Insurer Promises To Tackle ‘Affordability’


Tribune Business Editor


Bahamas First yesterday pledged to work with the next government on a plan to increase insurance “penetration”, and reduce the devastation caused by Bahamians’ inability to afford adequate coverage.

Patrick Ward, the insurer’s president and chief executive, told Tribune Business that Hurricane Matthew had exposed the extent of the Bahamas’ so-called “coverage gap”, meaning Bahamian homeowners and businesses who either had no property or casualty coverage or were under-insured.

He revealed that Bahamas First was currently in talks with reinsurers over the provision of “micro insurance” products, which have proved successful in other countries in terms of making coverage more affordable.

Pledging to work with the next administration on the initiative, Mr Ward said the proposal would “definitely move the needle” on insurance coverage penetration in the Bahamas, provided all parties involved were “committed to the cause”.

Describing the proposal as a public-private partnership (PPP), Mr Ward told this newspaper: “We have engaged in discussions with some reinsurers that are global in their nature, and that have provided micro insurance options in other markets.

“We think there are possibilities that some of these solutions are suited to elements of the Bahamian market.... It will definitely move the needle if implementation is done properly, and the level of take-up depends on how committed stakeholders are to the cause.

“This is a public-private partnership opportunity that might provide a lot of benefit to people who don’t have the means to buy insurance.”

The problem of insurance penetration is especially acute on the Family Islands, where coverage levels tend to fall-off the further they are located from Nassau.

This was exposed by Hurricane Joaquin in October 2015, which devastated the south-eastern Bahamas, leaving more than $105 million in damages in its wake, most of which was either uninsured or inadequately insured.

Similar issues were revealed in Hurricane Matthew’s aftermath, with total damages estimated at $600-$700 million, but the Bahamas Insurance Association (BIA) projecting total gross claims at $400 million.

Around $409 million in gross claims have been submitted, according to the BIA’s latest data, leaving some $200-$300 million worth of damages that have no insurance coverage.

Mr Ward said yesterday: “Our intention, as soon as the new administration is in place, is to engage the Government in discussions to see if we can assist in that regard down the road.

“I think it’s a valid part of the solution. Some of it requires input from government in a variety of different ways.”

He added that the post-Matthew experience, where insurance payouts started flowing quickly to storm-battered New Providence and Grand Bahama claimants, showed the insurance industry was a far better mechanism than the Government for bringing quick financial relief following a disaster.

“There’s no question that the insurance industry is more efficient at bringing a level of relief when there are hurricanes,” Mr Ward said.

“If you look at the claims paid by the insurance industry compared to the money spent by the Government initially, we bring relief to people very quickly. It shows the private sector is more efficient at bringing relief to people following a disaster.”

Insurance affordability has become an increasing problem for Bahamian homeowners and businesses, especially given the tight economy and strained financial circumstances that have, in many cases, persisted since the 2008-2009 recession.

The Bahamas’ location in the hurricane belt means that it is exposed to natural disasters on an annual basis, with each catastrophe bringing with it the possibility of increased premiums as insurers and their global partners seek to recover their losses.

This is exacerbated by the relatively thin capital bases of Bahamian property and casualty insurers, which forces them to buy huge quantities of reinsurance to enable them to underwrite billions of dollars worth of risks.

As a result, it is the reinsurers who ultimately end up determining the premium rates paid by Bahamian homeowners and businesses.

Tribune Business was yesterday told by one homeowner, requesting anonymity, how their insurance premium had more than tripled over the past 14 years, going from just over $1,000 in 2003 to more than $3,000 this year.

Bahamas First’s 2016 annual report acknowledged the affordability problems posed to many by current premium rates, pointing out that the issue was not confined solely to this nation.

It noted that total economic losses from natural catastrophes totalled $150 billion worldwide last year, but just one-third of this sum - some $50 billion - was covered by insurance.

“This gap between total economic losses, which includes both insured and uninsured losses, and those losses that are covered by some form of insurance policy, indicates that there is still a significant gap in coverage requirements on a worldwide basis,” Bahamas First said.

“Our experience with Hurricane Matthew in the Bahamas proved that this coverage gap is very much a feature of the Bahamian market. This coverage gap manifested itself in the form of minor to major degrees of under-insurance, and in more extreme cases there was no insurance protection at all.”

Turning to its proposed solution, Bahamas First said: “There is a fairly well developed understanding of the value of insurance protection in the Bahamas, but the primary reason for the coverage gap is the issue of affordability.

“Regardless of the underlying reason, this situation inevitably leads to a negative customer experience and so we must redouble our efforts, industry wide, to improve the penetration rate to the extent where significantly higher numbers of the insuring public have adequate levels of cover, when needed. There is clearly a business opportunity here, but our success will depend to a large degree on external factors that are largely outside of our control.”


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