By NEIL HARTNELL
Tribune Business Editor
A leading insurer says the industry "simply cannot keep putting broad brush premium increases" on Bahamian households and businesses because this will create an unsustainable business model.
Tom Duff, Insurance Company of The Bahamas (ICB) general manager, told Tribune Business that individual property and casualty underwriters as well as the entire industry needed to explore the development of an alternative "product" that would provide some degree of hurricane protection and ensure they did not drop coverage altogether.
Acknowledging that the affordability of Bahamian insurance products was being further squeezed by a combination of the COVID-19 pandemic and reinsurance pressure to compensate for hurricane-related losses, Mr Duff said it was imperative to keep premium rates down sufficiently to prevent another Dorian-style situation where up to 50 percent of impacted properties were totally uninsured.
Writing in ICB's recently-released annual report, he said: "The enormous scale of the loss from Dorian has caused insurers to reflect on how the industry can mitigate against future catastrophe event losses.......
"The Bahamian insurance industry cannot simply rely on broad brush increases in policy rates and deductibles as its long-term loss mitigation strategy. Such a strategy will ultimately reduce the pool of customers willing and able to buy catastrophe insurance.
"In order to achieve any increased penetration in the property class, insurers may need to consider becoming more creative in providing cover options for those customers who wish to buy at least some level of catastrophe protection."
Dorian, which devastated Abaco and Grand Bahama last September, is thought to have produced gross insured losses of between $1.5bn-$2bn. However, Mr Duff's comments are among the first from the Bahamian general insurance industry to recognise that consistent premium increases are simply unsustainable amid the job and income losses, and business closures, produced by COVID-19.
Speaking to Tribune Business subsequently, Mr Duff said property owners can opt to take a higher deductible on their policies than the typical two percent to reduce their annual premiums. However, the risk in doing so is that they will have to come up with a larger share of the repair and restoration costs should a hurricane or some other disaster strike.
The ICB chief also revealed that hurricane coverage typically accounts for two-thirds of all Bahamian property insurance premiums, which made the development of a less-costly product offering consumers some storm protection increasingly imperative.
"There are options available to customers, such as taking a larger deductible to reduce their premiums but, at the end of the day, we want to give the customer a product that gives them some level of decent protection," Mr Duff told this newspaper.
"The hurricane component of your overall property premium is about two-thirds. That's a big chunk of change for homeowners to fund, especially in this period of economic depression. It's how we look at that as an industry and come up with a product to give them some cover rather than have them drop coverage altogether.
"This is what we have to look at, individually and collectively, and see what we can do. We don't want another hurricane where 50 percent of people on the island have no insurance. These are the challenges for all of us here," he added.
"The overall challenge presented by COVID-19 is how is this going to affect insurance premiums as the economy gets further and further squeezed. There's the prospect of people having to make tough decisions. We'll do our best to come up with a product for our customers and we have to persuade them they can't go without hurricane cover."
Lenders typically require borrowers whose loans are secured by property mortgages, both business and commercial, to take out full comprehensive hurricane insurance as a condition for advancing the money. When borrowers fail to do so, the lender often steps in and pays the premiums itself, adding the cost to the sum owed on the mortgage.
Mr Duff, meanwhile, said 2020 was proving "definitely the most challenging year by far, no question" of his 25-year tenure with ICB due to the fall-out created by the COVID-19 crisis and lingering impact from Hurricane Dorian.
"The concern for the industry would be the general economy, and where it goes from here," he explained. "Without the tourism income coming into the country, how does that translate into loss of disposable income for many people.
"That would be the challenge for the industry. How do we cope with that, and how will that impact our premium levels. I suspect we won't really know until much later in the year, probably towards the end of the year.
"We've gone through the period when customers were in lockdown, getting back up to speed and dealing with the backlog we had with premiums. That was the first phase of the challenge. The next challenge is what happens in the second half of the year as the economic crisis kicks in in real terms," Mr Duff continued.
"It doesn't look as if there's any quick turnaround in the US. That means in all likelihood we are not going to see any major return of US tourists between now and the end of the year. We can all say that the second half of the year is going to be very difficult economically for the country, and it is going to have some impact on insurance companies for sure."
Mr Duff's prediction was echoed by Bruce Fernie, chairman of ICB, which is the carrier through which J. S. Johnson places much of its property and casualty business. Writing in ICB's 2019 annual report, he warned that COVID-19's impact on The Bahamas will be "huge" at every level.
"Once the immediate health crisis has been averted, government will face the enormous challenge of rebuilding the economy. For the next 18 months or so, Bahamian general insurers will likely be forced to operate in a severely depressed economic environment," Mr Fernie wrote.
"Individuals and businesses may have to confront a new economic reality where disposable income is scarcer than at any time in the recent past. In this new context, the general insurance industry is going to have to work tirelessly to persuade customers of the importance of securing their assets through the purchase of insurance."