Sabrina Gordon, Business Reporter

Sandals Whitehouse in Westmoreland sits seaside on the island’s south coast. Large hotel chains Sandals and SuperClubs insure their properties via a mix of local and international coverage, but exposed pools and beach structures tend to be excluded from coverage. - File

The view of the Caribbean Sea is often magnificent, but it is beauty at a price for beachfront and other properties close to the coast whose vulnerability to storms has seen Jamaican insurance companies shying away from underwriting this type of risk.

“Most underwriters are unwilling or don’t write these risks in totality,” Annette Reynolds, broking manager for Allied Insurance Brokers Limited, told Sunday Business. “Of the 11 insurance companies in the local market, only about three will write beachfront risk.”

Local companies have little or no capacity to undertake the entire risk, so they often seek out reinsurance markets abroad.

Disasters, social upheavals

On the flip side, with location and risk exposure to disasters and social upheavals two of the big factors in the pricing of insurance coverage, property owners and hotels are facing bigger premiums as companies reprice the risk each year that big storms blow.

Additionally, most of the major properties located on the beachfront also have to seek coverage overseas, where the sector is larger and better capitalised and the risk is better spread, even though the coverage terms are said to be more restrictive.

For example, cabanas and other structures near to the beachline are often excluded from coverage; as are swimming pools, lighting and fixtures.

Insurance coverage for inland properties is billed at a rate of one per cent or lower on the sum insured – which may be equivalent to the real estate’s market value or lower – but the premiums on beachfront structures range, at the low end, between 1.25 per cent and 1.5 per cent, and may go as high as five per cent on the sum insured.

The deductible – that portion of a claim that is considered the insured’s share of the liability – is normally between 3.5 per cent to five per cent, compared to two per cent on inland properties.

Sandals Resorts International, a chain of about 12 local hotels in Jamaica – almost all of which are built on the seafront –– plus other properties spread across the Caribbean, said its risk is underwritten by a mix of local and overseas companies.

Spokesman David Morgan said the resort chain has found it difficult to get coverage on the local market.

Sandals prepared for risks

Similarly, SuperClubs chairman John Issa also said his coverage was provided by a mix of domestic and international firms.

Earl Codling, general manager of American Home Insurance Company (AHAC), confirmed the reluctance of companies like his to take on this type of high risk, and have been reducing cover provided on the advice of reinsurers.

“We have in the past done hotel risk, up to Hurricane Gilbert, but sustained big losses because of their proximity to the sea. And, with the high reinsurance cost, the decision was taken to reduce exposure to this loss,” said Codling.

Of AHAC’s total portfolio only one per cent is property risk.

“The risk associated with this type of insurance comes under higher rates than would normally be charged by competitors and hence, serve to drive away business.”

According to Reynolds, beachfront risk values “can range from US$1 million to US$5 million, and up to as much as US$100 million and over, depending on the property involved.”

British Caribbean Insurance Company, one of the three that still writes property policies, says the segment accounts for 20 per cent to 25 per cent of its risk portfolio, but has no desire to grow that end of the business.

“We are not closing the door,” said managing director Leslie Chung, “but we are not going out to write new businesses.”

The retreat in the market is also reflected across the region with Guardian Holdings Limited’s chief executive Rory O’Brien advising a climate-change conference in June that his company had refused coverage for 48 beachfront properties in Barbados in 2005 in a step back from the high risk.

“We have to protect ourselves,” he said in Port-of-Spain. “Insurance is a funny industry; it’s a combination of a capitalist approach for individuals wantingto protect their own assets to a socialist concept of pooling their risks and resources.”

Windstorm andflood coverage

In general, windstorm and flood coverage is not easily available and when it is, there is a premium on the price to purchase coverage.

Guardian Holdings, for example, now excludes hurricane wind and flying debris damage from coverage.

Its subsidiary, Guardian General Insurance, the holding company for West Indies Alliance, was reported in 2005 to have paid out US$172 million in storm claims since Hurricane Charley of 1951.

The majority of US$150 million was said to relate to Hurricane Ivan of 2004.

sabrina.gordon@glenaerjm.com