• Greater taxpayer burden if more uninsured
• Hikes ‘very concerning’, public policy ‘dilemma’
• RoyalStar absorbs 5-7% of rise in own margins
By NEIL HARTNELL
Tribune Business Editor
Bahamian insurers yesterday warned that “everyone will have to pay” if hurricane coverage becomes increasingly unaffordable with the issue representing a growing public policy “dilemma” for the Government.
Property and casualty underwriters told Tribune Business that an ever-escalating burden will be imposed on the Public Treasury in the aftermath of major storms if growing numbers of homeowners and businesses are unable to afford skyrocketing premium prices for all-perils catastrophe coverage.
This was exposed in Hurricane Dorian’s aftermath, with millions of taxpayer dollars still being spend to effect repairs to thousands of uninsured homes, and senior executives said the industry and government now need to “sit at the table” and explore how they can increase coverage penetration at a time when the Bahamas Insurance Association (BIA) has warned global reinsurers may demand “substantially increased rates” in this nation and wider Caribbean.
Anton Saunders, RoyalStar Assurance’s managing director, told this newspaper that the underwriter had sought to mitigate the 20-30 percent hike in reinsurance rates by absorbing 5-7 percent of the increase itself. However, despite this the company had no choice but to increase its catastrophe insurance rates for property by around 15 percent in 2023.
“We did not pass all of our costs on to our clients,” he explained. “We decided to absorb about 5-7 percent that we are going to eat internally. Our margins are reduced to absorb some of the cost. We encourage all our clients to review their portfolio to see where they can take on more risk themselves if they can afford to do so. They can take on some risk themselves where possible.”
That would come through higher deductibles. Mr Saunders said the magnitude of the 2023 premium increases in The Bahamas was less than for all the other Caribbean territories in which it operates, including the Cayman Islands, British Virgin Islands, US Virgin Islands and Anguilla, as this nation was more appropriately priced for the hurricane risks it faces in the eyes of global reinsurers.
However, Mr Saunders said the extent of premium increases facing Bahamian clients was still “very concerning” as it may affect insurance’s affordability for some. “From the RoyalStar standpoint we are talking about north of 15 percent,” he added of the average rise. “We are very concerned, and we hope that the reinsurers don’t put additional increases on which will then make our policies unaffordable.”
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.
Mr Saunders yesterday said it would be impossible for RoyalStar to remain in business without reinsurance support. “We are not going to put any risks on our books if we do not have reinsurance support. Therein lies he dilemma,” he told this newspaper.
He added that The Bahamas, Florida and Caribbean catastrophe insurance market was unlikely to attract new reinsurance capacity for at least the next two years thus ensuring that this year’s high premium costs will persist in the near-term. And, if Bahamian underwriters had failed to deliver higher premiums for 2023, they would have “an even higher hurdle to overcome next year” when the increased demanded will be even greater.
Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business that a premium increase in 2023 was “almost unavoidable given the current market scenario”. He added: “All of us who have coverage against catastrophe perils are going to see some level of increase.... I don’t see a scenario where clients don’t have an increase at all. That’s just not going to be possible.”
The Bahamas First chief, though, said the magnitude of the increase would vary. Homeowners and businesses with well-maintained properties not near the waterfront, and who have invested in the latest roofs and hurricane-resistant windows, were likely to be viewed as “prime properties” where the rises are smaller.
Agreeing that reinsurance cost pressures will not ease soon, Mr Ward said Bahamas First was confining the rate increases to property coverage. “We realise most clients buy more than one product,” he added. “To the extent we can reduce the bill they pay on an annual basis we’ll try to do so.
“I think it’s [the hike] a major issue but I have to hasten to say at the level they are going up now it’s not going to be the highest level of rate increases we’ve seen in The Bahamas. We’ve seen rates rise by more in the past and, unfortunately, this is part of the business cycle. When reinsurance rates go up we’re obliged to pay pay our share and, if at some point in the future they moderate, we’ll pass the benefits to all.”
Agreeing that catastrophe insurance affordability is becoming a significant policy challenge for the Government, Mr Ward said: “I think it is getting to that point. This is not something that has just emerged as a public policy issue, but it’s developed into a fairly substantial one over a number of years.
“The reason is that when persons, unfortunately, don’t have insurance to recover from a hurricane inevitably they’re going to look to the Government for assistance to get back on their feet. That effectively means everybody will have to pay because the Government gets its income from taxes. To the extent we have less and less people buying insurance, it becomes a bigger and bigger public policy issue.
“There are ways to mitigate the impact on the state, but it’s going to take political will and looking at the options available and making some choices about the way forward. Some of the options available a few years ago have changed because of climate change and the severity of storms, but there are options that can be pursued.”
Mr Ward declined to detail what those “options” are, but added: “The sooner we come up with solutions the better we are going forward. The more we kick the can down the road, the more acute the problem is likely to be.”
RoyalStar’s Mr Saunders agreed, suggesting that the Government and Bahamian insurance industry need to “sit down and see what strategies” the two sides can come up with through a frank exchange of views. He warned that reinsurance market conditions are “not going to change tomorrow”, implying that homeowners and businesses must brace for elevated premiums for some years to come.