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Support for the National Mandatory Catastrophe Insurance Scheme in Kazakhstan

Project Development Objective (PDO)

This project aims to assist the government of Kazakhstan in developing the regulatory and financial foundations necessary for a financially sustainable national mandatory catastrophe insurance scheme.

Background

Kazakhstan—and in particular, the southern part of the country, including the area surrounding the financial capital of Almaty—is highly vulnerable to earthquakes. Recognizing the pending threat of earthquakes, the president of Kazakhstan in 2013 decreed the introduction of a national mandatory catastrophe insurance scheme. This scheme would require every homeowner in the country to have reliable catastrophe insurance coverage—in the event that an earthquake of epic proportions strikes the country again.

Before 2013, private insurers covered barely 1 percent of insurable dwellings in Kazakhstan. Thus, the government served as the sole source of funding for recovery and reconstruction in the aftermath of natural disasters. By launching the national mandatory catastrophe insurance scheme through the Ministry of Economy and Budget Planning—and with substantial participation of local insurers—the government of Kazakhstan intends to transfer risk to the global reinsurance market. Thereby the government will provide a much-needed boost to the development of Kazakhstan’s domestic insurance industry. In addition, the adoption of insurance premiums that are actuarially sound and an increased awareness of international best practices will vastly improve the service and supervision of the domestic insurance market in Kazakhstan.

Activities

1. Draft National Mandatory Catastrophe Insurance Law
Through technical discussions with key stakeholders in Kazakhstan, the project team is developing a framework technical paper that will (a) spell out the program’s operational design and (b) assign roles for managing the scheme to government agencies and private sector companies. The team will also assist in the first technical drafts of both the national mandatory catastrophe insurance law and the technical insurance by-laws.

2. Actuarial risk pricing
Development of a probabilistic earthquake risk-modeling tool will generate a stochastic earthquake loss dataset. The data will be used to (a) approximate on a stochastic basis the impact of future earthquakes in Kazakhstan and (b) provide technical insurance premiums for selected locations. In addition, this analysis will enable authorities of the Kazakhstani government to set technical rates for catastrophe insurance coverage for main classes of construction in main cities and in CRESTA (Catastrophe Risk Evaluation and Standardizing Target Accumulations) zones. These rates will account for estimates of annual expected losses, probable maximum losses for earthquakes with different return periods, and premium loadings (including administrative costs and costs of risk retention and risk transfer).

3. Workshop
The project team is sharing its experiences in developing national and regional catastrophe insurance programs in Turkey, Romania, and Southeastern Europe during a workshop with relevant stakeholders.

Expected Outcomes

The main expected outcomes of the project are as follows:

     1.  Enacting the national catastrophe insurance law and relevant regulations in accordance with
          international best practices

     2.  Adopting actuarially sound insurance premium rates for application to different property
          classes

     3.  Increasing awareness of international practices and securing support from authorities