From Jamaica Gleaner

ADVISORY COLUMN: INSURANCE HELPLINE

My plan to offer readers some viewpoints for property insurance rates in 2020 was almost foiled.

None of the intended local sources – one, a vice president in the country’s biggest non-life insurers, the other a broking executive – played ball.

As I debated options, the Insurance Association of Jamaica, IAJ, prepared and issued a statement which was the lead story in this newspaper. The article warned consumers in early February to expect property insurance rates to rise by 10-15 per cent.

The reason: the “increasingly destructive Atlantic hurricane seasons in recent years, even though the island had been spared the wrath of killer storms”.

The disclosure was, surprisingly to me, made by the IAJ’s executive director. He is a former life insurance executive, who seldom interacts with foreign reinsurers whose decisions affect non-life insurance pricing.

The association’s president, with years of relevant experience in this area, was missing in action. Was the association shielding the president, who had twice during last month spoken about price rises in motor insurance or, was my scepticism about the rationale for the increase evidence of confirmation bias?

Property and motor insurance premiums account for 88 per cent of the $46 billion in premiums that non-life insurers collected in 2018. Whatever the real reasons for the IAJ’s actions – the Magnitude 7.7 earthquake on January 28 was no doubt a factor – consumers will pay more this year.

Are the projected rate increases for property insurance fair, reasonable and justified? How do they compare with those for other countries in the region? These questions can only be properly answered when we look outside of Jamaica and make comparisons with countries with similar risk profiles.

The Tribune newspaper in the Bahamas recently published an article with the headline: “Insurers ‘sorry’ for 15% hike … But it’s worth it”. This contrasts with The Gleaner’s headline: “Hurricanes blowing property rates through the roof”.

The former article began “Major Bahamian insurers warned property owners they face ‘a minimum’ 15 per cent premium rate rise in 2020 with Dorian-related claims set to hit peak estimates of B$2 billion”.

Two insurance CEOs there suggested a priority for Bahamians despite the increased cost and affordability pressures.

Consumers “can’t afford not to insure their assets given the potential for similar type of devastation to occur elsewhere in this nation in coming years,” they said.

Buzz, a Trinidad-based regional publication, reported on February 4 that property insurance rates are projected to rise by 10 to 15 per cent. “This is due apparently to the destructive hurricanes that have struck the Caribbean region over the past few years. The impact of hurricanes such as Irma, Maria and Dorian have necessitated the adjustment in rates,” the paper reported.

Cayman Compass, as expected from the newspaper in one of the region’s premier financial centres, provided extensive coverage. Also, its justification for the rate increase seemed more fact-based.

The Cayman Islands Insurance Association, it said, told residents to anticipate rate increases of 10-30 per cent.

There were 17 named storms in 2017. They included major hurricanes, Harvey, Irma and Maria which caused insured losses of more than US$90 billion. Another big storm followed in 2019. Hurricane Dorian, one of the strongest Atlantic Hurricanes to make landfall – with wind speeds of up to 185 miles per hour − generated insured losses of in excess of US$8 billion.

Even though the Cayman Islands have avoided major hurricane losses since 2004 when Hurricane Ivan struck, “we fall in the same reinsurance pool bracket in the Caribbean and face similar risks and consequently, it is necessary to increase insurance rates this year,” the article said. “Depending on the type of construction, protections, location, elevation and other factors, the increases will be between 10 to 30 per cent.”

In 2018, according to Caribbean Business, the Puerto Rican House of Representatives passed a resolution to investigate the rise in the cost of property insurance after Hurricanes Irma and Maria. They reportedly caused insured losses of US$15 billion. Increases as high as 340 per cent were cited for coastal property.

Analysts at global insurance rating agency A.M. Best recently stated that “the high levels of stress on primary insurers in the Florida property market is likely to continue, and those with a heavy reliance on reinsurance protection face difficult choices at the upcoming June renewals”.

There is “an expectation of reinsurance rate rises of between 15 to 20 per cent at the June (2020) renewals season.”

Insurance companies operating in Jamaica and the rest of the Caribbean are very dependent on the global reinsurance market like some of their counterparts in Florida.

Environmentalists here will be happy to learn that local insurers have finally begun to talk about global warming and climate change. According to the IAJ executive director, they now recognise the impacts that these phenomena have on the environment, weather systems and catastrophe-causing events like hurricanes. He mentioned them in the context of the impending rate increases.

Unfortunately, however, there is nothing on the association’s website that speaks to the existential threats that global warming and climate change pose to the operations of insurance companies in small island developing states like Jamaica. What are the strategies the industry and member companies implementing to reduce these threats?

The January 28 earthquake event is likely to lead to “an assessment of the parametric catastrophe insurance policies provided by the CCRIF SPC (formerly known as the Caribbean Catastrophe Risk Insurance Facility) and perhaps its reinsurance coverage,” according to Steve Evans of www.artemis.bm.

Are similar reassessments of reinsurance protection planned in relation to non-life insurance companies in Jamaica given the strength of that earthquake or, is it business as usual? Shouldn’t this matter and the subject of climate change be exercising the minds of those occupying positions of power and influence on company boards and even the insurance regulator?

That earthquake event, according to Evans, “is a reminder of the importance of disaster insurance protection, the benefits of having … coverage in place and the important role risk-pooling … can play in the provision of risk capacity and access to reinsurance markets” – important factors that only a few of the previously cited experts appear to have noticed.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to:[email protected]

For more on this story go to; http://jamaica-gleaner.com/article/business/20200209/cedric-stephens-passing-storms-can-still-spike-your-insurance