Insurance instalments queried

Some Cayman Islands residents are finding it difficult to pay for insurance coverage up front and in full.

The problem: most insurance premiums have at least doubled in the aftermath of Hurricane Ivan.

Leader of the Opposition Kurt Tibbetts said some residents can no longer find the two per cent or more of the insured value of their homes to pay up front for insurance.

Mr. Tibbetts, speaking at the Chamber of Commerce Luncheon last week, asked if insurance companies could work with the insured in making arrangements for premiums to be paid over time.

Insurance companies are apparently willing to help facilitate the paying of premiums in instalments; however they would expect their additional costs in doing so to be paid for.

Mr. Tibbetts argued that collecting premium payments on a monthly basis from all of the policies would give the same cash flow over the course of a year as collecting the whole amount up front over the course of the same year.

In an interview this week, Cayman Islands Insurance Association president Danny Scott said Mr. Tibbetts’ idea was impractical because during the first year of accepting monthly payments, only about one-half of the premiums would be collected.

‘It would be a disaster for insurance companies,’ he said. ‘You’d make it up in the future, but somebody has to finance the other half of the premiums during the first year. It’s a nice idea, but it won’t work.’

Mr. Scott said his company, Cayman General Insurance, was trying to help its customers with premium financing.

‘We’re currently working on some creative ways of addressing the problem,’ he said. He could not provide any details.

Island Heritage is also working on a plan whereby customers could, with a payment of 25 per cent of the premium down, spread out the remainder over the subsequent nine months.

Island Heritage marketing manager Nigel Twohey said there is definitely a need to offer some sort of premium financing now.

‘Before Ivan, premiums were low enough, and people here had enough income that we never needed to,’ he said. ‘But now, insurance is going to be a much bigger chunk of the budget.’

Island Heritage colleague Rob Stewart said the interest rates for the financed premiums are being worked out.

‘I would think the rates will be no more than the banks would offer,’ Mr. Stewart said. ‘Our aim is to keep insurance rates as low as possible.’

Mr Stewart said that premium financing was not a way for insurance companies to make more money, and in fact, all they want to do is cover their costs.

He said it will increase their costs, particularly administratively, because instead of only one payment, a staff member would now have to log 10 payments.

‘And that doesn’t even take into consideration the administration costs for debt collection, bad debt and policy cancellation,’ he said.

Policy cancellation as a result of non-payment is another cost of providing premium financing, Mr. Stewart said.

Because insurance companies have to pay their re-insurers up front, when a policyholder defaults, the insurance company must absorb the loss.

With the added costs and risks, some insurance companies say banks or other financial institutions are better suited to handle the premium financing process, something with which Brett Hill, president of Fidelity Bank, agrees.

‘Insurance companies are not lending institutions,’ he said. ‘They are not set up to do that kind of business.’

Fidelity Bank has already had a service in place to finance insurance premiums for customers of sister company Fidelity Insurance, Mr. Hill said.

Until recently, there had not been a big demand for the service, something which is changing rapidly.

‘Fidelity Bank offers three-month financing of home, auto or contents insurance premiums of more than $1,000, and nine-month financing with premiums over $2,500.

Mr. Hill said the bank did not make a lot of money on the financing, especially in light of the risks involved.

Another company, Financial Integrated Services, plans to offer premium financing for a maximum of six months, according to Oswell Rankin of the company.

Mr. Rankine said his company was trying to work out the best rates possible for consumers before launching the service.

Although Financial Integrated Services will particularly cater to insured people who have banks loans, Mr. Rankine said it would be try to accommodate others. ‘We want to work with people,’ he said. ‘We are prepared to help.’

Another entity that is prepared to help clear the way for the financing of insurance payments is the Cayman Islands Monetary Authority, which said in a written statement this week that its mandate does not involve the regulation of the collection of premiums by insurance companies

‘The Authority would however be interested in facilitating any arrangements with respect to the payment of premiums that would ease the burden on policyholders to the extent that these arrangements fall within the consideration of our regulatory oversight of the financial soundness of licensed insurers,’ it said.