Climate change, inflation
According to AM Best, consolidated gross premiums among rated Caribbean property and casualty insurers rose by 10.6 per cent in 2021, signalling that the cost of insurance cover will continue to increase in some territories.
Back in June, Charles Johnson of the Bahamas Insurance Association had warned that reinsurance cost could continue on an upward trajectory in 2023 as reinsurers adjust their appetites for catastrophic risk in the region based on the findings of research on climate change.
In an interview on Guardian Radio he also shared that at least one reinsurer has completely removed itself from providing catastrophic insurance in the region.
“Recently there’s been some talk on possible rate increases for property insurance. The rates in The Bahamas and the Caribbean are driven by the reinsurers. They are the wholesalers,” The Nassau Guardian quotes Johnson.
“The local insurance company has very little control over pricing. And what is really driving the concern, as we all know, is really what’s happening with global warming and reinsurers. The way they are beginning to look at the pricing of reinsurance for insurers is based upon the science that is being produced,” the article continues.
Johnson said he expects that when insurance providers in the Caribbean renew their treaties with reinsurers, costs could go up 15 per cent.
But while rates have climbed in The Bahamas, demand for property and casualty coverage has also increased — both subsequent to the catastrophic damage caused by Hurricane Dorian on the islands of Abaco and Grand Bahama in The Bahamas in 2019.
“With supply chain issues, inflation, the cost of goods going up… one should also be considering increasing the insured value of their property. There is certainly a requirement under the conditions of your policy that you insure for the full replacement value, which means that one has to pay close attention to the increase in value,” Johnson advised.
Responding to a query from Ecobuzz on the outlook for the region, Randy Graham, president of the Insurance Association of the Caribbean noted, “The Caribbean is expected to experience a hardening reinsurance market where there may be pressure on the availability of reinsurance capacity. This has been a discussion point in the past, but it seems the situation has hardened even further.
“When reinsurance capacity demand is possibly higher than supply we see increases in the cost of reinsurance. It is still too early to say what the amount of the increase will be because many insurance companies in the Caribbean will not renew their reinsurance treaties until January 1, 2023. When the reinsurance treaties are renewed, companies will have a better sense of the additional cost of their reinsurance programmes,” he continued.
Graham concluded that, “Early indications suggest increases in the reinsurance cost, and then companies will have to make their own internal decisions on how to manage the increased reinsurance cost. The level of increase in reinsurance cost will impact whether rates charged to customers in the Caribbean are impacted.”