One More Time about Mandatory Home Insurance

The media reported that the Financial Monitoring Authority (AMF) – an institution that is nominally independent from the government – has prepared a draft law to make home insurance from natural disasters, such as earthquakes and floodings, mandatory. This draft law has been finished and is currently discussed with the World Bank, as Ervin Koçi, director of the AMF, declared yesterday in a press conference.

If this law is approved, every home owner will have to pay 5,000–7,000 lekë (€40–50) annually for their home insurance, not counting the local taxes. All of this to guarantee compensation in case homes are damaged by natural disasters. However, the past has shown that there is a gaping chasm between paying fees to insurance companies and actually being compensated by them.

Mandatory insurance is not something new in Albania, and bases its legitimacy on social factors. Let’s look at the two most well-known examples: mandatory car insurance and mandatory health and social insurance for employees.

The first one is necessary to compensate the damaged cause by irresponsible use of motorized vehicles by third parties, while the second is to secure healthcare and a pension for every employee.

Because they are mandatory, meaning that there is no option not to have these insurances, their legitimacy depends on the final outcome: compensation in the case of cars; quality healthcare and a reasonable pension in the case of health and social insurance. Unfortunately, the level and quality of both serves leaves much to be desired.

In itself, the fact that we have a government that thinks about the financial health of its citizens in case of a catastrophe is a good thing, because it helps the perception of a society that is protected by it. But the inevitable question is: what meaning does it have to let home owners insure themselves, when the state is already unable to force the large companies, even when they work under government contracts, to pay for the insurance of their employees?

Maybe the government would do better to expend some its energy to force company owners to pay social and health insurance for their workers, rather than forcing citizens to pay additional insurance for their home, and whose compensation in case of a disaster is anything but assured.