By NEIL HARTNELL
Tribune Business Editor
A top insurer yesterday said its total Matthew claims payout was likely to be 20 per cent less than originally estimated, as it warned that the Bahamas’ hurricane preparedness “cannot be business as usual”.
Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business that the property and casualty insurer’s gross losses would be around $80 million, instead of the initially projected $100 million.
He added, though, that this was no cause for celebration at a national level, as the lower payout reflected reduced levels of catastrophe insurance coverage among Bahamian homeowners and businesses.
With ‘underinsurance’ also impacting claims payouts, Mr Ward said “anecdotal” evidence suggested that the number of homeowners with catastrophe insurance had declined by 20-25 per cent compared to 10-15 years ago.
He added that the consequences of this reduced insurance coverage were that the Bahamian taxpayer, via the Government, was having to borrow and spend increasing sums to repair hurricane damage, further straining the already-weak Public Treasury.
Warning that the Bahamas “cannot put its head in the sand” over this issue, especially with storms predicted to increase in frequency and intensity, Mr Ward called for a public-private partnership (PPP) arrangement to improve access to, and affordability of, catastrophe insurance products.
Revealing that Bahamas First had received around 2,800 Matthew-related claims, Mr Ward told Tribune Business: “Our expectation is that our gross losses before reinsurance recoveries will be around $80 million.
“Originally, we had estimated for Bahamas First on its own [that claims payouts] would be in excess of $100 million, but that number has come down below $100 million to somewhere in the range of $80 million.”
Pinpointing the reasons why Bahamas First’s gross insured loss will end up 20 per cent below estimates, Mr Ward said: “A significant part of that is that, clearly, under-insurance is a big factor yet again.
“There are a number of people who had claims in a scenario where they will be reduced by the averaging because of the under-insurance factor.”
The Bahamas First chief said cost/affordability was the primary reason why many Bahamian homeowners and businesses were choosing to either insure property and businesses for less than their true worth, opting out of buying catastrophe coverage altogether.
The number of persons opting to take such a gamble, especially if they do not have mortgage lenders mandating they take out hurricane protection, has increased in line with the rise in unemployment, and reduction in take-home income, that has persisted since the 2008-2009 recession.
“What has happened is that compared to the number of persons who had catastrophe protection 10-15 years ago, as a percentage of the insured population, that number has gone down,” Mr Ward explained. “The number of insureds compared the potential pool is lower than 10-15 years ago.
“Economics is a major part of it. If you look at the cost of hurricane protection for the average homeowner, in particular, it is a very expensive proposition.
“As a consequence, a lot of people are opting out of taking full coverage because, from their point of view, it is not affordable.”
Mr Ward conceded that it was difficult to determine how many property owners had elected to drop hurricane coverage, as there were other factors “that come into play”.
“But I would say, from an anecdotal perspective, there’s probably 20-25 per cent less participation in the homeowner section, in particular,” the Bahamas First chief told Tribune Business.
“The consequence of that is that it leads to the Government having to effectively contribute much more to the recovery process than would otherwise be the case if those persons had insurance.”
Mr Ward argued that the hurricane recovery process was more “efficient and effective” if it was financed by the insurance industry, rather than Government spending and borrowing, with foreign currency reinsurance inflows also boosting the external reserves.
The Christie administration obtained Parliamentary approval to borrow $150 million to finance relief and rebuilding efforts in Matthew’s wake, including repairs to public buildings and infrastructure.
A portion, though, is being used to fund repairs to private residential homes, with the Category Four storm said to have inflicted around $700 million in damage to the Bahamas. With economic and government revenue losses thrown in, Matthew’s total bill could amount to around $1 billion.
While many are likely to blame Bahamas-based property and casualty underwriters for high insurance premium prices, the reality is that the sector is effectively a ‘price taker’.
Given the relatively thin capital bases of local carriers, they have to purchase huge quantities of reinsurance annually to enable them to underwrite Bahamas-based risks, meaning that consumer premiums are dictated by global reinsurers.
Mr Ward called for talks between the Bahamian insurance industry and relevant government agencies with a view to creating “incentives” for property owners to purchase hurricane coverage.
Suggesting this take on a PPP arrangement, he added that the discussions required extra urgency, given that the Bahamas’ low lying territory made it especially susceptible to hurricanes that are only forecast to increase in frequency and intensity.
“We’re going to see more of these kinds of events, rather than less of them,” Mr Ward told Tribune Business. “We need to start to think differently about how to approach this matter, rather than allow it to be business as usual.
“The reality is that you cannot put your head in the sand. We’ve got to be prepared to deal with this stuff.”
He added: “I think there needs to be a PPP arrangement that facilitates more of these people not in the insurance pool getting back into the pool, as it’s a far more efficient and effective recovery means from both a company and individual perspective.
“There are ways to provide incentives for people to buy insurance, and there is a case to be made... What I would suggest is that there needs to be a discussion between the appropriate government agencies and the insurance industry.
“There are other countries that have come up with products to allow the public to purchase insurance via the mechanism put in place by the PPP arrangement.”
Mr Ward did not identify the potential “incentives” when asked by Tribune Business, but added that Bahamas First had completed “70 per cent plus” of claims payouts to-date.
He also said hurricane preparedness discussions needed to go beyond the insurance industry, and focus on issues such as building permits granted for coastal areas.