Cedric Stephens | Gloomy outlook for prices, availability of home insurance | Company

AM Best, the world’s largest credit rating agency, specializes in the insurance industry.

A rating agency assesses credit risk and assigns ratings to individuals, entities and even countries. Local banks, for example, use the ratings to make pricing decisions on loans. Debts incurred by governments around the world are also noted.

Better grades mean lower interest rates. Poor grades lead to higher rates.

In more developed economies, insurance buyers use financial strength ratings from companies like AM Best to make insurance decisions. Higher ratings indicate financial strength and claims-paying ability.

Insurers with higher ratings are deemed to be better able to meet policyholder obligations and pay claims than companies with lower or zero ratings. British Caribbean Insurance Company, a locally registered insurer, recently revealed that it had been awarded an AM Best or FSR financial strength rating of ‘B++ (good)’. Only three of the 19 locally registered insurers are eligible for global ratings. BCIC’s achievements are significant.

Local, regional and global insurers select the reinsurance companies they do business with based on the FSRs assigned by international rating agencies.

Jamaica Broilers Group President and CEO Christopher Levy according to Wednesday’s report Gleaner, “warned that Jamaica should brace for further economic fallout.” US sources had alerted him to “imminent and larger economic shocks as food supply chains are disrupted and prices soar,” the article read.

These shocks will not be limited to food suppliers. A few weeks earlier, the president of the Jamaica Insurance Association, Sharon Donaldson, had indicated that “insurance (property) rates could increase due to a new prioritization of reinsurance funds”. This statement means, in plain language, that “some reinsurers may turn away from Jamaican and regional markets.”

Insurers here and abroad need foreign reinsurance to provide protection to policyholders.

The bleak outlook for the food supply chain also applies to the cost and supply of reinsurance and insurance, other insurance experts say. The developments currently taking place in the insurance market in Florida, for example, will spread to Jamaica and the rest of the Caribbean.

Reinsurers consider the risks in the Caribbean and Florida to be similar. Some Florida insurers heavily reliant on reinsurance — like local and regional insurers — are facing an “existential challenge.” This is AM Best’s opinion. The rating agency believes, according to another industry source, “that despite property insurance reforms recently passed by the Florida legislature to improve the availability of insurance there, carriers will continue to face to short-term financial difficulties” and that the reforms “won’t make a huge difference as reinsurance companies have become risk averse in Florida”.

Some reinsurers are already leaving the Florida market. These actions will reduce the supply of reinsurance to insurers in the Caribbean and higher prices for consumers. Moreover, regional governments do not have the financial resources to mitigate the impacts on consumers and insurers. Forecasts for the Florida insurance market are bleak: “There is an existential threat to this market from the cost and availability of reinsurance and it is likely to persist,” the rating agency said. The same goes for the Caribbean insurance market.

Other experts agree with AM Best. Aon, a global insurance broker, specializing in the insurance and reinsurance industries and whose clients include Caribbean insurers, released information at the recently concluded meeting of the Caribbean Insurance Association which was held last month. Inflation, social and economic factors, climate change, rising claims costs due to more frequent and severe losses, and supply chain disruptions reduce reinsurance availability and drive up costs .

They said other trends are emerging, including:

• Reinsurers have started to incorporate the five factors listed above into their business and pricing models;

• Reinsurers are reassessing their exposure in the Caribbean zone (particularly in the northern islands);

• Jamaica is identified as “problematic”;

• Eight reinsurers have indicated that they plan to withdraw from the local market or reduce their reinsurance capacity;

• This significant deficit in reinsurance capacity reflects what happened in the post-September 11 period; and

• European traditional reinsurers have declared that they do not plan to allocate additional reinsurance capacity to fill the gap.

Aon recommended that insurers impose immediate price increases on property insurance rates. Meanwhile, in Florida, news reports suggest thousands of citizens are facing the prospect of being let down by their insurers, struggling to find alternative coverage and skyrocketing insurance costs, sometimes by around 100% during the 2022 hurricane season. The situation in Florida and the Caribbean would be part of a global trend.

Greenberg Traurig, a law firm with deep roots in the US insurance industry, wrote an article in April in the South Florida Business Journall, which concluded, “The insurance market in Florida will continue to deteriorate and potentially threaten the state’s continued economic growth. Many Floridians are already struggling to afford home insurance. Higher rates and few insurance choices could discourage homeownership and drive away new residents. All of this is hardly a rosy prospect for Florida to ponder, as we all continue to hope that the 2022 hurricane season won’t deal a big blow to the Sunshine State with far-reaching consequences.

Jamaica and the rest of the Caribbean are unlikely to be immune to this developing problem.

– Cedric E. Stephens provides independent information and advice on risk and insurance management. For free information or advice write to: [email protected] or [email protected]

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