CONSUMERS are set to face an increase in loan payments and insurance premiums as interest rates rise on lending products and the general insurance industry is left with reduced reinsurance capacity.

The Bank of Jamaica (BOJ) increased its policy rate from 2.50 per cent to 7.00 per cent in 2022 to combat inflation, which has pushed variable-rate loans higher. New loans have attracted higher rates.

In December, deposit taking institutions (DTIs) sent notices to customers that higher loan rates are set to take effect during the first quarter of 2023.

“We have given our existing customers notice that, effective February 1, 2023, there will be an increased interest rate of 100 bps (1 per cent) for some categories of existing mortgages. Yes, the increase in rates for existing customers will affect some categories of existing mortgages from both the building society and the branch network,” Scotiabank told the Jamaica Observer in an email response to queries about interest rate movement on consumer loans.

Scotiabank also noted that on November 1 it increased the interest rate on new mortgages and auto loans by 50 basis points. The interest rate on unsecured loans went up by 200 basis points on that date as well.

“Interest rate increases are a result of prevailing market and macroeconomic conditions. Scotiabank will also be raising interest rates on deposit accounts early next year,” the financial group added in its response.

Meanwhile, the National Commercial Bank (NCB), the country’s largest commercial bank, is also implementing a second round of rate hikes on variable rate loans in seven months.

“Given that the BOJ’s policy rate has increased by a further 100 basis points since September 2022, we have had to make adjustments to the existing variable rate loans to personal and SME (small and medium-sized enterprise) customers, who will see an average increase of 97 basis points taking effect on February 1, 2023. Similarly, interest rates on all new loans (including auto, mortgages and unsecured) acquired since October 1, 2022 were increased by an average of 15 basis points,” said senior vice president and head of retail banking and customer experience Sheree Martin in response to a Sunday Finance query.

Martin added that fixed deposit rates have increased by over 375 basis points (3.75 per cent) since December 2021 and that interest rates on NCB savings account products would be increasing by an additional 50 basis points on February 1.

Sagicor Bank Jamaica and First Global Bank emailed their customers on the expected increase between 2.00 and 2.50 per cent by February 1. JMMB Bank explained that it was still deciding on a specific interest rate increase on loans for 2023, while JN Bank and CIBC FirstCaribbean International Bank are yet to indicate what moves they will be making on interest rates in 2023.

General insurance spike

While general insurance companies communicated to clients on their specific policy and premium to be paid, several customers have expressed shock at the level of increases for property insurance so far, with quotes up to 50 per cent higher than last year.

Insurers cede certain levels of risk to reinsurers to limit the potential loss on an insurance policy. Property insurance tends to be one of the better-earning segments for general insurance companies despite ceding most of the premium earned to reinsurers. This is due to the commission income earned from brokers and other arrangements.

At an Insurance Association of Jamaica (ICAJ) press conference in December, senior managing director for the Caribbean region at Aon, a London-based financial services firm, Hugh Barbanell, said “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.”

He also added that the reinsurance rates for one Bahamian firm went up by 45 per cent during December’s negotiations.

In an article published on insurancejournal.com, Europe-based reinsurance broker Howden Re said that it was the “hardest property-catastrophe reinsurance market in a generation”.

The broker highlighted that dedicated reinsurance capital has eroded by 16 per cent to US$355 billion, which was one of the largest squeezes since 2008. Hurricane Ian was the second most expensive natural disaster, after hitting Florida as a Category Four storm in September 2022.

The motor vehicle insurance market has not been spared.

There were more than 5,000 vehicular crashes in 2022 with an approximately 485 deaths from 422 collisions, two fewer than 2021. This spike in crashes came at the same time when car parts experienced a spike in prices, which is impacting the cost of claims. The motor insurance segment in Jamaica is one of the most competitive but tends to be a loss-maker for many firms. The executive pointed out that some companies had underwriting ratios above 140 per cent last year, which meant they were losing money in the segment.

This leaves many persons questioning how many regular citizens will cope with the increase in interest rates and insurance premiums. The only way to maintain the same monthly payment for a loan is to extend the tenure — which costs more over the life of the loan. Insurance premiums can be spread out over multiple months or financed via insurance premium financing, but how far can a consumer’s pocket stretch? Will this put access to homeownership out of the way for more dreamers amid a difficult year ahead?