A house which was destroyed by Hurricane Gilbert in 1988. -File photo
Cedric E. Stephens, Contributor
CARIBBEAN PROPERTY insurance [which includes earthquake and hurricane] rates, including those for Jamaica, are projected to stabilise this year.
This follows three consecutive years of increases. The rises began during the last quarter of 2000. They accelerated after September 11, 2001. This year's forecast is based on the results of a survey undertaken by this correspondent during January. It involved some of the leading regional insurance companies, agents and brokers.
The view of regional experts is similar to those of persons in London, one of the world's leading insurance markets. John Sanders, writing from the UK for National Underwriter Property & Casualty, on February 23, said: "Thanks to tighter regulatory controls, a strong corporate focus on profitability and the drag of legacy reserve issues from the soft market of the 1990s, London-based underwriters maintained their pricing discipline. As a result, property rates for business renewing on January 1 generally showed only small declines from the exceptional levels of 2003." Regional insurance players have, historically, had strong links with the London market where they buy reinsurance.
The study was conducted in The Bahamas, Barbados, The Cayman Islands, Jamaica and Trinidad & Tobago. It included property, household, motor, public and employers' liability insurances. Cost trends for health insurance during 2004 were also examined.
Fourteen per cent of those who participated in the study predicted that property insurance rates would remain flat. Nearly 30 per cent said that premium increases would grow by not more than 10 per cent. Another 14 per cent stated that they anticipated that rates would fall. Slightly over 40 per cent of the group felt that price increases would take place but would not extend over a range of 10 to 20 per cent. It should be noted that given the dynamics of a competitive market place, insurers will reduce rates to retain business.
Other highlights of the survey include the following:
No reductions in Jamaican property insurance rates were predicted during 2004. However, counterparts of the local executives in the other islands forecast rate reductions in their countries ranging from a low of 7.5 to a high of 20 per cent.
Twenty-three per cent of the Jamaican participants expected no change this year in the cost of household insurance. Seventy-seven per cent forecast increases in rates. They estimated that these would range from 10 to 20 per cent.
Consumers in The Bahamas, Barbados, The Cayman Islands and Trinidad & Tobago may experience reductions in the cost of household insurance during 2004. Sixty per cent of persons in those companies forecast rate reductions ranging from 10 to 20 per cent. Forty per cent predicted increases of between 10 to 20 per cent.
Purchasers of motor insurance in Jamaica will continue to have opportunities to save money if they shop around. Fifty-six per cent of survey participants have predicted that premiums will remain flat. Forty-four per cent have forecast increases ranging from a low of 10 per cent to a high of 20 per cent.
The protection afforded under motor policies for personal injuries in The Bahamas and the Cayman Islands will be reduced this year. Before that, insurers granted unlimited liability coverage. [Limits for personal injury under
Jamaican motor policies have been fixed at a maximum any one person/ any one accident for many years].
Rates for employers' and public liability insurances in Jamaica will continue to climb during 2004. These rates are forecast to move, depending on the type of business, from 10 to 30 per cent above the rates charged last year. The projected rate increases are not dissimilar to those forecast in the other islands.
Health insurance costs will continue their upward climb throughout the Caribbean. The increase in the rates for this line of business is expected to outstrip all other classes of insurance except liability insurances. Most experts say that price movements will top 30 per cent.
All the participants in the study identified the increased cost of reinsurance as the most important cause of past price rises in property insurance. Caribbean property insurers, unlike underwriters in the USA or Europe, are heavily dependent on the reinsurance market. This is because regional insurers have exposures for hurricanes and earthquakes that are much bigger than their policyholders' surplus [or net worth]. Regional insurance markets are, therefore, not unaffected by developments in the global reinsurance markets.
Since 1987, according to reinsurer Swiss Re, catastrophes have cost the property insurance industry worldwide an average of US$20 billion in annual-inflation adjusted losses. In 2003, the tab was US$18.5 billion. More than half of last year's figures came from six events that topped US$1 billion in insured losses. Reinsurance availability in the region is interconnected. Reinsurers generally track the region's exposures as one or two zones.
A single hurricane can strike several islands like Hurricane Georges which hit Puerto Rico and the Dominican Republic in 1998 and Hurricane Lenny that affected islands to the south. Consumers in the southern islands, like Trinidad and Barbados, have paid less for property insurance than those to the north, like Jamaica and The Bahamas. Additionally, reinsurers tend to equate their exposures in the northern islands with those of the southern United States.
These factors influence both the price and availability of reinsurance for the Caribbean. While the Carib-bean has not sustained any major catastrophe losses in recent years, says Jeffrey D. Montano, executive director, insurance operations, N.E.M. (West Indies) Insurance Limited, Port of Spain, Trinidad, "extra regional losses like those associated with September 11, Enron, the dotcom failures coupled with the stock market downturn have also influenced the availability and price of reinsurance to the region."
In spite of the apparent market stability, David Moss of Assurance Brokers Jamaica still worries about the impact of these developments on tourism. "This sector has been affected by the limited market for worldwide jurisdiction liability coverage and insurers' appetite[s] for large beachfront properties remain healthy only at premium pricing and with coverage limitations."
According to David Alleyne, overseas manager for United Insurance Company in Barbados, the rates that Caribbean consumers pay for property insurance are also affected "through competitive [uneconomic] pricing" by [regional] insurers. This leads to volatility in premium rates from year to year. He feels that insurers, particularly those in the northern Caribbean, "should resist the temptation of competing on rates alone" so as to maintain price stability over the long run.
A majority of the survey participants [43 per cent] felt that consumers were becoming more litigious. This was one of the contributors to the increasing number of claims under liability insurances. The continuing escalation in the size of court awards was another factor. Recently for example, the Supreme Court of Jamaica awarded J$5.5 million to a 52-year-old garbage collector who lost both legs in a motor accident in June 2000.
Cedric E. Stephens provides impartial advice on risks and insurance. Reader feedback is welcome at aegis@cwjamaica.com
