The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian households and businesses were yesterday warned insurance premiums could increase “across the board” by 15-20 percent this year as underwriters pull back from covering waterfront and Family Island risks.

Brokers spoken to by Tribune Business confirmed that The Bahamas faces “a hard market” for hurricane insurance and other property and casualty-related coverage as global reinsurers adjust to the multi-billion dollar losses inflicted by Hurricane Dorian and similar storms throughout Florida and the Caribbean in recent years.

The increases, which the Bahamian insurance industry has little control over, will add another element to the cost of living crisis sparked by multiple price rises across virtually all economic sectors. And they will make it increasingly difficult for homeowners and businesses to afford to fully insure their properties - likely among their most valuable assets - despite the growing threat posed by more frequent and severe storms.

The Bahamas Insurance Association (BIA), in a statement confirming the premium increases that were forecast by multiple Tribune Business reports last year, said local underwriters such as Bahamas First, RoyalStar Assurance and Security & General have “seen a dramatic increase in their reinsurance costs of 20 percent to 30 percent for 2023”.

It explained that this cost increase will have to at least partially be passed on to Bahamian homeowners and businesses via higher insurance premiums for 2023, and warned that “some persons may find that they may have difficulty obtaining catastrophe insurance protection due to the shortage in capacity”.

The BIA asserted that the local industry has no control over reinsurance prices that local property and casualty underwriters must pay. These increases have been driven by the greater risk associated with insuring Caribbean assets, and the desire of global reinsurers to recover multi-billion dollar losses, sustained from recent hurricanes that have struck The Bahamas, Florida and the wider Caribbean in recent years.

Some reinsurers have also decided to exit this region as a result, cutting the supply of reinsurance and further driving up prices. Bahamian property and casualty underwriters must acquire huge amounts of reinsurance annually because their relatively thin capital bases mean they cannot cover the multi-billion dollar assets at risk in this nation, thus making the local industry a price taker.

Spelling out the consequences for Bahamian consumers, Guilden Gilbert, a principal with Chandler Gilbert Insurance Associates, told Tribune Business: “We knew it was coming. We’ve seen fairly significant rate increases across the board; property, professional liability, yacht and marine coverage. It’s an overall hardening of the market with the storms that hit south Florida.

“Pretty much what happens in Florida affects The Bahamas. Because we’re so close to Florida the reinsurers look at it as as one book of business.” Asked how much premiums for Bahamian homeowners and businesses are likely to increase in 2023, Mr Gilbert replied: “It’s probably going to be between 15-20 percent. That’s where we are. We’re in a hardening market. In a hard market you get rate increases.”

Bruce Ferguson, the Bahamas Insurance Brokers Association’s (BIBA) newly-elected president, said pricing pressures and capacity shortages had first shown themselves in The Bahamas towards the end of 2022. “This has been going on for a few months now,” he told this newspaper. 

“Last year, a couple of insurers said in October that they couldn’t write any new catastrophe cover for the rest of 2022. One said they couldn’t write anything in the Family Islands, and the other said they couldn’t write anything full stop. One company [underwriter] we deal with raised their rates in November by 10 percent as a temporary measure. They’ve been edging up. They didn’t exactly tell us by how much, but looking at it it’s around 10 percent on catastrophe cover.

“Another one went up pretty much across the board from January 1 to 15 percent, and probably there’s another company where reinsurance arrangements are different from everyone else. From the end of January/February 1 they are pretty much expected to follow suit.”

Hurricane Ian, which struck south-west Florida last year, is estimated to have been the second most expensive storm in history with costs pegged at between $50bn to $60bn, making it second only to 2005’s Hurricane Katrina. Mr Ferguson agreed with Mr Gilbert that reinsurers tend to “lump” The Bahamas in with south Florida, and treat the two as one market, but disagreed that all lines of insurance coverage have been impacted.

