By NEIL HARTNELL
Tribune Business Editor
Bahamian insurers are suffering from Dorian "loss creep" with initial damage assessments having to be revised upwards upon secondary inspections, a top executive said yesterday.
Tom Duff, Insurance Company of The Bahamas (ICB) general manager, told Tribune Business that loss adjusters had been setting "provisional reserves" for property and casualty losses only to discover that the subject buildings were "more severely damaged" when subjected to closer scrutiny.
While fresh claims are still "trickling in" to ICB and other insurers some three months after Dorian devastated Abaco and Grand Bahama, Mr Duff said the Bahamian industry's total insured loss estimate of between $1.5bn to $2bn remained unchanged.
He revealed that ICB's claims volumes were just 60 percent of those incurred for Hurricane Matthew in 2016, but warned that the severity of Dorian's destruction meant the average loss/claim value will be "multiples" of that experienced three years ago.
Mr Duff reiterated that Bahamian homeowners and businesses are facing "double digit" increases in catastrophic premium rates for 2017 as global reinsurers, which cover the bulk of this nation's risk, seek more attractive investment returns and compensation for Dorian's multi-billion dollar losses.
He admitted that such increases had come "at a bad time" for Bahamian consumers given the economy's projected 0.6 percent contraction in 2020, but expressed optimism that persons would see the continued value of purchasing insurance coverage for their properties and other key assets given the extent of Dorian's damage and the struggle of those who were uninsured/underinsured to rebuild.
"The loss still seems to be developing. We're still getting a trickle of claims coming in," Mr Duff told Tribune Business. "I don't know if it has anything to do with homes that are insured by second homeowners or if, initially, a lot of adjusters went to look at properties, set provisional reserves and we're finding down the road that the building was more severely damaged than expected.
"I think there's a bit of loss creep on the go here. The adjusters go out and, at first sight of the property, they're finding it looks OK with the walls and foundation in place. They set the preliminary reserve on initial inspection, but when the secondary inspection takes place they find the foundation of the building has been compromised because water was in there for three days and it has to be condemned.
"This is a problem for a number of the companies. We're looking for the loss to start levelling off, and the $1.5-$2bn estimate for the whole industry is realistic at this time. The claims count is beginning to slow down; we're still getting a trickle, and once we get into January and February we will be in position to have a much clearer estimate of the final cost."
Mr Duff said ICB, the underwriter through which BISX-listed J. S.Johnson places much of its property and casualty business, had seen fewer claims in comparison to 2016's Hurricane Matthew but a much higher average loss.
"I would say the claims numbers are 60 percent of what we saw with Hurricane Matthew," he disclosed. "There's less claims but, in our case, probably more expensive. There are less claims because the impact location was limited to Grand Bahama and Abaco, but the average cost of the claim is significantly higher - multiples of Matthew."
The ICB chief added that the underwriter was currently receiving "mixed messages" from its reinsurers, which meant it was presently unable to give "an entirely clear picture" of the extent of any premium rate rises to its customers.
"We can safely say the increase will be in the double digits right across The Bahamas," Mr Duff told Tribune Business. "Where the final figure falls depends on each carrier getting a consensus from its reinsurance panel. Different companies are looking for different levels, but we have to reach a consensus with that panel.
"In some of the more seriously affected islands of Grand Bahama and Abaco, I imagine the final increase will be higher than New Providence. That's what it's looking like at this time, but we can't firm it up until each of us closes up negotiations with our reinsurance panels."
International reinsurers effectively dictate property and casualty premium prices in the Bahamas because the relatively thin capital bases of local carriers means they are unable to absorb all this nation's multi-billion dollar risks on to their balance sheets. As a result, they have to purchase huge quantities of reinsurance to cover the risks they underwrite.
"It's obvious that the international reinsurers have faced their biggest-ever loss from The Bahamas," Mr Duff explained. "You don't have to be a rocket science to appreciate they are looking for more payback and improvement on terms, from their perspective, to keep them interested in insuring The Bahamas."
He agreed that market capacity, or the willingness of reinsurers to continue covering Bahamas-based risks, will be a concern with some companies likely to "drop out". Mr Duff said: "There's a possibility capacity could be squeezed, but much of this is dependent on how much of a premium increase local insurers can provide reinsurers.
"Reinsurers have to look at this against the backdrop of climate change and the premium levels they need to make a realistic return on investments....That's the biggest challenge we face; whether it's 10 percent, 20 percent, we all have to come with increases that reinsurers consider reasonable."
Mr Duff conceded that premium rate rises will again make insurance affordability a concern, adding: "It may be less of a concern when there is the backdrop of a buoyant economy. As we know, the economy was struggling but starting to catch up and we were seeing some green shoots before the hurricane, but Dorian has set a lot of people back in a big way.
"We're looking at the economy in 2020 being pretty stagnant, so against that backdrop increased rates have come at a bad time for consumers and there will be concerns if they can afford the increase."
Mr Duff said some consumers would be able to take on more of the risk by accepting a higher deductible threshold, thereby lowering their premiums. "We would hope the destruction witnessed over the last few months will reinforce the importance of insuring properly, because we know the level of under-insurance and non-insurance in the affected islands was very high," he added.
"You're talking big numbers. Then there's the human tragedy that follows that. Persons lose their home and there's no insurance. It's a terrible, terrible tragedy. We hope these experiences, and the extent of the destruction, will cause customers to think seriously about insuring their property even at higher rates."