By NEIL HARTNELL
Tribune Business Editor
The government has “agreed” that property insurance must be mandatory throughout The Bahamas with Dorian-related reinsurance inflows giving the external reserves a $1.3bn boost.
The International Monetary Fund (IMF), in its full 2020 Article IV report, said the Minnis administration had backed its call for all buildings to be insured in the wake of the $3.4bn worth of economic losses and damage that category five Dorian inflicted upon Abaco and Grand Bahama where up to 60 percent of structures lacked proper insurance.
“High private sector losses from hurricanes point to the need to improve physical, financial and social resilience against natural disasters. Accelerating adaptation will require improving public investment management and reprioritising expenditure,” the fund said.
“Continued investment in climate-resilient infrastructure can also buffer the macro-fiscal impact of natural disasters. Mandatory property insurance would be a beneficial addition to the multi-dimensional resilience strategy.”
Revealing the government’s reaction, the IMF said: “They also agreed with staff’s recommendation for mandatory property insurance, and pledged to bring a new law to Parliament in 2021 to mitigate risks associated with natural disasters.”
The affordability of insurance coverage, which has become a major issue due to frequent premium rate increases, has often seen homeowners and businesses either drop or reduce coverage - especially if their property is not subject to a mortgage or other bank lien.
While the government has indicated its interest in developing a scheme that would ensure wider insurance coverage in Dorian’s wake, little progress appears to have been made thus far despite the acknowledgement that it may offer social benefits while removing the hurricane repair cost burden from the Public Treasury.
Suggesting that The Bahamas could draw on catastrophe protection schemes developed by New Zealand and Turkey, the IMF said: “The majority of damage caused by hurricanes to The Bahamas is not covered by insurance. The lack of insurance payouts following a large disaster can hinder reconstruction efforts and slow the economic recovery.....
“Private losses account for most of the damage, while private property insurance is largely optional unless the property is financed by a bank. As a result, about 60 percent of buildings destroyed by Hurricane Dorian in The Bahamas were not insured at all or not adequately insured. Government grants to assist with reconstruction are insufficient and present a significant burden to the public purse.”
Still, reinsurance inflows associated with Hurricane Dorian claims provided a $400m boost to the external reserves last year at a time when this was essential due to the drop-off in tourism inflows. This combined with the receipt of $900m in reinsurance monies in 2019 to provide a $1.3bn boost over two years.
“The current account fell back into deficit following a small surplus in 2019,” the IMF said of The Bahamas in 2020. “Net travel receipts were negative for the first time in the second quarter of 2020.
“Exports contracted more than imports (35 percent versus 17 percent) in the first three quarters relative to 2019, but the remainder of Hurricane Dorian related re-insurance receipts - about $400m compared to $900m in 2019 - helped limit the current account deterioration.”