By Al Edwards, Business Co-ordinator 
The Princess Margret Hospitalin Morant Bay, St. Thomas, shortly after Hurricane Gilbert in 1988.
GENERAL insurance rates in Jamaica will increase by over 30 per cent next year largely due to the fact that reinsurance firms can no longer absorb the cost.
So said the managing director of Globe Insurance Company of the West Indies, (Jamaica's largest property insurance company) Evan Thwaites.
Speaking to the Financial Gleaner, Mr.Thwaites said: "The rates in Jamaica will have to go up by over 30 per cent because the reinsurance market has been sustaining heavy losses since the terrorist attacks of September 11, 2001. The attacks on the World Trade Center alone cost the reinsurance companies as much as US$50 billion. As if that wasn't enough the financial debacle created by the auditing blunders at Enron, Tyco and Worldcom hurt the reinsurance companies because they had invested in their bonds."
Perhaps these were the primary reasons why the reinsurers are now shying away from underwriting insurance claims but to compound matters further was the damage caused by floods in Eastern Europe which cost the market 500 million euros together with a typhoon that decimated South Korea. These factors also contributed to the balance sheets of the leading reinsurers being ravished. The grading agencies like AM Best have began to write down many of the large reinsurance companies which affects their ability to write business.
Only last week Moody's Investors Service stripped Munich Reinsurance Company, the world's largest reinsurer of its top-notch credit rating because of deteriorating capital markets, but said the company's financial position remains strong.
The agency lowered Munich Re's insurance financial strength rating to Aa1 from Aaa.
"Moody's does not believe that Munich Re's internal capital generation going forward will be sufficient to restore its capital to its former exceptional level," the agency said in a release.
However the renown rating agency said Munich Re's position as the industry leader has helped it sail through rough economic waters relatively unscathed.
Moody's also cut the insurance financial strength rating of its US subsidiary, American Re Corporation, to Aa2 and its senior debt rating to Aa3.
Standard & Poor's equivalent rating grades are:Aaa=AAA, Aa1=AA+,Aa2=AA,Aa
As far as Jamaica is concerned this is not region specific rather it is industry specific.
Addressing the Rotary Club of Kingston earlier this year Mr.Thwaites said as well as world events adversely impacted on local insurance costs, there were also additional costs incurred by complying with provisions stipulated by the new Insurance Act. In commenting on the new Insurance Act, Mr. Thwaites said that the industry welcomed its introduction, but was of the opinion that the timing was unfortunate given the increased reinsurance costs.
The new Act imposes a greater responsibility on the insurance industry to improve and safeguard the rights of consumers. For example, general insurance companies are now required to present actuarial reports which have significantly increased their operational expenses. Add to that the costs of reinsurance caused by the World Trade Center attacks, and it becomes very difficult for local insurance companies to absorb these increases.
"The effect is worldwide. Where at first Jamaica and the Caribbean were targeted because of its high risk (hurricanes and storms) we are now seeing that the playing field has been levelled, and consumers around the world are feeling the effects."
However Jamaicans can counter increases in insurance costs through a programme of risk management. At the heart of this is risk elimination and reduction by which a consumer takes a proactive stance to prevent or reduces potential losses. Risk assumption occurs where the consumer assumes additional risk by only insuring for specific perils. Risk avoidance sees the removal of consumers from high risk areas.
"The key is to buy more effectively. Look closely at your insurance needs and choose the basis on which you would like to insure. That way you can ensure some form of coverage while keeping your costs relatively low." added Mr.Thwaites.
With Tropical Storm Lili set to grace Jamican shores between today and tomorrow, property insurance once again takes on significance. The London based Tropical Storm Risk (TSR) consortium revised upwards its predictions for the 2002 Atlantic hurricane season. The number of hurricanes striking the United States and Caribbean shores is now expected to be 20 per cent above average in 2002. Mr. Twaites find it disturbing in light of this information many homeowners and business operators in Jamaica have not insured or have significantly underinsured their property. "We will be faced with the catastrophic damage caused by the hurricanes and the long term effect this damage will have on the economy will be amplified by the fact that many property owners and business people will not have the financial resources to rebuild. The potential for mass economic loss is great," stressed Mr.Thwaites.
Globe's managing director also pointed to the damage to properties along Jamaica's northcoast caused by storm surges of up to 30 feet associated with Allen in 1980 and the deleterious consequences to businesses resulting from Gilbert in 1988.
