Insurance Increases
By Alice Bain

Insurance rates have been going up across the board. Hurricane insurance for houses is the most obvious of the recent rate hikes, but coverage for medical, automotive, life and marine insurance has also seen substantial price increases.

Robert Pinder of Insurance Management spoke about the reasons for these increases. "Basically, September 11th was the icing on the cake," he said. "There have been more tragedies occurring that affect the insurance industry, for example, floods in the UK and an earthquake in New York state earlier this year. These catastrophes were never anticipated. The insurance industry had no statistics on them and they were not included as part of the rating structure.

The industry has been spending more money than ever on natural disasters. "September 11th is the world"s largest insurance claim ever. There are now 100 billion pounds sterling (about US$ 150 billion) worth of insurance claims being processed in connection with that event, and these numbers will probably have doubled by the time it"s all done.

"This claim affects not only buildings [insurance] but also obviously aviation.

Because of the many cars on the ground destroyed, it affects motor insurance.

Thousands of lives were lost, which affects life and health insurance, also for the rescue workers who had to breathe in dust and asbestos. Travel insurance and business interruption claims are involved. It runs the entire gamut of the insurance business.

"Because of this, in 2002 the reinsurers have reduced the amount of coverage that they are willing to sell, and they"re charging more money for the coverage that"s available. ALL classes of insurance were increased this year, not just homeowners. Some people are using "selective insurance" to help lower the premiums. For example, you might insure the building but not the contents. You should make sure, however, that what you DO insure is covered adequately."

Victoria Albury of Royal and Sun Alliance Insurance (Bahamas) Ltd. explains the insurance industry in greater depth. When asked about the rate hikes, she agreed with Robert. "Basically, we blame it on September 11th," she says. "There is a hierarchy of insurance," she explains, "customers go to an insurance agent to buy insurance. Those agents come to me, the insurer, to obtain that insurance. From me, it goes to the reinsurers. These are the large global insurance corporations like Lloyds."

The problem with 9/11 is that a lot of these reinsurers got crushed by the financial scope of the catastrophe. Since the reinsurers are the ultimate source of insurance, this has led to a decrease in market availability of insurance and the laws of supply and demand kick in. There is a smaller supply of insurance, and at the same time there is a greater demand. "More people are wanting to take out insurance who didn"t bother with it before," said Mrs. Albury. "Because there is an increased demand and less of a supply to meet it, prices are going up.

"We [as insurers] do not reinsure 100 percent of the business we get. We keep some for ourselves. In general, we only reinsure for large things, like large fires or hurricanes, etc. that would be classed as "catastrophes." For an individual house fire, for example, we would handle that on a local level. "Sun Alliances rates went up after Hurricane Floyd. There were aspects of the business that were not being treated properly. For example, houses in White Sound were insured under the same rates as harbourside houses in Marsh Harbour. Sun Alliance was tried and tested in Hurricane Floyd; we paid out more that $50 million.

Our rates went up directly after Floyd, but other insurance agencies did not. These agencies have now raised their rates subsequent to 9/11 to a level that is basically in line with ours. The problem is that the people who are upset about this are those who had these lower rates for two years and are now seeing rate increases of up to 50 percent. It looks like a mistake on the invoice! Insurance agents need to take the time with these clients and explain why the rates have increased so much.

"We also have problems with people who are under-insured," continued Mrs. Albury. "People should keep their sum insured up to date or they will not get a properly adjusted claim in the event of a disaster." For example, if a house is worth $100,000 and is insured for only $70,000, if damages occur to the house the claim will only pay out for 70 percent of the cost. "If you are under-insured, we have to treat it as if you are self-insuring for the balance," says Mrs. Albury. "To decrease premiums, we can increase the deductible on the insurance, or the client can do partial insurance ("selective insurance" that Robert Pinder talked about). People need to shop around and compare policies and pricing.