10 months ago
28
The news gods coaxed me to write today’s article.
First, there were my two condo-owning friends. They independently sought advice about insurance of properties that are governed by the Strata Titles Act. Our discussions took place in the context of my July 1, 2022, piece, ‘Gloomy Outlook for Price, Availability of Property Insurance’. And then there were the three overseas sources that released information a few days ago that indicated signs had emerged about 12 days ago that the doom and gloom in the insurance marketplace during 2022-2024 have started to disappear.
My twin brother, unwittingly, also helped. He sent me a WhatsApp message on Wednesday night to ask what impact the spate of fires in Los Angeles, California, was likely to have on the worldwide insurance industry, and indirectly, regionally. Less than 24 hours later, I got an answer of sorts from The Wall Street Journal. The journal, an American business-focused newspaper, is known for its in-depth financial reporting and analysis. It reported that the total economic losses from the LA fires were estimated by some experts at close to US$50 billion.
Another important element of today’s article is that two of the island’s leading non-life insurance company CEOs agreed to share their thoughts about what the outlook for property insurance buyers is likely to be during 2025. Their opinions are based on interactions with reinsurance brokers and reinsurers mainly in Europe. Insurers hedge their property insurance risks by buying reinsurance overseas. Local carriers are affected by things that happen in these markets.
My very good friend, frdon63@hotmail.com, suggested in his letter to the editor a few days ago that people should use their “voices, pens, and ink to address the systemic issues contributing to our struggles and determine the direction of this country”, given general elections later this year. He used two paragraphs to discuss potholes and the state of the roads but the hazards of climate change – a subject that poses severe threats to economic and societal stability – and actions to enable resilience and adaptation were missing.
Global insights
The following findings of a 2021 World Bank report are also relevant to the discussion:
• Caribbean countries are not prepared for the new challenges posed by climate change.’
• Climate hazards are driving up the cost and availability of insurance and financing … insurance becomes less accessible and more expensive with insurers withdrawing from high-risk areas. This trend is creating ‘insurance deserts’.
• Since the 1970s, extreme weather-related damage has increased sevenfold, with 2022 alone witnessing US$313 billion in global economic losses. In 2023, only 38 per cent of those losses due to natural disasters were insured.
• Between 2000 and 2019, Caribbean countries lost the equivalent of 3.6 per cent of aggregate GDP per year to damage and losses related to natural hazards, compared to 0.3 per cent in all emerging markets and developing economies.
The World Economic Forum’s December 2024 Insight Report identified seven climate hazards. Most of them apply to the Caribbean and impact the price and availability of property insurance. They are: extreme heat; coastal flooding; fluvial flooding, that is, surface water drained from a watershed into a stream or river that exceeds the channel’s capacity, overflowing beyond banks and inundating adjacent low-lying areas; tropical cyclone – hurricane or typhoon; drought; wildfire; and water stress.
Local expert forecasts
Sharon E Donaldson, Managing Director, General Accident (Jamaica) Limited:
• There will be a lot more stability in the reinsurance markets for 2025 relative to 2023 and, to a lesser extent, 2024. As a result, the capacity available for insurers in the English-speaking Caribbean was limited and restricted their ability to increase their portfolios through new business growth or to absorb increases in clients’ sums insured.
• The imbalance between the demand and supply of reinsurance that obtained previously no longer exists. This should allow local insurers to be more open to write new business and respond to requests for sum insured increases.
• Some elements of reinsurance protections still carry material fixed costs and while flexibility has occurred in some this year, there has not been a material reduction on a risk adjusted basis.
• Whilst some media sources are reporting pricing improvements in some parts of the world, this is typically happening only in areas where there is an abundance of reinsurance capacity, The Caribbean region falls outside of these areas. The main issue facing regional insurers is finding reinsurance capacity.
• The Caribbean region is very sensitive to loss activity both internally and externally. While insurance prices to consumers are likely to remain stable for the time being they could rise at any time.
Peter Levy, Managing Director, British Caribbean Insurance Company:
1. The severe contraction in reinsurance capacity in the Caribbean, and Jamaica in particular, in 2023, caused significant price increases for property insurance buyers. Conditions remained the same in 2024. Now, after two years of higher prices, allied with improved global economic conditions, reinsurers have gradually started to increase their appetite for risk.
2. The modest increase in capacity in 2025 is contingent on the prices remaining stable at current levels. Reinsurance capacity is a liquid resource, and its owners can quickly divert it into other markets. Even after the recent price increases, Jamaica’s property insurance rates are lower than those in The Cayman Islands, The Bahamas, and Florida. Local insurers compete with those territories for reinsurance capacity. Hurricane Beryl last year, the earliest Category 5 storm in recorded history, deepened reinsurers’ concerns about the likely increased frequency and intensity of hurricanes in the Caribbean. The fact that Beryl missed the major population centres of Jamaica brought relief locally but is also being taken as a warning by reinsurers of what may happen in future.
3. I do not anticipate that the increased reinsurance capacity will result in cheaper insurance costs to local buyers. We should take heed of the warnings of Hurricane Beryl. Many claimants found that they were unable to recover as much as they had hoped because they were underinsured. The cumulative effect of years of inflation, especially with the higher cost of living increases has eroded the value of many policyholders’ coverage. The increased capacity available should be used by policyholders to ensure that their sums insured are as close to the current value as they can afford. Insurers, brokers, and agents should be doing our best to make policyholders understand the dangers of underinsurance. We should do whatever we can to give policyholders the most convenient path to having adequate cover.
Missing from forecast
Neither the General Accident nor the British Caribbean executive mentioned climate change in their 2025 market forecasts. It was, however, clear that they recognised that their businesses are being affected directly by the threats.
They understand that the actions of their reinsurance advisers and providers were being driven by information and perceptions about the nature of the crisis that climate change poses to small island developing states like Jamaica and the extent to which strategies are being developed and implemented locally to adapt to the challenges and build resilience.
- 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
English (US) ·