Recent changes in catastrophe models and higher accident awards are leading to higher priced reinsurance rates, which are in turn leading to rising property and automobile insurance rates in the Cayman Islands.
While industry analysts predict the coming reinsurance capacity crunch to affect disaster-prone areas globally, Cayman is already experiencing the effects.
‘We’re seeing prices going up week to week,’ said Bryan Murphy managing director of Island Heritage Insurance. ‘In Florida, we’ve seen increases of 400 per cent, which is not good news for anybody.’
Insurers and reinsurers will be forced to trim exposures or come up with more capital this year, an analysis released by GE Insurance Solutions recently reported.
Mr. Murphy said the insurance situation is ‘not a happy picture in the Caribbean.’
Due to the unprecedented losses caused by the combined effects of Hurricanes Ivan, Katrina, Rita and Wilma, which created $1 billion in losses, Mr. Murphy said rates will continue to go up.
Mr. Murphy said the full effects will not be felt until the beginning of next year when insurance companies renew their reinsurance contracts.
‘Ivan showed that reinsurance needs to be really secure on one hand. But no industry can absorb the billion dollar amount we lost in the last year without taking strong action.’
Mr. Murphy says the Cayman industry will never recover its Hurricane Ivan costs, which are compounded by the costs of other losses in the region.
‘Insurance companies will be in a tough situation for the next few years, as there is very little margin for further increases in Cayman,’ he said. ‘Further rate increases will margin on the unaffordable.’
Mr. Murphy said insurers will be taking action across the Caribbean to deal with rising reinsurance costs and mitigating the effect on the consumer.
‘In conjunction with our brokers, we will be committing ourselves to negotiating the best prices possible for our clients,’ he said.
He also sees more measures rewarding consumers who install hurricane proofing such as shutters, and advises Caymanians to take the highest deductible they can afford in order to mitigate costs.
But Mr. Murphy is not entirely pessimistic.
‘This is a cycle, and what we need to do is manage our challenges to the best of our abilities,’ he said.
Automobile insurance is also affected by events such as natural disasters when large numbers of vehicles are lost. This is in addition to other developments including larger motor vehicle accident awards and rising accident numbers and damage amounts.
Ken Chand of Motor and General Insurance agreed the market is not favourable for consumers.
‘We are tied into the Caribbean and South Florida markets and we can’t really do much about current rate increases,’ he said.
Rates in the reinsurance sector have already affected car insurance rates on Grand Cayman.
‘The rates our reinsurer charges us went up tenfold over the past year,’ said Mr. Chand. ‘We try to work with our brokers but there are only a limited number of companies we can deal with operating in the marketplace.’
Mr. Chand said that when premiums go up for the insurance companies, they are obliged to pass on their costs to the consumer.
He explained that not only are Cayman insurance clients paying for local and Caribbean reinsurance premiums, but also for those spanning the globe because the reinsurance brokers are tied into the global market.
Ken Osbourne of Cayman General Insurance agreed that higher insurance awards were also having effects on insurance costs.
‘A single large award can wipe out years of premiums for some companies,’ he said. ‘Furthermore, our costs are also based on rising [prices of] parts and labour.’
While he does not foresee premiums levelling off in the immediate future, Mr. Osbourne said that by working with organizations such as the Cayman Islands Road Safety Advisory Council (CIRSAC) and the National Roads Authority, the insurance community will be working to increase road safety and will adjust its premiums accordingly.