Jamaica could help cut onerous insurance costs with the enactment of the long-awaited building code and more internal research about earthquakes on the island, says Peter Levy.

The British Caribbean Insurance Company (BCIC) managing director said the absence of a building code and indepth research are two factors that have made Jamaica vulnerable to inaccuracies in international catastrophe models used to predict probable losses from an earthquake event in a particular area. These commercial models predict that the island’s Probable Maximum Loss (PML) from a “500-year” earthquake event is in the range of 10 to 15 per cent or $1.1 billion to $1.6 billion of the total values at risk, more than 100 times the earthquake premiums Jamaican insurers collect annually, he said.

“The fact is Jamaica is physically too small to be able to fund its own earthquake risk. There is simply not enough geographical area to satisfy insurance’s need for spread of risk,” said Levy at a recent BCIC-sponsored earthquake symposium with the Office of Disaster Preparedness and Emergency Management.

Given the disparity between the PML and premiums, Levy explained that insurance costs are inevitably high as insurers are forced to spread the risk through coverage from international reinsurance companies that take on risks from all over the world. Over 90 per cent of the premiums that Jamaican insurers collect gets paid over to reinsurers, noted the BCIC boss.

“This keeps the cost of insurance high, which has the undesirable effect of reducing the pool of insured properties, since some property owners choose not to insure, or can’t afford to insure, because of the cost,” said Levy.

“The smaller the pool of insured property, the harder it will be for the country to recover from a catastrophic event,” he noted.

Against this background, he said Jamaica must think about whether the PML of 10 to 15 per cent of total values is accurate, and also what we can do to reduce it.

Levy noted that the fact that Jamaica is still without a legislated building code has a direct effect on the country’s catastrophe exposure, in that the lack of a building code means weaker structures with greater propensity to damage.

He added that, “It also has an indirect effect because the models have no baseline standard. There is uncertainty as to building standards, and predictive models usually react to uncertainty with conservatism.”

The building code that will set out the standard or guideline for the construction of buildings in Jamaica was in its draft stage at the Chief Parliamentary Council up to October 2012.

“There has been talk of enacting a building code for decades. And there is draft legislation that was prepared two years ago. We should pass it, and we should fund its enforcement,” urged Levy.

Noting that Jamaica is too small for commercial modelling companies to spend the time and money required to improve the models here, Levy said the country, as a result, ends up with converted Puerto Rican or South Florida models that are less accurate than we would like. Local, cross-disciplinary research could help combat the problem, he said.

“Geologists, building professionals, insurance companies, government, and all stakeholders have to collaborate on setting out the path of learning about the risks that we face, and funding and carrying out the work that will better inform us about how to deal with these risks,” said Levy.

Further more, he called on insurers to be more data-driven.

“We must be not just receptive to, but in active pursuit of scientific approaches to identifying and measuring risk. The cost of getting it wrong is too high,” he said.

A Mona GeoInformatics Institute study revealed in 2011 that the entire island would feel the effect of a magnitude 7.0 earthquake similar to the one that struck Haiti three years ago. More than 75 per cent of the island would experience shaking serious enough to cause structural damage in buildings, according to the study. Some of the areas of concern, the study revealed, were Portmore, St Catherine; Norman Manley International Airport and downtown Kingston.

JN General Insurance (formerly NEM Insurance) commissioned the studya fter Haiti’s infrastructure was devastated by the quake that struck close to the capital, Port-au-Prince, killing an estimated 300,000 people and left about 1.3 million, of Haiti’s nine million people, homeless. Jamaica shares the same faultine with Haiti — the Plantation Garden – Enriquillo Fault system which stretches from Jamaica to the Domican Republic.