He said the likes of motor insurance, and contractors’ all-risk coverage, have either held their premium costs or increased by 1-2 percent at most. “It’s not all doom and gloom. It’s not over the whole spectrum by any means,” Mr Ferguson added.

However, he warned that properties “within 200 feet” of the sea and those located in the Family Islands, where building codes are less strictly enforced, could struggle to obtain the necessary coverage amid the tougher market conditions. “Insurers are looking very carefully, particularly this year, and it started last year, at properties near the sea,” the BIBA president warned.

“We had the first brokers’ meeting of the year last Thursday and we discussed the lack of capacity and difficulty in placing certain risks. Anything within a few hundred feet of the sea, it’s very difficult to place that. That’s a premium premium, and a higher deductible. They’re not only increasing rates, reinsurers and insurers, they’re also imposing stricter terms of coverage. It’s a double edged-sword.

“At my company, we deal with three main insurers. One was adamant that it will not insure anything within 200 feet of the sea; it’s a ‘no no’. Another company we deal with has a huge problem with the Family Islands.”

Mr Ferguson said a 20-30 percent increase in reinsurance costs “sounds drastic’, but paled in comparison to Florida where homeowners had seen premiums increase by between 40-60 percent and even double in Ian’s aftermath. He agreed that the premium hikes were “out of our control”, due to The Bahamas’ dependence on global reinsurers, but said local brokers will be hoping to keep any increase for their clients below 15-20 percent depending on property location and claims history.

Acknowledging concerns that all-perils hurricane and catastrophe insurance is becoming increasingly unaffordable for a growing percentage of the Bahamian market, Mr Ferguson said he nevertheless does not anticipate a “drastic” increase in persons electing to go without insurance or under-insure. Homeowners and businesses who have mortgages secured on their properties are mandated to fully insure by the loan’s terms, and cannot drop coverage.

“I don’t think it will drop-off drastically,” Mr Ferguson said. “I think that over the years a lot of people dropped hurricane cover because of the economy, because of rate increases, and I think a lot of people thinking about dropping it will have probably done it.

“No doubt it has become an issue. But I think Hurricane Dorian emphasised to many people that you can get the big one. No matter how remote a hurricane may seem, it’s worth having the conversation for peace of mind every year and biting the bullet.”

The BIA, in its statement, said global reinsurers suffered $120bn in losses during 2022 - a sum almost 50 percent higher than the historical ten-year average of $81 billion. Without reinsurance support, Bahamian underwriters would have been unable to pay the more than $2bn in 2019 to settle losses arising from Hurricane Dorian.

“These increased losses, and the potential of increased catastrophe losses in the future, have resulted in many reinsurers who provide protection to insurance companies withdrawing from the region, therefore leading to a shortage in available reinsurance capacity. Those reinsurers who have remained in the region have applied significant rate increases for the protection they provide to cover the risk of catastrophes,” the BIA added.

“Insurance companies in The Bahamas cannot operate without substantial amounts of reinsurance and, therefore, are highly sensitive to the movement in the price of reinsurance. Given the recent catastrophe losses and withdrawal of reinsurance capacity from The Bahamas, it is no surprise that Bahamian property and casualty insurers have seen a dramatic increase in their reinsurance costs of 20 percent to 30 percent for 2023.

“In view of this, buyers of property and casualty insurance in The Bahamas will see increases in their premiums during 2023, and some persons may find that they may have difficulty obtaining catastrophe insurance protection, due to the shortage in capacity.”

The BIA pledged “that every effort has been made to minimise these increases”. It added: “Unfortunately, the increase in premiums is due to the current reinsurance market conditions, of which local insurance companies have minimal control.

“In fact, some international observers warn that unless regional companies can substantially increase rates, the reinsurance cover needed to protect companies from natural catastrophes will become increasingly difficult to obtain. Local companies must now balance the demand for higher prices by their reinsurance partners in order to continue to support this market with the objective of providing their policyholders with the best available insurance protection.”