By NEIL HARTNELL
Tribune Business Editor
Bahamas First's chief executive yesterday said laws making it mandatory for all business and residential property owners to have full catastrophic insurance cover "must be on the table for discussion".
Patrick Ward told Tribune Business he would personally seek to ensure it was on the industry's agenda after the International Monetary Fund (IMF) called for The Bahamas to develop "new approaches" to increasing insurance penetration and prevent the "dire straits" suffered by any homeowners post-Hurricane Dorian.
The Fund, in a statement on its team's visit to The Bahamas last week, said yesterday: "The financial sector appears to have weathered the hurricane well, with limited exposures to uninsured assets. Adequate reinsurance of domestic insurance companies abroad cushioned the impact of the hurricane on the domestic insurance sector.
"However, insurance penetration, in particular in the residential segment, remains low, leaving many homeowners in dire straits. New approaches to extend insurance coverage as part of a broader disaster risk management strategy would increase resilience."
K Peter Turnquest, deputy prime minister, last night told Tribune Business via messaged replies that the Ministry of Finance has "some initiatives" for increasing catastrophic coverage among Bahamian homeowners and businesses that it will soon discuss with the insurance industry.
"The Government recognises the national exposure to climate risk posed by significant exposed and under-insured private sector risk," Mr Turnquest said. "The Ministry of Finance is investigating options to incentivise more insurance uptake in the private sector, and has some initiatives that it will discuss with the insurance sector once finalised." He provided no details.
However, Mr Ward yesterday argued that The Bahamas needed to explore making it a legal requirement for all property owners - business or residential - to have full catastrophe coverage in much the same way that the Road Traffic Act stipulates that all motorists have adequate insurance for their vehicles.
Emphasising that he was voicing a personal view yet to be discussed with the wider Bahamian insurance industry, the Bahamas First chief said Dorian had exposed that just 40-50 percent of properties in the two devastated islands had proper insurance.
This, he added, meant that Bahamian taxpayers were being burdened with greater recovery costs - especially related to private home and business repairs - than they would otherwise have been had the owners "done the responsible thing" and properly insured.
Suggesting that a repeat of this situation would be unsustainable for an already cash-strapped government, Mr Ward said the level of non-insurance and under-insurance uncovered post-Dorian would likely have been even higher but for the presence of Abaco's large second homeowner community.
Noting that these investors were more inclined to insure, he added that legally mandating - and enforcing - the requirement for all property owners to purchase insurance could help reduce premium rates as more properties would "participate in the risk pool".
"That's one of the ideas that has to be on the table for discussion," Mr Ward told Tribune Business of such a proposal. "I'm not being dogmatic in saying it has to be, but it definitely has to be one of the ideas on the table for discussion. I don't know if it will be an industry initiative, but to the extent I can influence the position I would like to see that on the table for discussion.
"We have a precedent for it in place. Everyone driving a motor vehicle has to have insurance by law. There's an acceptance that it's in the public's interest as well as the individual driver's to have insurance in place as it protects the driver of the vehicle as well as innocent third parties. And if everybody has to buy it, it results in a lower cost per person.
"If you have more people buying insurance, it reduces the cost for every taxpayer and results in lower premiums as you have more persons participating in the pool."
Mr Ward said other countries had also made it a legal mandate for property owners to have insurance coverage against natural disasters, pointing to the case of Chile in dealing with earthquakes.
Suggesting that The Bahamas now faced similar risks from ever-stronger and more frequent hurricanes, he added that Chile's move had spread insurance costs over a wider population base while reducing the disaster recovery burden on government.
The Bahamas currently has no all-encompassing legal requirement that property owners must have catastrophe coverage. Banks and other lenders, though, require such insurance to be in place for commercial and residential properties on which mortgages are secured, and will pay the premium themselves if the borrower fails to do so, adding it to the latter's repayment costs with interest.
However, John Rolle, the Central Bank's governor, affirmed earlier this week that just 10 percent of the commercial banking industry's loan exposure is to Grand Bahama and Abaco. This meant that, in most cases, there was no lender pressure to properly insure.
While some may see Mr Ward's call as self-serving in terms of selling more insurance policies, there is little doubt that Dorian's $3.4bn worth of losses and economic damages is a game changer for how The Bahamas and its resident population tackles risk and climate change resiliency.
"There's no question that this is a conversation that needs to take place," the Bahamas First chief told Tribune Business. "It is to take away the cost of recovery from the public sector into the private sector, and to put in plans where people are able to buy insurance.
"I think the estimate is that probably between 40-50 percent of properties, anywhere from four to five out of 10, commercial and residential, were uninsured or underinsured to some extent. It is a bit skewed to the higher end because of the significant number of Abaco second homeowners that tend to buy insurance. If you took that segment out of it, the penetration rate would be even lower.
"That's the issue we need to address," Mr Ward added. "In some cases the problem is affordability, and in some cases persons have chosen not to insure and then rely on the Government for assistance. They're passing the cost on to other taxpayers as opposed to doing the responsible thing and buying insurance when there's a need for it."
While reform ideas are still being "thrown around" informally, he predicted that discussions will intensify in a month's time as the insurance industry gets its final Dorian claims out the way and the Government makes further progress on recovery and restoration efforts.
Tom Duff, Insurance Company of The Bahamas (ICB) general manager, told Tribune Business that the low penetration rates exposed by Dorian were on "the consciousness of the industry" but developing a solution would not be easy.
Revealing that the topic had recently been discussed at a meeting between the insurance industry and Inter-American Development Bank (IDB), Mr Duff said: "I don't think there's anything specific but it's something the Bahamas Insurance Association (BIA) has on its list.
"We'd all like to see greater penetration, but the mechanism of how to achieve that, and the products that would be needed, I can't give you a hard and fast plan. It's something there in the consciousness of the industry.
"We obviously saw the low insurance penetration rate following Dorian, which is unsustainable, and would like to see higher penetration levels, but coming up with a product to give individuals a higher level of coverage needs greater discussion with the industry and the Government, as they may have to be part of the discussion at this point. We're in the infancy of the discussions at this point."
Mr Duff added that Bahamian insurers were "looking at all the different options" for solving low insurance penetration rates, but said any new product or solution would need to be approved by the reinsurers that underwrite the majority of the collective multi-billion dollar risk in this nation.
The ICB chief said Dorian had produced evidence of "substantial non-insurance and very significant under-insurance", and added: "The adjusters' reports coming in provided plenty of evidence of customers being under-insured. That's something that happens with every hurricane event, and is closely linked to the state of the economy."