THE Insurance Association of Jamaica (IAJ) is advising that the property insurance market is in crisis and homeowners should expect to feel the effects in the coming months.

Speaking at a press conference on Wednesday, IAJ Director Peter Levy said, “We currently are in crisis, but there’s a way through it, but we have to work together.”

Levy was speaking about the predicament of large reinsurers pulling out of the region or deciding not to offer more capacity to insurance companies in the region.

Reinsurance is the practice whereby insurers transfer portions of their risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim.

Capacity in this case refers to the largest amount of reinsurance available from a company or the market in general.

IAJ President Sharon Donaldson admitted, “We are now facing a property insurance market with higher premiums. In addition, persons may not be able to afford insurance they require and in some cases they will not be able get it because there’s absolutely no capacity.”

Levy emphasised that hard days are ahead for insurance companies.

“The insurers are gonna have to struggle. In terms of margin, we’re likely to have increased risks to our balance sheets, higher than we are accustomed to because the cost of transferring that risk has just gone up and the customers are going to have to pay more for insurance and the brokers are going to have to also adjust their expectations as well,” he explained.

When quizzed about what’s causing reinsurers to exit the market, senior managing director for the Caribbean Region at Aon, Hugh Barbanell, said, “Before there was a tonne of supply and it outweighed the demand, you had a bunch of reinsurers hammering over business and giving more competitive terms and looking the other way when rates were not adequate, now that supply has diminished and their capacity is precious and the demand is higher, pricing goes up.”

He continued: “Specifically to Jamaica, you guys are in the headlight a little bit because your rates have not been adequate and reinsurers have been pressuring for the last couple of years to push up rates, but with the market dynamics it just was not happening. There are a few territories we see in the Caribbean with the most difficulty right now, it’s here [Jamaica] and The Bahamas and Turks.”

With that said, the reinsurance expert warned, “It is going to be a difficult 2023, but what I fear is if changes don’t take place in 2023 and reinsurers don’t see the promises materialising, then I think capacity in 2024 is going to be an inconceivable problem.”

As for homeowners in Jamaica, Barbanell said insurance companies have already started to hike rates.

“Those cost will have to be transferred over to the insurer, every company here is going to be getting huge increases by similar reinsurers so everybody is going to have similar impact and those, of course, will have to be passed on. Twenty per cent was the number from last week; that number doesn’t exist anymore. We know of one firm in The Bahamas right now where it went up by 45 per cent,” he stated.

Barbanell explained that the problem is multifaceted and is not only happening in Jamaica. He said, “This is not a Jamaican problem, this is a global thing, a lot of people are having shortfalls. What’s happening in larger economies is the reinsurers will be pushing clients to retain more and keep the risk in house, that’s not feasible here. All the same reinsurers that operate here in Jamaica have exposures in that hailstorm in France and in that hurricane in the US.”

Aside from that he further disclosed, “The strength of the dollar is not helping the situation either because some reinsurers from Europe have locked their capacity into what their 2022 Euro capacity was. So that’s automatically 20 per cent of their participation in this market. In Jamaica, we’re talking about a market that’s growing there’s a lot of buildings going up on every block that I drove by I saw another building and it’s going to need insurance. Also with inflation it’s going to increase the need for more insurance. The fact is that the companies here cannot get that additional capacity at this time, it’s just not in the market. Inflation is also going to be a concern to reinsurers, they’re going to be looking to increase pricing on their coverages because it’s as clear as day that costs are going up.”

With that said, Donaldson believes collaboration is the key to getting through this crisis.

“The economy cannot operate without insurance, business cannot operate without insurance because insurance provides suitable, adequate security for loans and mortgages. It’s not an insurance problem, it is a Jamaican economy problem. We need to find a solution to make sure that it works,” she stated.

In the meantime, Levy maintains that the property insurance market is in a transition.

He said, “We are out of equilibrium. Whatever that new equilibrium point is, it’s likely to be at higher prices than we’ve experienced in the past five or six years for insurance. I think we’re gonna have to just get accustomed to that.”

“It [insurance rates] might never go back to the lowest levels that it’s been at because the world is changing, people are seeing more events hitting the Caribbean and more storms going from Cat 1 to Cat 5 overnight, so I think some of the rate increases will stay forever,” Barbanell commented.

He gave an account of some of the firms which have either pulled out of the Caribbean or are tightening the terms of their offer.

“One of the largest companies in the market, they are keeping their capacity flat, and they do have a little bit of wiggle room, but very little. Most of the times when they speak they have maybe 3 per cent wiggle room. One large company from Switzerland is reducing insurance on anything that is excess 20 per cent, when a loss comes they want to have smaller market share compared to their competitors so that is their first move and also heavy pressure on terms and conditions, reduced shares, and heavy increases on pricing. Other companies like Everest are sticking to the people they do business with today. They will not do business with any additional companies. They do not have the additional capacity to just throw out so they did the logical thing of sticking with the partners they had previously. Scor is reducing their proportion of business in the Caribbean by about 20 per cent plus large reductions in commission terms. R+V is holding capacity to the Euro dollar, which is automatically a 20 per cent reduction. One company is closing in Miami [which means] another contributor to the market is gone, and I don’t have a clear picture yet of Transatlantic. Arch Bermuda, Amlin are reducing proportional capacity and hiking up rates and they are only doing business if they can get other lines of business.”

“This is a bit of a Caribbean issue because as far as reinsurance goes most of the premiums that comes through are all cat-related premiums, so it’s mainly property, and even modem has a cat element, so to get supporting business in the Caribbean is difficult. You have other players that relied on their capacities being renewed. K2 could not renew their capacity so they’re out for now, looking to possibly get some capacity by first quarter, but that’ll be too late for the Januaries, and Solace has not renewed their capacity as of, but we’re still hopeful,” Barbanell continued.

He concluded, “In general, the market is going to have to expect reductions in their commissions, this cannot be done just by the insurance industry. All the players are gonna have to contribute to get pass this point in time. Every door we knocked on it’s a no, and as a broker we have knocked on every single door plus a few doors that I have never even heard of to try to get capacity so the shortfalls a lot of the programmes will have is between 10 to 30 per cent.”