Sun | Jan 21, 2018

Insurers breathe sigh of relief

Published:Wednesday | October 5, 2016 | 12:00 AM
Peter Levy, managing director of general insurer BCIC and vice-president of the Insurance Association of Jamaica.

Insurance expert Peter Levy agreed on Tuesday that the veering away of Hurricane Matthew resulted in Jamaica missing the equivalent of a bomb.

He expects few general insurance claims, based on early indications. But the damage from water accumulation remains to be seen, said Levy, managing director of BCIC and vice-president of the Insurance Association of Jamaica.

BCIC is one of 10 registered companies which offer general insurance for individuals and businesses. Nine of the 10 are operational, according to government data.

Levy explained that a direct hit from Matthew would have resulted in an already bad year for property insurance becoming far worse.

"Property insurance is having its worst year in recent times. We experienced the loss from the Wisynco fire, and before that the loss at the hotel under construction in Negril. Then the flooding by Marcus Garvey Drive in September - there was a lot of damage to coffee and sugar, among other items," he said.

"So a hit or near-miss from a serious storm might have an impact in the way that reinsurers view the level of risk in Jamaica," he added, indicating that higher risk usually results in a higher cost to insure portfolios for the local insurance sector and, therefore, higher premiums to consumers.

Levy said Haiti's direct hit would not impact the region in a major way - at least, not initially. That's due to fewer claims arising from large natural disasters in the region in recent years. It has resulted in a build-up of capital for reinsurers, many of whom are based in major metropolises in countries such as Switzerland, Germany, and the United Kingdom. The result is that the cost of reinsurance remains relatively attractive to local insurance companies.

"However, that could change if Miami or New York or another major US city is hit by a catastrophe and claims are large," said Levy, adding that the storm path for Matthew is expected to avoid Miami's luxury waterfront property and make landfall in less insurance-sensitive areas.

"The reinsurance market is kind of like a big body of water and if something happens a few miles away, it affects everyone. Any fallout caused by Matthew will affect Haiti first," he said.

The latest regulatory data on general insurance, published by the Financial Services Commission, shows that over three months to March 2016, the industry earned $4 billion in net premiums and $700 million in net income. Over 12 months ending December 2015, the general insurance industry earned net income $3 billion on net premiums of $16.3 billion. This equated to $100 million more net income year on year.

Hurricane Sandy, which hit Jamaica in 2012 caused damage reportedly at US$55.96 million. The eastern sections of the island, including St Thomas, Portland, St Mary and St Catherine, felt the brunt of the storm forces.

The IAJ indicates that Hurricane Ivan in 2004 cost the sector $5.9 billion related to some 7,512 claims. Hurricane Dean cost the sector $2.1 billion from 3,344 claims.

Claims are usually low on property insurance when there is no hurricane. Last year, for example, there were 526 claims for $ 442.8 million, the IAJ said.

In 2004, the devastation arising from Hurricane Ivan reignited the dangers of hurricanes to a new generation following the 1988 passage of Gilbert and the 1951 passage of Charlie. Despite those fears, a large portion of the population remains outside the insurance net.

The Jamaican Government, on the other hand, has sought some form of insurance balance and is now covered under a regional scheme.

The idea for the Caribbean Catastrophe Risk Insurance Facility (CCRIF) arose out of Hurricane Ivan, which caused more than US$6 billion in damage across the Caribbean. In both Grenada and the Cayman Islands, losses were close to 200 per cent of the national annual gross domestic product and a further seven countries were also severely impacted, according to the CCRIF in its Strategic Plan 2015-2018.

CCRIF allows member governments access to short-term liquidity following a major hurricane or earthquake. The facility, founded in 2007, provides participating governments with coverage tailored to their needs at a significantly lower cost than if they were to purchase it individually on the market.

Since inception, CCRIF has made 12 payments to policyholders totaling more than US$35 million.