The high cost of insurance: VI @ the crossroads in a high risk region
He also made mention of the 2017 Hurricanes- Irma and Maria- that devastated the Territory. Today marks the six-year anniversary of Hurricane Irma.
Premier Wheatley, who is also the Minister for Climate Change, blamed the big developed countries for their contribution to global warming. However, another effect on the Virgin Islands (VI) and the region of global warming is the issue of insurance.
Residents of the VI have seen their property insurance go to new highs. A local insurance expert noted that it is because of the region where we live, as re-insurance firms worldwide have limited their payout to places like the Caribbean because we are high risk. While the expert noted we should still maintain insurance on our properties, there continues to be an increase in insurance rates because our area is very vulnerable.
We are in a high-risk area
In other words, in the aftermath of extreme weather events, major re-insurers are increasingly no longer offering coverage that homeowners in areas vulnerable to those disasters need most.
According to a September 3, 2023 article in the Washington Post written by Jacob Bogage, he noted that “major insurers say they will cut out damage caused by hurricanes, wind and hail from policies underwriting property along coastlines and in wildfire country,” according to information Mr Bogage obtained from a voluntary survey conducted by the National Association of Insurance Commissioners, a group of state officials who regulate rates and policy forms.
This is certainly bad news for the VI and the region as a whole. The same article noted that “Insurance providers are also more willing to drop existing policies in some locales as they become more vulnerable to natural disasters. Most home insurance coverage are annual terms, so providers are not bound to them for more than one year”.
Another person who was a veteran in regulating the local banking and insurance sector, speaking to our news centre on condition of anonymity, noted: “Insurance Companies' prime objective is profits, not payouts, their preferred mode of action is delay, deny, and don’t pay”. With the addition of climate change making our region high risk, home and property owners are in trouble with the high cost of insurance.
This is not a good development for the region. It begs the question why insure? The same former regulator opined.
What are the government plans to help?
While it is true that there are other home/property risks covered by insurance, the prime risk in this region is storm/hurricane damage. It is also the prime determinant of the exorbitant premiums we pay. If they remove this cover we could see a concomitant reduction in premiums.
The climate change/global warming dangers of the region including the VI are now considered too risky to be insured. Yet again here we are the victims of actions and inactions of the so-called developed world, the prime causes of the problem, something Premier Wheatley touched on briefing yesterday in the HoA.
Escalating premiums will force some homeowners not to cover the risk. For some, it might be possible to go the route of a higher deductible and a lower premium. But in the event of a likely insurable occurrence, that would force the insured to dig deeper in their pockets.
A local and regional strategy is being called for; however, to make matters worse after the Clico debacle (gross mismanagement and weak liquidity regulations caused a collapse of this big regional insurer) there may be no appetite for a regional provider that offers coverage.
To date, we have not heard the Wheatley Administration's policy on how to address this important matter. The portfolio of insurance and banking has been placed under a new Ministry headed by the veteran civil servant, Hon Lorna G. Smith OBE (AL). We await to hear from her on what plans, if any, government has to bring relief to the people in this area.
At the outset, it will be difficult to regulate insurance costs when re-insurers globally say they will cut out damage caused by hurricanes from policies. However, any government of the day must find creative ways to help its people and do for them what they cannot do for themselves.
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33 Responses to “The high cost of insurance: VI @ the crossroads in a high risk region”
Insurance is about sharing of risk, ie, people pooling their resources to share in losses. The larger the pool the less each person has to contribute to share in losses. Insurance companies used the Law of Large numbers to manage exposure and the loss experience. The VI is a small locale with a small population. Consequently, it is my position that insurance will always be costly compared to the cost in larger locales. Insurance is a business and insurers are about turning a profit. As such, losses resulting from the peril of hurricanes can be extensive and costly so the insurance premiums will be high, if available. Some insurance companies in some locales don’t offer coverage for hurricanes. For example, along the Texas Gulf Coast, Texas Windstorm is the insurance of last resort for property owners who cannot get hurricane damage coverage. What is the way forward for the VI and the rest of region?
Moreover, as noted earlier, insurance is the sharing of risk. As such, the region may need to come together to pool its resources to share in the risks and looses. A large pool may benefit both insurers and insuree., ie, one event will not wipe out the insurer and premiums will be lower for insuree. The Caribbean region do have an agency similar to the US’ FEMA, ie, CDEMA ( Caribbean Disaster Emergency Management Agency). Nonetheless, the agency is poorly resourced. As such, the agency needs some working capital to get it set up effectively so as to function effectively as a disaster agency. Member countries may also need to increase their contributions.
If the region were to create an insurance entity of last resort like Texas Windstorm for hurricane disaster, would the BVI incur lower cost? Can CARICOM or OECS lead such an initiative?
Why are the rich expats allowed to own an expensive home and carry NO INSURANCE? There are lots of these home in places like Leverick Bay that are still wrecks after 6 years. Change the Non-Belonger Land Holder laws! Make it manditory to carry insurance that must be used to fix damaged homes. This is a BIG problem that is going to repeat itself.
The truth is that unlike other places we don't have Insurance companies here. We have agents who go out buy insurance and sell to us for a profit. In the past, some of them for decades made millions as they paid out nothing due to the lesser degree of storm hits and damages to the BVI. But now these greedy agents want to return to a higher profit in a short space of time. That is why other places around us in the region are much cheaper.
The problem is that the people we are electing are what you call representatives of special interest groups and not just those for the wider public, especially the small man or business who elect them. We need to cut out the middle man and let Insurance companies come in or regulate these agents who are deceptionally calling themselves companies. Or the Government can create policies that the banks will pay the insurance for their client's loan which the client pays back with the loan. There is a lot these jokers can do.
The adverse impact of hurricanes is looming disaster for the BVI and other regional countries. One aspect of the looming disaster is the high cost, unaffordability, of insurance , along with its unavailability.
Insurance companies primary mission in life is turning a profit. And the payout for damages from major hurricanes is high, resulting in many companies pulling out of a market(s). The need for insurance is high but the providers of insurance sre few and getting fewer.
Moreover, from reading many of the comments, it is clear we need an education on how insurance works. We are treating insurance as just another commodity and it is not. Insurance is about pooling resources to share the risk. The risk is transferred from property, vehicle, medical, casualty, etc, customers to insurance companies. The value of the risk transfer is truly revealed during a claim settlement.
The larger the number of people in an insurance pool the cost can be spread among more people at a lower cost. Further, the larger the pool, the lower the number of payout annually with more profit for companies. They haul in nuff cash and payout little. Let’s imagine if there were a pool with hundred of thousands or millions of people instead of a few thousands. Would the cost per customer go down? Let’s imagine if the region had a hurricane pool which includes members from Guyana in the South, Jamaica in the West, Barbados in the east and Bahamas in the North and also include Bermuda and Belize. Regional unity is eluding the region and its people and there is an opportunity cost for people in the region.