Insurance premiums for businesses in downtown Kingston and across Jamaica could increase following the unrest that gripped the nation over the last three days and caused the closure of many businesses within the corporate area and looting of others downtown Kingston.

This is according to Matthew Pragnell, CEO of CGM Gallagher Group the largest and one of the oldest insurance brokers in the English-speaking Caribbean. CGM Gallagher, which has offices in Jamaica, Barbados, St Vincent, St Lucia and Grenada offers reinsurance services to locally based insurance companies and handles more than US$120 million in premiums.

Pragnell in response to queries from the Business Observer about the possible impact the current unrest may have on the insurance premiums of businesses, particularly those downtown said that given that rates directly correlate with losses and types of losses, they are likely to increase.

“Underwriters will look at the area and say the rates would increase directly correlated to the activities in that area,” Pragnell said.

Business insurance typically covers building and contents from fire, burglary and looting; loss of money on premises and in transit, loss of revenue and or increased cost of working, personal accident, and public and employer’s liability. But Jamaica, unlike other Caribbean countries already attracts a special type of coverage because of the country’s preponderance for civil unrest.

Pragnell said that risks that include civil unrest such as is occurring now in Jamaica are usually covered in standard policies that include a “riots, strikes and civil commotion” clause. This ‘standard’ clause that applies to Jamaican operations are not included in policies in countries such as Barbados, St Vincent and St Lucia, Pragnell said.

“There hasn’t been the same demand,” he noted. As a result, the premiums in Jamaica would be higher, to allow for this extra coverage because businesses in countries like Barbados do not typically require these policies, they are not rated accordingly for risks.

Presently, Jamaica’s cost of insurance is 20 per cent higher than in neighbouring Caribbean countries, such as Barbados.

“There are levels of risk premium that are higher in Jamaica than in Barbados and St Vincent,” Pragnell said. He noted that Jamaica, by virtue of also being in the hurricane belt and on a earthquake faultline would attract higher catastrophe insurance as well. Meanwhile Barbados has not had a hurricane in over 50 years, he said.

With the higher relative cost of insurance in Jamaica when compared regionally, it is no surprise that insurance penetration is also lower in Jamaica. Pragnell said that despite the higher risks, insurance penetration in Jamaica is low when one considers the relative size of the country compared to countries such as Barbados, which is one-eight the size of Jamaica. He said Jamaica currently accounts for about $255 million in property and casualty insurance, while Barbados accounts for $250 million.

Yesterday, the Observer reported that businesses along West Queen’s Street were completely cleared out by looters. Meanwhile businesses downtown have had to be closed indefinitely until the situation there returns to normal.

However the increased instances of looting, burning and the closure of businesses downtown should not dramatically increase the claims on insurance companies because many of the businesses affected do not insure. Pragnell said this is because unlike tangible assets, insurance is ‘invisible’ and some of the buyers are not sufficiently socialised to see insurance as a valid operational expense.

“When you buy insurance you end up with a piece of paper,” he said. “The less sophisticated buyer will look at the piece of paper as something that is taken from disposable income.”

However, as the incidence of unrest spread outside downtown Kingston into areas where local insurance penetration is higher, there is the expectation that there may be an increase in claims for loss from businesses that are insured, said Pragnell.

“As we start getting incidents affecting the commercial districts, I would anticipate the increase in claims on these companies,” Pragnell noted.

Like many who consider the current situation a potential game changer, the CGM CEO also sees the possibility that businesses in Jamaica will come to see insurance as a legitimate business expense. He said this situation should also be a nexus for the way society operates overall.

Despite the unrest, CGM is one of a few companies that opened its doors on Tuesday. Offices at The Towers, 25 Dominica Drive, Kingston were open, even while CGM’s Harbour Street office is closed until further notice.

Pragnell said to mitigate the risks caused by the unrest, its online systems are being routed through its Barbados office at this time, and employees from the downtown office have been redeployed to Dominica Drive in an effort to respond to any requests from business partners.

“CGM Gallagher’s mantra is that at a time like this you have to act as an insurance intermediary, as a risk intermediary. This is the time when we have to prove ourselves,” Pragnell said. “This is not a time for panic, this is a time to be pragmatic,” he added.