Inflation of Insurance Damages Through Damages Paid by Insurance Companies in Albania

Abstract

The insurance sector as an industry plays a very important role in the economy and development of the non-financial market of developing countries, such as the case of Albania. In fact, such a development of the insurance market in relation to other non-banking financial markets has been noticed not only in Albania, but also in most other European countries due to the nature and dynamics that characterize this market. This market, which offers products and services to both individuals and businesses, includes only private companies as the only state-owned company was privatized in 2016. The development of the insurance market has been long, complex and delayed compared to other countries. This is also the reason that this sector in Albania occupies a relatively low weight in the Albanian financial system. The main role of the insurance company is to act as a risk transfer mechanism and to protect the insured for the risks provided in the insurance policy, which may be material or physical. Insurance compensates the insured for property claim, for permanent or temporary bodily injuries, and for this reason it is very important that the reserve for future claims is estimated as accurately as possible by taking into consideration the claim inflation, which in Albania is almost impossible to evaluate due to the lack of data and the application of different models for its evaluation.