in Croatia, but decline relatively quickly. Thus, they encourage policyholders to consider insurance based not only on past experiences but also on actual exposure of their property to specific risks. Despite some steps taken toward greater earthquake safety, Slovenia remains unprepared for a major quake. AZN noted that certain actions were undertaken, including the adoption in late 2023 of a resolution titled “Accelerate Earthquake Safety” aiming to improve earthquake resilience until 2050. This includes measures for effective management of earthquake risk, such as inspecting existing buildings and documenting their seismic resistance, which will serve as a basis for prioritized design and reinforcement of the most vulnerable structures, or, where appropriate, their replacement with new constructions. The resolution also proposes integrating energy and seismic renovations, a practice that has historically been absent. However, progress in the field of earthquake safety has been minimal since the resolution was passed. The plan is still under preparation, and its implementation has yet to begin. At a scientific meeting titled “50 Years After the First Earthquake in Posocje, Accelerate the Next One” held in May, representatives from the Ministry of Natural Resources and Environment revealed that the entire action plan has barely begun, and much work remains to be done.