By NEIL HARTNELL
Tribune Business Editor
UP to 40 per cent of Bahamian policyholders are opting to either drop hurricane coverage or take on higher deductibles, with property and casualty premiums yesterday said to have reached “a tipping point” for many.
Tim Ingraham, Summit Insurance Company’s president, told Tribune Business that the anemic economic climate and stagnant incomes were encouraging many home and business owners to absorb more risk when it came to covering their properties.
He added that the existence of such pressures was one reason why the insurance industry had pushed so hard not to levy Value-Added Tax (VAT) on property and casualty premiums, as this further deterred consumers from taking out coverage already perceived as high-cost.
Mr Ingraham suggested the VAT policy towards general insurance had ultimately been counter-productive, as the resulting increase in under-insurance and non-insurance meant a rise in the number of persons seeking government assistance in Hurricane Matthew’s aftermath.
Acknowledging that under-insurance was “a continuing problem”, with Bahamians frequently failing to ensure the sum insured is adequate, the Summit chief said non-insurance “probably showed up a little higher than we thought” following Matthew’s passage through this nation in early October 2016.
“The losses in New Providence were a bit lower than most companies anticipated,” Mr Ingraham told Tribune Business, suggesting this reflected reduced hurricane insurance penetration among consumers.
“Part of that is because of the economy. One of the things we pushed back on with the Government was not to implement VAT on insurance, as the increased cost of protection deters people from taking it out. And that increases the burden on the Government.
“I think that’s what happened here [with Matthew]. There’s a lot more people seeking Government’s assistance than in the past. The price has reached a tipping point, with people deciding not to purchase, purchase with no hurricane coverage or purchase with higher deductibles.”
Mr Ingraham said all Bahamian property and casualty insurers, not just Summit, were seeing the effects of such consumer decisions on their portfolios.
“With most companies, you’d probably find 20-30 per cent of the book not including hurricane coverage,” he told Tribune Business, “and another 20-30 per cent wanting higher than the standard 2 per cent deductible because they want to take more of the risk themselves.
“My guess would be 30-40 per cent with either no hurricane coverage or higher than the standard deductible.”
Mr Ingraham warned that property and casualty premium rates were set to increase for some clients, especially those who had suffered losses and made claims as a result of Matthew, in 2017.
With Summit and other carriers purchasing significant quantities of reinsurance annually to help cover the Bahamas-based risks they underwrite, reinsurers typically dictate prices in this nation. And, as reinsurers seek to recover Matthew-related payouts, the demand for price increases is extremely hard to resist.
“A lot of what we do is driven by reinsurance protection, and the cost of that,” Mr Ingraham explained. “That will have increased because of the cost of the storm last year, so some clients - not necessarily all, but quite a few - will see some kind of an increase.
“The amount will vary from company to company. If there’s no increase to the original rates, the margins of the [Bahamian] company get squeezed.”
Mr Ingraham estimated that Bahamian home and business owners could see up to a 5 per cent premium rate increase, with those most impacted residing “primarily where the losses occurred”.
“Persons sustaining losses are more likely to see that,” he added.
Summit, in common with virtually all rival Bahamian property and casualty underwriters, saw its top-line income drop year-over-year for 2016, with gross written premiums declining by 11.3 per cent to $29.003 million from $32.694 million.
Mr Ingraham attributed the decline to the tepid economic climate and increased competition, which has seen at least two Caribbean insurers enter the Bahamian market over the past five years.
“That’s still an issue,” he agreed of the top-line decline. “There are various reasons for it, but there’s virtually no growth in the economy and persons are opting to not purchase or reduce insurance coverage.
“The pie is not growing, and we’ve had one or two players entering in recent years looking for market share, so there’s competitive pressures.”
Mr Ingraham said the battle for market share, and top-line growth, would be one of the key themes for Summit and its competitors in 2017.
“I think that maintaining any kind of reasonable margin on our rates will be one significant thing,” he told Tribune Business. “And trying to get any real organic growth in this economy is going to be extremely difficult. These are two of the bigger things we’re looking at now that we have to resolve.”