The Cayman Islands Monetary Authority’s post-Ivan report on the domestic insurance industry found mortgage providers played a part in the high levels of under-insurance found after the hurricane.
Mortgage providers often only required their loan amounts, and not the full rebuilding costs, be covered by insurance, the report stated.
‘This approach appears, bearing in mind the high percentage of mortgaged properties on the Islands, to have condoned a significant volume of under-insurance cases.’
Claims made on properties determined to be under-insured led to averaged settlements of less than what home owners expected, which in turn led to dissatisfaction and complaints of unfairness from homeowners.
Mortgages are used to purchase as much as 50 per cent of private property in the Cayman Islands, so mortgage providers are in an ‘excellent position to encourage sum insured adequacy across a significant proportion of the entire housing stock’, the report stated.
CIMA recommended mortgage providers take a more proactive stance in helping make certain properties are insured for their full rebuilding costs in the future.
One possible way suggested in the report for mortgage providers to be more pro-active was to issue statements of guidance to assist those applying for mortgages.
Banks could also ask for more comprehensive valuations for mortgaged properties.
‘Valuation reports are invariably obtained, at no mean cost, by mortgagees as part of the loan underwriting process, and it can be relatively simple and inexpensive for these reports to encompass rebuilding valuations for insurance purposes.’
Fidelity Bank president Brett Hill admitted banks had not been very diligent in the past ensuring mortgagees had adequate coverage, but that changed after Ivan.
‘Everyone is a little older and wiser now,’ he said. ‘All of us have learned a lot from Ivan.’
Mr. Hill said he found the recommendations for banks listed in CIMA’s report reasonable.
‘It’s in everybody’s interest to make sure proper coverage is in place,’ he said.
Regardless, Mr. Hill said Fidelity saw very few cases of under-insurance with its mortgages holders, probably because the company also serves as an insurance broker.
Since many mortgages were linked with policies written in-house, Fidelity was able ensure proper coverage in most cases.
Going into the future, Fidelity now offers a new insurance product that has no under-insurance clause in the policy, Mr. Hill said.
Those policies require rebuilding cost valuations that must be agreed on, and then they are indexed yearly to incorporate rising building costs.
Indexing insurance policies was another recommendation of the CIMA report.
First Caribbean Bank was another mortgage provider that saw few cases of under-insurance with its customers, said president Tom Crawford.
‘We haven’t encountered many problems to be truthful.’
Mr. Crawford said homeowners insurance was a balancing act between high premiums and low coverage.
‘Sometimes it was (a customer’s) choice to be under-insured.’
Mr. Crawford said First Caribbean’s mortgage department sent out standard letters before Ivan that emphasised the importance of having adequate insurance coverage.
He admitted, however, that the consequences of under-insurance ‘may not have been communicated as well as it should’.
Like Mr. Hill, Mr. Crawford believes the banking industry will correct the problems on its own.
‘Everyone is much more aware of the problems that can be encountered now,’ he said. ‘If everyone is not on the same page, they should be. Everyone has learned an expensive lesson.’