Premiums set to rise

It WAS barely TWO months ago when Hurricane Ivan gave us in Trinidad, and Tobago in particular, a scare. It turned out to be a ‘‘near-miss’’ for Tobago although certain parts of the island suffered damage and the agricultural sector was badly hit. Our Caribbean neighbours were not so lucky and Grenada, Jamaica, Cayman Islands and the Bahamas were affected all the way up to Florida and the eastern seaboard of the United States. However, it was not only Ivan but also Frances and Jeanne so that the hurricane season which does not officially end for another three weeks has brought damage and destruction to almost the entire Caribbean region. Our memories are short and the hurricane season will have ended and life will go on although it may not be the same especially for those who were traumatised and suffered first hand from the hurricanes. Immediately following the extensive damage to the region the Heads met to discuss ways how the region could better manage its risks against natural catastrophes and whether there were mechanisms that could be employed to provide funding to get affected countries back on their feet in the shortest possible time.

These very issues were raised at least ten years ago when insurance rates soared and there was limited appetite by the international insurance market for risks in the region following Hurricane Andrew. A significant amount of work was done in particular by the World Bank to structure schemes that would provide capacity and certainty of funding while at the same time reducing volatility. However, this required commitment from the region in terms of adopting risk management strategies among them — building codes, building away from vulnerable areas, and incentives for purchasing insurance and therefore minimising the level of assets and properties that go uninsured have not in the main been implemented. While insurance will play a significant role in the reconstruction in certain countries it would appear that many will have to rely on aid, handouts and donations. Only last week  Guardian Holdings reported that it had provided for a net loss of roughly US$25 million as a result of the catastrophes occurring in the last quarter — July/September. Since the Group had to meet this level of loss from its own resources then one can assume that its reinsurers might have to face a payout in the range of 5-10 times the Group net loss.

Ivan is gone and probably forgotten but it will be some considerable time before the full picture emerges and as in the case of Florida where certain companies have run out of cash we don’t as yet know if any insurer in the region might suffer the same fate. That is just possible! Most insurance companies are in the process of negotiating their reinsurance arrangements for next year and it is only when this has been finalised they will know for sure what kind of trading terms they would be allowed by the international market. In the weeks following the catastrophes there have been wild speculations from the international reinsurance markets — ranging from 50%- 100% rate increases at the policyholder level and at the reinsurance level a further cut back in commissions terms in particular for the premiums allocated for catastrophe risks. While those levels of rate increases might yet apply to the countries that have suffered badly from the hurricanes the ‘‘near miss’’ for Tobago is fresh in the minds of the international community. Trinidad and Tobago have consistently argued that we are too far south and by the time that the weather system is upgraded to hurricane force it would have already turned north and away from us.

Weather patterns are changing and the jury is still out as far as climate change is concerned so no longer can we contend that there is no risk but rather the risk is lower when compared to the rest of the region. This lower level of risk is already reflected in the lower premiums paid by Trinidad and Tobago policyholders and the message coming out of the international markets is that they want to see a premium hike on average 20%-25% minimum across the portfolio. This is a softening of the earlier position where they were looking for immediate hikes of much more but in a competitive marketplace sometimes it is impossible to obtain the true technical price. They are unlikely to support companies with premiums that do not reflect the level of risk exposure and therefore there will be pressure on insurance companies to meet this new threshold. The losses in the region should be a wake-up call for all of us. We must stop this nonsense talk that God is a Trini but rather start the process of managing as if we had no insurance on which to fall back. It takes only 15 minutes of heavy downpour for flooding to take place and roads to become impassable.

Consider a weather system where we get six inches of rain over a few hours and then we would be dealing with a real catastrophe even without any wind. We must plan for these events and they are not impossible so we must take the kind of steps that the international agencies have been calling for — proper planning and building codes and managing the environment. We must hold people accountable and don’t make excuses. If we have a flood the first excuse is that it was a 25-year event or 50-year event and therefore cannot be planned rather than taking the kind of leadership role in treating with these eventualities. It is no longer if but rather when it will happen! In the immediate and short term, consumers and policyholders have to brace themselves for premium rate increases somewhere in the order of 20%-25%. The only consolation is that our neighbours are paying much more for their insurances and they might be in a worse position since they might be least able to afford it. However this is the real world and everyone has to manage in the best way possible so there is no one to shield you. Without these increases we are likely to get little support from the international market without which we cannot exist.

E-mail: daquing@cablenett.net