Christoforos Sardelis: The role of the insurance sector in the post-program era

In theory, the expiration of the third adjustment program this summer implies that the Greek policy makers have more options in designing economic policies. In reality, however, the set of options is much narrower than perceived. The gap between policy choices driven by electorate demand and what is perceived as “sound policies” reflects a real risk for relapse. The existence of this gap can be explained partly by the discontents of ten years of “imposed” austerity, and partly because none of the political parties really attacked the ideas that formed their own policy making in the past and led to bankruptcy. As an effect, a preference bias for more public spending and tax relief forms the wrong kind of expectations.

From the award ceremony of the Diamonds of the Greek Economy. Mr. Christoforos Sardelis, Chairman of BoD, Ethniki Asfalistiki (National Insurance), received the award for the Most Admired Enterprise of Greece.

The pension system provides a good example. Adverse demographic projections outline a steadily increasing pension bill until 2060, despite repeated cuts in previous years, and with pension funds already heavily underfunded. Without spectacular rates of growth, this trend is bound to lead to a new fiscal impasse. The private insurance sector on the other hand,   keeps proposing a three pillar system with fully funded schemes and personal accounts, as a complement to a slimmer but sustainable public pay-as-you-go system. Despite the fact that such a shift would imply several advantages, for example a boost to domestic savings and a relaxation of existing constrains for investment funding, political resistance proves difficult to overcome. In an economy with lack of means to fund investment (currently around 10% of GDP and less than annual depreciation), with obvious difficulties to attract foreign direct investment, there is hardly any rational explanation for insisting in the current one pillar system.

The same applies to cat-risk coverage, i.e. protection against recurring natural disasters such as floods, fires and earthquakes. When this type of adverse events materialize, compensation from insurance companies is seldom higher than 20% of estimated total damages. The rest is expected to be covered by the state budget or other public sources and, despite repeated disappointments, the expectation seems to be sufficiently deep-rooted, leading to a conspicuously underinsured private property. Misguided expectations prove stronger than facts.

We can take health as a final example. The general notion is that the public system is inefficient, making room for a parallel private system. It has been found that private, out of the pocket spending is ten times higher than health insurance premia for the entire sector. Yet, there seems to be a stronger demand for more public spending than rebalancing the system.

To sum up, there is a good reason to rein forces that, contrary to recent experience, maintain the myth of public spending as a “free lunch”. The insurance sector has the capacity to provide real alternatives in some areas and reduce the risks for future imbalances.


Dr. Christoforos Sardelis

Chairman of BoD, Ethniki Insurance