From Emergency to Preparedness: The Need for Mandatory Natural Disaster Insurance in Albania

 By Luiza Hoxhaj

Former Director of the Financial Supervisory Authority of Albania Expert in Regional Development and Risk Management

Abstract
This article addresses the necessity of mandatory natural disaster insurance in Albania as an essential tool for risk management, resilience building, and protection of the population from the consequences of natural hazards. Through an analysis of the Albanian context and a comparison with the Turkish model of compulsory earthquake insurance (DASK), the article proposes viable options for the country. The analysis emphasizes the role of local governments, public consultation, and alignment with the European framework.

Keywords: catastrophic insurance, risk management, Albania, DASK, earthquake, floods, public policy

1. Introduction

Climate change and the escalating consequences it brings to Albanian territory necessitate a shift from reactive emergency responses to systematic preparedness. One of the most important instruments in this transition is mandatory insurance against natural disasters.

This reflection is a natural continuation of the author's earlier analysis in 2003, where for the first time in the Albanian press, the necessity of disaster insurance was addressed as a tool for more equitable and fair management of disaster consequences (Hoxhaj, 2003). Today, with the increased risk from earthquakes, floods, and extreme events, a more comprehensive approach including insurance as a risk-transfer mechanism is more important than ever.

2. The Albanian Context: A System in Development

According to data from the Albanian Financial Supervisory Authority (AFSA), the insurance market in Albania has seen significant growth over the past two decades. From a volume of only $30 million in 2003, the market reached 50.28 billion ALL in 2023 (AFSA, 2024). Currently, 12 insurance companies and one reinsurance company operate in the country, along with licensed brokers and claims assessors, reflecting important institutional development.

However, this progress has not been accompanied by deep insurance penetration in society, particularly regarding natural disaster risks. Compulsory vehicle insurance functions well, but building insurance against natural disasters is lacking both legally and practically. Efforts to draft a law on compulsory earthquake insurance have been sporadic and fragmented, with limited stakeholder involvement and focus on only one risk type (earthquakes), excluding floods, wildfires, and landslides.

3. The Turkish Model: DASK as a Successful Practice

Turkey is one of the countries in the region that has developed a successful model of mandatory earthquake insurance known as DASK (Doğal Afet Sigortaları Kurumu). This is a public-private system where the government guarantees reinsurance, while policy management is carried out by the private sector. The policy is mandatory for all urban dwellings and is linked to legal transactions such as property registration or sales (OECD, 2022).

DASK was created after the devastating 1999 earthquake and has contributed to effective risk sharing, transparency in compensation, and increased public awareness. Legal regulation is clear, and coverage is high. This model illustrates how a functional system can be established even in developing contexts through institutional cooperation and community participation.

4. The European Framework and the Albanian Perspective

Although no EU directive currently mandates compulsory insurance for natural disasters, the European Commission has emphasized the role of financial instruments in enhancing resilience to climate risks. The communication “EU Strategy on Adaptation to Climate Change” (2013) highlights the need for developing insurance markets as part of climate adaptation planning.

More recently, Directive (EU) 2023/1791 on the Resilience of Critical Entities requires member states and candidate countries to identify risks and take preventive measures, which may include insurance. For Albania, aligning with this framework means building a national disaster insurance system in line with EU best practices.

5. Local Government and Public Consultation

Local governments are often on the front lines of disaster impacts and play an irreplaceable role in implementing protective policies. Their involvement in mandatory insurance is essential for:

• building accurate risk databases,
• public awareness and education,
• coordination with the private insurance sector.

On the other hand, policy drafting must include genuine consultation with citizens and stakeholder groups to ensure that new policies are acceptable, transparent, and user-friendly. In Albania’s case, the 2023 draft law’s public consultation process was limited and lacked adequate sectoral and social inclusion.

6. Conclusions and Recommendations

Transitioning from a reactive (post-disaster) to a proactive risk management approach is essential for Albania. Mandatory insurance is one of the most effective instruments for sharing the financial burden of disasters, protecting vulnerable groups, and enhancing institutional responsibility.

Based on international best practices and local needs, the following steps are recommended:

• Drafting a comprehensive law on mandatory natural disaster insurance, including earthquakes, floods, and wildfires;
• Establishing a joint risk fund with public and private participation, reinsured at the international level;
• Involving local governments in the implementation and monitoring process;
• Conducting a large-scale public awareness and information campaign on the role of insurance in disaster management.

References (APA 7)

AFSA. (2024). Annual Report 2023. Albanian Financial Supervisory Authority.

World Bank. (2021). Financial Protection Against Natural Disasters: An Operational Framework for Disaster Risk Financing and Insurance.

European Commission. (2013). An EU Strategy on Adaptation to Climate Change. Brussels: European Commission.

European Commission. (2023). Directive (EU) 2023/1791 on the Resilience of Critical Entities.

Hoxhaj, L. (2003). Trajtimi i situatave katastrofike nëpërmjet mjeteve të sigurimit. Koha Jonë, social section, p.15, November 1, 2003.

Etica e Economia. (2023). Assicurazione obbligatoria contro le catastrofi naturali: tra rischi ignorati e politiche da costruire, P. De Vincentiis.

OECD. (2022). Building Financial Resilience to Disaster Risks in Southeast Europe. OECD Publishing.

Turkish Catastrophe Insurance Pool – DASK. (n.d.). Retrieved from https://www.dask.gov.tr/