1. World Bank Group FIAR 2010, Sinania PAID: Reconciling Affordability and Financial Sustainability Requirements May 25, 2010

2. World Bank Group Ensuring product affordability: consumers Product appeal to consumers  Premium rates are low  Deductibles are low  Sums insured are low  No averaging – first loss

3. World Bank Group Prerequisites of financial sustainability: coverage features Insurance product  Actuarially sound premiums (based on true risk costs).  Deductibles to align incentives of insured with those of insurers and achieve affordable premium rates.  Restricted terms of coverage/no contents.  Automated and easy to administer policy issuance process.

4. World Bank Group Prerequisites of financial sustainability: insurance market Market capabilities in product distribution and claims settlement  Sustainable insurance commissions achieved through cross- sales and advanced IT infrastructure  Public outreach – agents networks  Fraud control (unique policy IDs and ability to track policies in real time; real time sharing of underwriting data)  Adequate and cost effective claims management

5. World Bank Group Prerequisites of financial sustainability: reinsurance market Reinsurance  Risk data sharing with the reinsurance market to reduce premium uncertainty.  Meaningful risk retention to reduce the moral hazard premium.  Adequate reinsurance protection  selection of an appropriate return period for PML  avoiding basis risk

6. World Bank Group Ensuring financial sustainability of PAID: role of government and regulator Role of government  Ensure adequate regulatory framework (amendments to the law)  Effective and ongoing public information campaign  Effective law enforcement mechanisms to ensure coverage take- up (local governments)  Government financial backing for PAID’s retention before and after reinsurance (role of MoF) Role of CSA  Ensure adequate reinsurance protection  Ensure PAID solvency  Ensure adequate pricing of PAID products

7. World Bank Group World Bank position on the PAID Does the Bank support the PAID?  Absolutely, as long as it manages in the end to strike the right balance between the affordability and financial sustainability requirements!  Although it is not an easy task we are confident that the PAID Team, the CSA and the Romanian market will ultimately find the reconcile these two opposites.