Although Tunisia does not have the same exposure to large-scale earthquakes as Algeria and Morocco, it regularly faces the consequences of significant flooding to both rural and urban areas. These events regularly cause extensive damage. According to figures from Tunisia’s Ministry of Local Affairs and Environment, natural disasters have an annual economic impact of roughly $138m, with floods accounting for about 60% of damages. In 2018 heavy flooding prompted renewed calls for the government to establish compulsory natural catastrophe insurance and the regulation to successfully enforce it. The Tunisian Federation of Insurance Companies has lobbied the Ministry of Finance to enact the new law in conjunction with ongoing discussions about changes to the insurance code.

New Mechanism

The impact of natural catastrophes on insurance providers was clear following the 2018 floods. Currently, catastrophic damage coverage is sold in conjunction with fire risk coverage. According to figures from the General Insurance Committee, the sector regulator, by the end of 2018 claims related to fire risk coverage had grown to TD58.3m ($20.3m), representing a 74.5% increase on 2017 figures. “This will influence financial results, but the fire insurance branch is generally well reinsured,” Mustapha Kotrane, head of production at the country’s sole reinsurer, Tunis Re, told OBG. “So a lot of this will be transferred to reinsurers, and companies will be able to come out of it with almost minor impact,” he said.

Tunisian authorities are proposing the establishment of a natural catastrophe fund that would help businesses cover the damages inflicted by floods, earthquakes and other natural disasters. The government’s proposal aims to make it compulsory for businesses to pay into the fund, which will then be able to secure repayments of 25-60% of the value of the affected company. This system could become an important tool in securing the longevity of small businesses that find themselves impacted by more extreme weather events.

The new regulation must pass a vote in the Assembly of the People’s Representatives (ARP) before it can come into effect. Sector operators are hoping the regulation will accompany a larger debate about new insurance codes. While the sector may see a compulsory protection against natural disasters put in place before the end of 2019, the presidential and parliamentary elections, scheduled for the last quarter of the year, could delay the law’s legislative implementation.

Counting Costs

The new fund would transfer the responsibility of insuring businesses against natural disasters from the state to the companies themselves. The ARP approved a law in February 2019 that would allocate financial aid to firms affected by the 2018 flooding. According to local media, reparations to citizens and farmers are expected to be accommodated under a different set of governmental measures.

Nevertheless, the floods exposed the sector’s inability to effectively promote insurance protection among the Tunisian population. In Nabeul, a north-east coastal town, an estimated 2500 homes were affected. Kamel Chibani, executive director of the Tunisian Federation of Insurance Companies, told international media that only a small number of homes had been insured. Total damages to infrastructure resulting from the flood were estimated to reach TD100m ($34.7m) in Nabeul alone.

Despite the strained economic environment, the Tunisian insurance market has managed to post significant growth. Total premium expanded by 7.1% in 2018 to reach TD2.4bn ($833.6m). However, inadequate adoption of housing insurance and insufficient preparation for the material costs of natural disasters has displayed insurers’ inability to expand beyond traditional segments like auto insurance. Promoting other types of coverage has become more challenging with limited household budgets. Implementation of a compulsory natural catastrophe insurance will have a beneficial long-term effect on the economy by better protecting small business and allowing them to rebuild after loss.