Cedric Stephens | Accessible insurance still an unmet goal

Hurricane Melissa provided a glut of things for me to write about. In today’s article, I will try to link discrete topics to the monster hurricane where the economic impacts may turn out to be not unlike those that resulted from the global pandemic.

If COVID-19 were to be used as a guide, the recovery timeline should be 2.5 years, assuming no more catastrophes.

First things first: Government’s provisional estimate of the economic damage caused by Hurricane Melissa is US$6 billion to US$7 billion. That amount is nearly one-third of Jamaica’s gross domestic product. Moody’s RMS Event Response Services, a catastrophe-risk modelling and analytics business that monitors and delivers near-real-time information and analytic products when a catastrophe or major natural hazard event occurs, concluded that Melissa’s economic impact could exceed US$20 billion or $3.2 trillion in Jamaican currency – equivalent to the country’s GDP for 2024.

Melissa wreaked havoc on the island’s agricultural sector. The portfolio minister, Floyd Green, in a recent statement to Parliament, estimated losses of $30 billion. Over 70,000 farmers were affected, 1.25 million animals were lost, and 41,390 hectares of farmland with produce in the ground were included in the count. Had Melissa travelled from east to west across the island instead of south to north, the size of the loss would have been much bigger.

Estimated losses in the sector dwarf the ministry’s 2024/25 budget allocation of $18 billion. Government does not, according to the National Natural Disaster Risk Financing Policy 2021-26, “currently set aside specific funds to deal with the negative impacts that natural disasters have on the agricultural sector, inclusive of fisheries”. This is despite predictions over the years by scientists of more frequent and intense storms fuelled by climate change.

Former opposition member of parliament for St Ann South Eastern, Lisa Hanna, wrote a thoughtful and well-researched essay in The Jamaica Observer on July 24, 2024 on mandatory crop insurance. She cited an example of what Ghana had achieved. Two years earlier, I wrote, “Can Jamaica emulate Rwanda’s success in agriculture. Yes, we can!” My optimism was grounded in the belief that crop insurance would be provided to local farmers, and that it would lead to more credit and investments in the sector.

Fast-forward to 2025. This is against the background of the Ministry of Finance and the Public Service’s efforts to design and implement what former head Dr Nigel Clarke described as “a risk-layering approach to finance risks from natural disasters”, and Guyana’s July 2025 launch of crop insurance for rice farmers “to protect those most vulnerable to the effects of climate change”. Why hasn’t the local agriculture ministry emulated the finance ministry and the Guyana government?

The benefits now being touted about the parametric microinsurance plan, which received the ministry’s and RADA’s imprimatur, are unlikely to exceed 0.1 per cent of the sector’s losses. This is on the heels of a $5.7 billion hit from Hurricane Beryl last year.

In 2018, the prime minister listed “rural development, climate resilience, and sustainable agriculture” as “areas of action”, when he spoke at a UN Food and Agriculture Organization regional meeting in Montego Bay. There was also talk about a national agriculture resilience plan. Is this a realistic idea now? How will it be funded?

Policy objective 2.3 of Jamaica’s disaster risk financing policy seeks to develop the local insurance market through increased access to “affordable, appropriate insurance for households, businesses and the government”. Evidence from Hurricane Melissa proves that this goal has not been realised.

The Financial Services Commission (FSC), regulator of the insurance industry, and the Insurance Association of Jamaica (IAJ), have been fast asleep on the job. The disaster risk policy, for some reason, names the IAJ but not the FSC.

Verisk’s Extreme Event Solutions – formerly Air Worldwide – another catastrophe and extreme event modelling provider, said in its recent report that only two out of every 10 houses in Jamaica were insured. The November 2, 2025, issue of The Sunday Observer devoted one page to discuss under-insurance and “the even greater concern of non-insurance”.

Non-insurance, in the context of an island that is among the most vulnerable places in the world to natural disasters, is more important than under-insurance. Many households, according to the report, “have no insurance coverage at all, because of ownership complications. Families share inherited properties with each person building a house on a portion of family land without formal documentation. The practice, he argued, creates barriers to obtaining property insurance. It is better for individuals planning to build on family land, he suggested, to formalise land ownership prior to construction”.

The conclusion in this argument is wrong. It is based on a misunderstanding of a fundamental principle of insurance law: insurable interest. The ‘doctrine of insurable interest’ is an important legal principle that determines whether an insurance contract is valid and enforceable. It ensures that the person taking out insurance has a legitimate financial or legal interest in the subject matter of the insurance (in this case a house) — meaning, would they suffer a genuine loss if the insured event occurs?.

Insurable interest refers to the right to insure arising out of a financial relationship between the insured or policyholder and the subject matter of the insurance. In simpler terms, a person has an insurable interest in something when the loss or damage to it would cause a monetary loss or certain kind of harm.

The doctrine serves to:

• Distinguish insurance from gambling: Without insurable interest, a policy would be considered a wager, which is void under most legal systems. The United Kingdom’s Gambling Act 1774 influences the common law principles adopted in Commonwealth jurisdictions like Jamaica;

• Prevent moral hazard: It discourages people from taking out insurance on lives or on property in which they have no stake. Otherwise this would create incentives for fraud or intentional harm; and

• Ensure indemnity: It upholds the indemnity principle – that insurance is meant to compensate for actual loss, not to provide profit.

The insured must have a legal or equitable interest in the property (for example, owner, tenant, mortgagee, or leaseholder) in property insurance. Also, the interest must exist at the time of loss, though not necessarily at the time the policy was taken out, depending on the type of policy.

Erecting a house on family-owned land does not preclude the houseowner from buying insurance to protect his or her financial interest in the property.

The argument that it is not possible to buy property insurance on a building that is erected on family-owned land exemplifies why the local insurance industry’s post-Melissa ‘after the storm, we stand together’ message is unlikely to resonate with people in this group whose houses were affected by the storm.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com