Last year’s uneventful hurricane season in the Caribbean region will not significantly reduce home insurance rates in the Cayman Islands in 2007.
Those rates will remain about two per cent of the insured value, maybe a little less. That figure is roughly double what it was prior to Hurricane Ivan in 2004.
Most of Cayman’s insurance companies have already purchased their reinsurance for the year.
‘Re-insurers pretty much set the pricing,’ said Nigel Twohey of Island Heritage Insurance.
Although re-insurers paid out relatively low amounts of claims in 2006, there is still a shortage of available re-insurance products for the Caribbean region, said Danny Scott, president of Sagicor General Insurance (Cayman) Insurance.
‘We have a bit of a supply and demand issue,’ said Mr. Scott. ‘There is insufficient reinsurance available in this part of the world.’
Mr. Scott said that as long as the supply remains low, it is unlikely there will be any significant decreases in premiums.
‘As soon as there is adequate reinsurance supply, prices will start to go down,’ he said. ‘But we’ll never see them go down to what it was before because the potential for loss never manifested itself until [Hurricane Ivan in] 2004.’
John Cameron, assistant general manager at British Caymanian Insurance also sees premium rates most likely holding steady for a while.
‘We need [insurance prices] to remain stable to keep the market stronger in the long run,’ he said.
There is some good news, however, when it comes to insurance costs in Cayman: they did not go up as they did this year in US coastal areas at risk of hurricanes.
Dale Edwards, vice-president and chief operating officer of Fidelity Insurance (Cayman) Ltd. said his company’s rates were more or less the same as 2006, which he sees as a good sign.
‘I think we have reached the top of the upward climb,’ he said.
One insurer even reported a slight reduction in premiums. Mr. Twohey said Island Heritage’s 2007 premiums are down about 10 per cent from 2006. Part of the reason for that is the competitiveness of the local home insurance market.
‘Everyone is shopping for insurance these days,’ he said. ‘They’ll call one company, get the rate, and then call other companies.’
Mr. Twohey said the high cost of living, of which insurance is a part, is driving people to shop around.
In addition, despite the shortage of re-insurers for Cayman, there is still enough to provide coverage.
‘In many other places in the region, you can’t get insurance,’ said Stuart Dack, president and CEO of Cayman National Corporation, which owns a 24 per cent share of Sagicor General Insurance (Cayman) Ltd.
While Mr. Dack and others remain cautiously optimistic that another uneventful hurricane season in the region could lead to a softening of the reinsurance rates, there are some concerns about climate trends and the effect they could have on insurance rates in the future.
Mr. Twohey pointed out that water temperatures in the Caribbean are very high, and global warming could make them even higher.
‘[Higher water temperatures] won’t necessarily mean more hurricanes, but it could mean stronger hurricanes,’ he said.
The difference between the damage a Category 3 hurricane causes if it makes landfall from what a Category 5 hurricane causes, in relation to insurance claims, is substantial. Major hurricanes are thus more likely to affect re-insurance rates and availability.
Mr. Scott noted the current weather cycle in the Caribbean has caused more hurricanes in recent years. He believes it will take a shift of that cycle back to one with less hurricanes before there will be a return of an adequate number of re-insurers to lower prices substantially.