Climate Change and Insurance

Interview with Mr. Klaidi Çitozi, CEO of Sigma VIG, for Monitor Magazine, published in January 2024

Climate change has become an increasingly central topic in global discussions, affecting numerous industries because of the risks it presents. For the insurance industry worldwide, it represents both a risk and an opportunity. How do you assess the situation in Albania—specifically, the impact of climate change on the insurance market?

The effects of climate change are no longer a theory; they are a reality that affects us all. Natural disasters such as earthquakes, floods, and landslides have become more frequent in recent years, yet concrete steps or measures to improve the situation have not been sufficiently taken. Addressing the risks arising from climate change must be a shared priority.

Our industry has a unique opportunity to expand its product range and coverage while also raising public awareness and interest in insurance products. However, as you mentioned, it is also a significant risk—climate change is happening rapidly, and since our models are based on historical data, we may not have a clear picture of the exposure we face.

Which segments of the insurance market are most affected by these changes? Is there enough awareness among businesses and citizens about such risks and the need for insurance?

Certainly, the insurance industry, particularly the property insurance portfolio, is strongly affected by these changes. In recent years, the number and value of damage caused by natural catastrophes have grown considerably. Our parent company, Vienna Insurance Group, is conducting in-depth studies on how climate change impacts the insurance industry. These studies rely on scientific data and analyze the effects of global warming. Findings indicate a projected increase in natural events, especially floods, storms, and hail.

Although Albania has experienced the consequences of such phenomena, public awareness remains very low. We often hear stories of businesses that took years of hard work to build, only to be destroyed within moments by natural disasters. Property insurance premiums have always been affordable for both businesses and individuals, yet only a small percentage choose to get insured. Moreover, many of those who do ensure their assets often select inadequate coverage or insure their properties below their real value, leading to dissatisfaction during claims handling and, consequently, lower trust and awareness about insurance.

Over the last decade, property insurance premiums have grown by only 20% in total, with an average annual increase of 2.7%. This growth has mainly come from large projects where insurance was mandatory. Meanwhile, claims have grown at an average rate of 75% per year, and between 2013–2023, damage payments accounted for 55% of all collected property insurance premiums—excluding administrative and acquisition costs.

Which sectors are most sensitive to climate change—such as agriculture or tourism—and what opportunities can the insurance market offer to minimize the impact?

As I have previously mentioned, the negative effects of climate change on agriculture make a national insurance scheme essential. Currently, agricultural insurance is underdeveloped in Albania—not due to a lack of expertise, but because of limited market demand.

As people increasingly seek healthier lifestyles, agriculture and livestock farming are gaining more attention. Weather, however, remains a crucial and uncontrollable factor. The past decade has brought droughts, floods, and abrupt temperature fluctuations, occurring within short time spans and becoming increasingly systemic.

In several European countries, agriculture is supported through state-backed insurance schemes. The broader the area covered under such a scheme, the better the risk diversification and the more affordable the premium becomes for farmers. Currently, the level of demand from Albanian farmers is too low to allow insurers to offer sustainable and affordable agricultural insurance products. The portfolio is simply too small to ensure adequate coverage and reasonable premiums.

Agricultural insurance coverage typically includes not only crop loss protection but also price protection for agricultural and livestock products. Risks covered by such schemes usually include storms, hail, drought, frost, floods, and similar events.

How can the insurance market prepare to face the consequences of climate change, and is it mature enough to embrace the additional challenges this may bring?

The insurance market can provide financial security by offering reliable insurance products. In discussions about how our country should cope with the effects of climate change, the insurance sector must play a key role.

We have long been studying the impact that climate change has on different industries, given our experience in handling claims of this nature. Thanks to our close cooperation with the global insurance market, we possess sufficient experience and expertise to propose and implement the best solutions in the interest of all stakeholders.

Efforts to reduce the effects of climate change require commitment not only from the private sector but also from the government and civil society—focusing, among other priorities, on investments related to environmental protection.