Cedric E. Stephens, Contributor
Question: Are local property insurance buyers likely to face price increases during 2006? If so, what can we expect? This question is being posed against the backdrop of a very active hurricane season last year and an equally devastating one this year. I am involved in the process of estimating the premiums for my company for 2006 and would like some help.
-D.P.W., Kingston.
Answer: After writing over 330 articles on insurance I have finally started to feel that I am doing something worthwhile! Hardly a day goes by without something to justify my sense of well-being. Two examples: the PM projected that local insurance prices would go up by 15 to 25 per cent in the wake of Hurricane Katrina a few weeks ago. Insurance is not the sort of stuff that usually comprises "matters of state." A couple of UTech students have sought my input for their papers. Your question is icing on the cake. Instead of reacting after the fact, you are following the PM's lead of by gazing into the crystal ball. Bravo!
Last year's hurricane season was one of "the most destructive on record" for the region. This is according to reinsurance brokers Guy Carpenter. Losses from Charley, Frances, Ivan and Jeanne over a six-week period topped US$5 billion. Those numbers exclude estimates for Grenada which were put at US$500 million. The capital of insurance companies in the Bahamas, Cayman Islands and Jamaica (in the case of Dyoll) were so badly hit that they had to raise funds. In the case of Dyoll the funding gap was so big that investors "folded their tents" and walked away, in the words of NCB boss, Michael Lee Chin.
Local buyers fared reasonably well last year when compared to regional counterparts. The following rating levels from Guy Carpenter for property insurance illustrate the point:
These numbers tell only part of the story. Consumers here bear a smaller share of hurricane and earthquake losses (the two per cent excess) than those in other territories. Insurers in Jamaica provide 98 per cent coverage. Buyers elsewhere pay more for less (in some cases 95 per cent) coverage.
REGIONAL LOSSES
When the regional losses are added to U.S. losses the total figures for 2004 exceed US$25 billion, says Swiss Re, a company that insures insurers. The size of last year's losses plus what has happened so far this year with Katrina and Rita (estimated cost US$45 to US$65 billion) will have a big impact on buyers all over the world very soon. The head of one leading insurance company, recently said, according to The Economist, "Rates will come up whether you are talking about Dutch motor insurance or U.S. catastrophe reinsurance."
It is difficult to predict the range of price increases for 2006 now. Supply-demand factors, as in the case of oil, are also involved. At least one company here plans to cut the amount of business that it writes. This will put even more pressure on prices. My "short and dirty" answer to your question: expect a 25 per cent increase in the rate your company is now paying in 2006. This puts me at the top end of the range that the PM estimated.
As a by-product of what is now called an inner-city community, I am thrilled that my estimate is in such close orbit to that of the eminent gentleman who rules from Jamaica House.
| COUNTRY | RATING RANGE | RANK |
| (per $100 of value) |
| Antigua | 1.83 to 2.47 | 8 |
| Bahamas | 0.98 to 1.32 | 5 |
| British Virgin Islands | 0.60 to 0.81 | 2 |
| Barbados | 0.94 to 1.27 | 4 |
| Cayman Islands | 0.94 to 1.27 | 4 |
| Dominican Republic | 1.06 to 1.44 | 6 |
| Jamaica | 0.85 to 1.15 | 3 |
| Puerto Rico | 1.50 to 2.00 | 7 |
| (beachfront condo) |
| Trinidad | 0.55 to 0.75 | 1 |
| US Virgin Islands | 1.87 to 2.53 | 9 |
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com
