By NEIL HARTNELL
Tribune Business Editor
The Bahamas Insurance Association's (BIA) chairman yesterday suggested that the 3 per cent 'premium tax' levied on the industry be used to finance a National Disaster Recovery Fund.
Emmanuel Komolafe told Tribune Business that the increased frequency, and severity, of storms such as Hurricane Irma meant the Bahamas needed to have "a serious conversation on the development of a robust national disaster risk plan".
He suggested that if the Government decided not to make insurance more affordable by eliminating taxes paid by the consumer, then these funds should be segregated from the Consolidated Fund and used to "build up on an annual basis" a Disaster Recovery Fund.
The insurance industry is arguing that by eliminating VAT and the 3 per cent 'premium tax', property and casualty insurance will become more affordable for Bahamian businesses and homeowners, thus making them less reliant on government financial assistance in the aftermath of a hurricane.
And Mr Komolafe also revealed that the BIA was in initial talks with unnamed "multilateral and regulatory agencies on the introduction of microinsurance" - a product "designed to increase insurance penetration and serve the low income as well as small and medium-sized enterprise sector of our society.
Suggesting that both society and the Public Treasury would benefit from "less reliance on government in natural disasters", Mr Komolafe said: "The Government can reduce its costs by reducing taxation on insurance, making it more affordable to people.
"Insurance should be the beneficiary of tax policy to enable people to cover their properties and provide for themselves in the aftermath of storms."
Mr Komolafe said the BIA had already spoken to Deputy Prime Minister K P Turnquest on the issue, especially given that the sector was being subjected to 'double taxation' - with VAT being levied upon the 3 per cent 'premium tax'.
"We will always be in the hurricane zone, so it makes sense to do strategic planning," the BIA chairman added, suggesting that the National Development Plan and Government's finances will "not be sustainable" without financial reserves to cover the cost of hurricanes and other disasters.
Pointing out that the Standard & Poor's (S&P) 'junk' downgrade of the Bahamas had been prompted in part by Hurricane Matthew's impact, Mr Komolafe backed the Government's decision to renew coverage from the Caribbean Catastrophe Risk Insurance Facility (CCRIF).
He added, though, that this needed to be supplemented with private insurance coverage of key infrastructure assets, and suggested that the maximum $35 million payout by CCRIF amounted to "a drop in the bucket" alongside Matthew-type damage of $600-$700 million.
CCRIF is making a collective $15.619 million preliminary payment to Antigua & Barbuda, Anguilla and St Kitts and Nevis due to Hurricane Irma, with the former two set to receive over $6 million apiece - welcome funds, but just a very small portion of the total damage.
Mr Komolafe, meanwhile, said the Bahamian property and casualty industry was "watching very closely" how Irma impacts Florida, as this "will definitely affect rates" in this nation.
Anton Saunders, RoyalStar Assurance's managing director, last week told Tribune Business that property and casualty premiums in this nation could increase by as much as 20-25 per cent depending on the severity of Irma-related damage in Florida.
He explained that the knock-on impact for the Bahamas would come from sharing the same reinsurers as those that cover Florida. Bahamian underwriters buy huge quantities of reinsurance to enable them to cover risks in this nation, meaning that property and casualty premiums in this nation are dictated by reinsurers.
"We have the same reinsurers, so we have to watch and see what happens to Florida to determine what happens with the rates," Mr Komolafe reiterated.
"We're in the middle of hurricane season, and still have a long way to go. The frequency of these storms is not something we're used to. We've dodged a bullet with Irma because it did not hit New Providence like Matthew, but we cannot let our guard down. We have Jose around the corner and the tropics are active.
AccuWeather yesterday predicted that the combined economic cost of Hurricanes Harvey and Irma will be $290 billion, although some financial analysts placed the latter alone at $300 billion. Of that latter sum, they said between $100-$150 billion represented insured losses.
AIR, the worldwide catastrophe modelling firm, yesterday estimated combined Caribbean and US insured losses from Irma to be between $20 billion to $65 billion.
Of that, the US accounted for between $15 billion to $50 billion, with property losses from Hurricane Harvey's losses in Texas pegged at $65-$75 billion.