How is mandatory flood insurance calculated? - Formula/ Areas, building height and quality are taken into account
Unlike earthquake insurance, the legal obligation to insure against floods will not extend to the entire country, but only to those areas with high risk.
The government has determined the principles on which the formula for the mandatory flood insurance premium will be built, which is expected to be applied to housing in high-risk areas in the territory of the Republic of Albania.
According to the draft law, the premium calculation will be based on a national flood risk model, which will be developed by the Compulsory Earthquake and Flood Insurance Fund and will be based on actuarial methodology and historical hydrological data.
But what is the formula based on?
The premium formula will not be the same for everyone, but will be calculated based on several technical factors that take into account the geographical area and the level of risk. So, homes will be classified according to urban, rural and critical infrastructure areas, depending on the probability of flooding.
Building characteristics. The formula will include the exact location, height and number of floors, construction typology, construction materials, and use of the building (residential, business, etc.)
Flood scenarios. For this factor, hydrological models will be used to estimate how often and with what intensity floods may occur in certain areas.
The value of potential damages. The formula will take into account: structural damage, damage to equipment and inventory, repair or reconstruction costs.
Risk reduction factors. Based on this factor, homes that have protective measures (e.g. water barriers, drainage, protective systems) will benefit from a premium reduction.
The final methodology and formula for calculating the premium will be approved by Decision of the Council of Ministers.
Mandatory flood insurance will only come into effect once the risk model is approved, risk areas are defined, and the official premium calculation scheme is published.
But how does this translate to citizens?
Referring to the planned scheme, this means that there will not be a fixed fee for everyone but a differentiated premium according to the real risk of each home. Floods are an annual phenomenon in Albania that affect certain areas, such as Shkodra, Lezha, Durrës, Fier, Vlora, etc., causing considerable damage to homes.
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