Caribbean facing insurance premium hikes in 2023

16th December 2022

Regional insurance companies are warning the Caribbean to brace for insurance premium hikes beginning in 2023.

The issue is being raised by at least three insurance associations including Barbados, Jamaica and Trinidad and Tobago following talks with their reinsurers.

Reinsurance involves local or regional insurance companies having policies with reinsurance companies to reduce the risk associated with large pay-outs from insurance claims by having the reinsurers bear part of the risk.

President of the General Insurance Association of Barbados (GIAB), Randy Graham, said that insurance companies in Barbados and the wider region will have to pay between 15% and 30% more for reinsurance, after the US$55bn in claims paid out by reinsurance companies for damage caused by hurricanes in this year.

“Unfortunately, we are hearing these types of responses from the reinsurers all through the Caribbean. As far up as The Bahamas in the north, right back down to Guyana in the south, the reinsurers are giving us the same type of stories,” said Graham.

Speaking at a press briefing on insurance staged in Jamaica, Senior Managing Director of Reinsurance at AON Brokerage in Florida, Hugh Barbanell said that reinsurers are being faced with increased costs due to greater demands on their global portfolios wrought by catastrophic weather events from Trinidad to South Carolina in the US and even the June 2022 hailstorm in France.

“One large [reinsurance] company from Switzerland is reducing insurance on anything that is excess 20%. 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,” said Barbanell on recent changes to the market, while cautioning that it was a global issue and not just one being faced in the Caribbean.

“Other companies like Everest are sticking to the people they do business with today. They will not do business with any additional companies… Scor is reducing their proportion of business in the Caribbean by about 20% plus large reductions in commission terms,” he added.

“So, what the reinsurers are saying to us is that they have had to pay out over US$55bn in claims from these hurricanes and so some of their inputs have to go up. For insurance companies in the Caribbean, the biggest part of our expenses is buying reinsurance. So, if the reinsurance costs are going up by 15% to 30% in the Caribbean, then a lot of that is going to be a direct expense onto the insurance companies,” lamented GIAB’s Graham.

Similarly, the Association of Trinidad and Tobago Insurance Companies (ATTIC) has said that its member insurance companies are bracing for a hardening reinsurance market, which will result in double-digit increases in their reinsurance costs in 2023, as they pursue discussions with their brokers and reinsurers on renewal terms and capacity for their 2023 programmes.

ATTIC warned that based on current feedback, several Caribbean insurers are facing the combined possibilities of their current reinsurance programmes not being fully supported, hardening of the renewal terms and increases in their costs more than 15% higher than 2022’s. “This will undoubtedly have an adverse impact on the future sustainability and survival of some insurers if they are unable to recover those increased costs,” cautioned the Association.

The fear is that most of the increase in reinsurance cost will be passed on to the end consumer purchasing home, vehicular or other insurance in the form of higher insurance premiums.

“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 to get it because there’s absolutely no capacity,” lamented President of the Insurance Association of Jamaica (IAJ), Sharon Donaldson.

IAJ Director Peter Levy also expressed concern about the profitability of insurance companies. “The insurers are going to 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 rationalised.

However, GIAB President Randy Graham, believes that not all of the increasing costs will be passed on to the consumer—at least in Barbados. “Given the issues of the cost of living in the Caribbean now being so high, we can’t pass on all of that to the clients. We are trying to find ways that are creative to balance it,” said Graham.

AON’s Barbanell called for cooperation within the industry to navigate the choppy waters. “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,” he said.  

With climate change now causing more frequent and powerful natural disasters, there are worries that the coming years will see further hikes to reinsurance costs which could lead to premium increases thereby exacerbating the perennial problem of low insurance penetration in the Caribbean at a time when it is needed most.

Photo by Jungwoo Hong

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