Sharon Donaldson, vice-president general of the Insurance Association of Jamaica (IAJ) and managing director of General Accident Insurance Company, has confirmed rising worries among local insurers as global wildfires and floods reap a heavy toll on properties across the world.

Donaldson told the Jamaica Observer that already the impact of the unfolding natural disasters was being felt.

She stated, “The Jamaican and indeed the Caribbean property insurance markets (many Jamaican companies now operate in the Caribbean) are already being affected by rising re-insurance rates and the lowered risk appetite of reinsurers, due to a number of factors including the weather impacts of the climate crisis.”

Reinsurers, when hit by large claims, usually increase their pricing which in turn forces local insurers to hike premiums.

Donaldson explained that annual re-insurance renewal negotiations for local companies have become increasingly difficult over the last few years and there is significant upward pressure on premiums.

She stated, “Given Jamaica’s susceptibility to both hurricanes and earthquakes, this trend is likely to continue.”

Donaldson pointed to an opinion issued by global re-insurance giant Swiss Re which has forecast continued rate hardening for the insurance and re-insurance market right the way through 2022, with re-insurers reduced risk appetites due to numerous factors the main driver of rising prices.

In an interview carried on artemis.bm, Swiss Re said, “We expect re-insurance rate hardening to continue through next year,” pointing out also that the tightening of capacity is largely the result of lower risk appetite by re-insurers rather than a shortage of capital.

Swiss Re said that uncertainty from social inflation, natural catastrophe losses and pandemic-related losses have reduced risk appetite adding, “Macro risks to re-insurers’ balance sheets are high, with rising inflation and interest rate risks.”

Notably rates across much of insurance and re-insurance have been hardening since 2018, with rate hikes evident as contracts were renewed in January 2021.

On July 22, 2021, insurance data source Aon reported that insured losses from natural disasters reached US$42 billion in the first half of 2021. The findings come in the wake of floods that hit western Germany, killing at least 170 people. Flooding also resulted in the deaths of 12 people in the Chinese city of Zhengzhou.

Historical Aon data show that the highest insured losses in the 21st century occurred in 2017 at US $161 billion and 2011 at US$160 billion. The latter was the year the tsunami struck Japan, resulting in the Fukushima disaster, where total economic losses reached US$557 billion.

Donaldson, the IAJ VP, is of the opinion that the novel coronavirus pandemic has worsened the uncertainty in international insurance markets, as re-insurers grapple with the scale of business interruption losses.

She expressed the concern that property owners themselves can do more to increase protection.

Donaldson stated, “Property owners in the Caribbean must understand that while insurance is an important mechanism for protection of their assets, it is not the only one.

“There are many other ways to mitigate the risk of weather disasters, such as avoiding building in flood plains, ensuring generous setbacks from the coast, and adherence to building codes.”

The VP stated that, given that the world is entering a new normal of more severe and possibly more frequent damage from storms, fires, floods and hurricanes, additional ways of managing these risks are urgently needed.

The insurance expert said there are encouraging examples of “innovative risk transfer mechanisms,” such as the Government of Jamaica’s recent announcement of the World Bank-priced US$185 million Catastrophe Bond, which will respond to property damage caused by named storms during three Atlantic hurricane seasons up to December 2023, as well as the 2014 Caribbean Catastrophe Risk Insurance Facility.