Denis St. Bernard, Contributor
AMID HIKES in premiums in the region by reinsurers, and with Jamaica being one of the hardest hit, the question now being asked is, 'What are some of the options open to policyholders?
What are the brokers and risk managers doing about this?'
Leslie Chung, deputy chairman of the Jamaica Association of General Insurance Companies, said, "The timing for further rate increases in the local market could never be worse, as the country continues to experience harsh economic times."
Mr. Chung said that the industry has to find ways to make this increase as painless as possible, and cited the fact that many countries such as Barbados and the Bahamas, having been for some time now gradually increased their premiums in anticipation of the increasing reinsurance rates. Jamaica however has lagged behind and now there are real concerns, he said.
Gabriel Alexander, managing director of Marathon Insurance Brokers, said: "As far as the brokers are concerned there is precious little we can do, as rates are dictated by large reinsurers abroad."
Mr. Alexander expressed great concern and went on to explain that premiums, particularly in the property market have not increased for more than 30 years, and in some cases have actually been reduced.
On the question of providing risk management services to policyholders in an effort to reduce the impact of premium increases, Mr. Alexander explained that perhaps in some areas of risk management there might be some benefits for some clients but at the end of the day, they (the clients), may have to pay more in the form of higher deductibles, self-insurance, layer cover etc.
Matthew Pragnell, president of the Jamaica Insurance Brokers Association and chief executive officer of Inter-national Insurance Brokers, in a recent interview regarding this issue of rate hikes in the wake of increasing reinsurance costs, also had concerns. He said: "With the 'knee jerk' rise in rates, compounded by the fact that we were coming from a very low base, there is a genuine fear that 'self-insurance' may now be considered an option by some consumers.
"In an area of double exposure to catastrophe risk (hurricane and earthquake), coupled with occasional high 'non-cat' exposures (e.g. resulting from stretched fire service support and lower water pressures resulting from the drought) insureds have little sensible option but to buy proper insurance and proper risk management advice, but can they afford it?
"From this perspective I feel the broker's true role, including, critically, that of counsellor, comes into focus. The scenario is not one of simple supply and demand. Reinsurance capacity has shrunk, and prices consequently have risen; but I fear a drop in local demand will force reinsurers to offer their scant capacity elsewhere, rather than drop their terms for Jamaica.
"Jamaica is very much part of the global village, and the larger picture dictates. Our insurers have to buy significant reinsurance cover. Overall results over the last two years in the region have been terrible and although we (Jamaica) have been relatively unscathed, the region has been an underwriting nightmare. Jamaica's position is similar to that of Barbados, which has, incidentally, been dealing with higher rates than us, despite not having had a 'cat' loss for 30 or so years!"
Christopher Henriques, general manager of The Beacon Insurance of Grenada, who has worked extensively within the Eastern Caribbean and the United Kingdom, said some measures must be put in place to force the regional companies to start protecting their capital which will allow for them to buy less reinsurance.
These measures could include:
Cat reserve tax relief Increasing the capital requirements of the companies. This capital must be in cash and or cash-like securities which will allow for easy claim settlements when a catastrophe loss occurs. The sums insured in the region are very high compared to the reinsurance premiums paid therefore the cat pool that is being proposed now will not improve the system that is in place. The reinsurance market is too competitive to allow this pool to operate effectively. The region has to start to allow regional insurance companies to investment and operate in the various territories without restriction as this will allow a better spread of risk for these companies.
"Why do we continue to allow foreign insurers to operate who don't have the long- term good of the region at heart?" asked Mr. Henriques. "If the income of these foreign companies were spread amongst the regionally-owned companies, rates would increase, we would end up with stronger companies and we would have insurers here for the long-term as this would be there home base. Lastly the integration of free movement of labour and capital still seems way off," said Mr. Henriques.
Denis St. Bernard is an insurance consultant. He is also the co-host of Risky Business, a radio programme which deals with risk and insurance matters. Please give feedback to the editor or e-mail - pri@kasnet.com
