There could be a 15 percent increase in reinsurance costs next year, as the findings of climate change science decreases reinsurers’ appetite for catastrophic risk in this region, Bahamas Insurance Association (BIA) representative Charles Johnson said yesterday during an appearance on Morning Blend Business on Guardian Radio 96.9 FM. He added that catastrophic coverage prices will likely be the highest ever seen in the industry.
Johnson also revealed that at least one reinsurer has completely removed itself from providing catastrophic insurance in the Caribbean market. This has narrowed the pool of reinsurers willing to take on the risk to insure properties in this 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,” said 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 whole modeling concept for pricing is changing, and the frequency of hurricanes and the severity of hurricanes is certainly a major concern, and as a result it’s going to impact price.
“It is anticipated that when insurers go to market, so to speak, at the end of this year for the renewal of their treaties for 2023, we can expect to see in this area, in the Caribbean, at least a 15 percent increase in reinsurance costs.”
How much of that 15 percent increase will be passed down to insurance companies’ policy holders will depend on the decisions made by each individual insurer, Johnson said.
He added that even as costs for insurance are increasing, demand for insurance is also increasing locally. Johnson noted that the rate increases began after Hurricane Dorian caused catastrophic damage to parts of Abaco and Grand Bahama. Inflation and a depressed economy are also affecting insurance costs, he pointed out.
“These factors really put the local insurers and brokers in a predicament in terms of how you pass these costs on the local consumer,” said Johnson.
“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.”