Following the significant hike for and paucity of reinsurance coverage, insurance companies in the region are grappling with a troubling dilemma.
With an average increase of up to 40 per cent for property insurance by overseas-based reinsurance companies, many persons may find it difficult to purchase insurance coverage for their homes and businesses, thereby widening the pool of the uninsured and underinsured.
The issue of underinsurance and lack of insurance coverage is already a significant problem in Jamaica, where fewer than 50 per cent of homes are insured and many are underinsured. The increase in reinsurance costs has exacerbated this issue, leaving more people without adequate protection against the effects of climate change, such as increased frequency and intensity of hurricanes, floods, as well as other natural hazards.
The situation is particularly challenging for homeowners and businesses given the importance of insurance coverage to protect against loss and damage during natural hazards. In the event of a major disaster, uninsured or underinsured persons may be left without the means to rebuild or repair their properties, which can have a devastating effect on their lives and livelihoods, setting them back financially for years.
Joseph Holness, Assistant General Manager, Reinsurance and Underwriting, JN General Insurance, explained that extreme and frequent weather-related catastrophes influenced by climate change have been a major contributor to the increased cost of insurance.
He also pointed out that overseas reinsurance providers account for a substantial portion of the risk undertaken by local insurers, thus local insurers have no alternative but to pass on the increased cost of insurance to policyholders.
“The issue of underinsurance and lack of insurance coverage is a significant concern in the region. The insurance industry plays a critical role in mitigating risks, but with the current trend of increased reinsurance rates and reduced reinsurance capacity, it is becoming increasingly challenging for some homeowners and business operators to insure their property thereby increasing their vulnerabilityto catastrophic losses,” Holness explained.
Holness recommends that insurance companies and governments in the region actively collaborate to develop creative solutions to mitigate the lack of insurance to safeguard citizens and businesses from insurable events and the effects of climate change.
The insurer pointed out that although Jamaica does not experience widescale disasters at the frequency of other countries in the region, the price adjustment for insurance by reinsurance companies impacts the country, as the Caribbean region is frequently affected by disasters. Another key factor impacting the increase in premium to the policyholder, that he highlighted, is the increased cost of labour and significant rise in prices for building materials thus escalating the replacement cost of buildings. This is in addition to global inflation and increased interest rates.
“Insurance premiums are based on the cost to restore your business (equipment, machinery, stock, etcetera), home and or contents in the event of a disaster or burglary. Premiums are, therefore, determined based on replacement values, actual and anticipated losses.”
Holness underscored that people should make careful plans regarding the financial management of their properties.
“Your property is valuable; therefore, you should protect it from perils that can damage it. Given the large number of risks that home insurance covers, maintaining insurance is essential. A disaster can happen at any time which could, in minutes, put what you worked so hard to acquire at a loss,” he emphasised.
He recommended that persons who may have difficulty paying the increased insurance premium could consider accessing Insurance Premium Financing (IPF). It is a short-term loan facility, secured by the policy, offered to businesses and individuals to finance insurance premiums. With JN Bank, borrowers have up to nine months to repay and financing is provided within 24 to 48 hours. No processing fee nor collateral is required.