Brace for more increases in home insurance premiums

Jamaica Observer Online, in association with a number of partners, has produced its 2024 Hurricane Season Guide. This is one of the many stories in the supplement which can be accessed here.

Jamaican homeowners were hit with big property insurance price increases last year, and more rate hikes are likely, against the background of the projected hyperactive 2024 hurricane season, according to experts.

Home insurance costs have soared recently, primarily due to the tightening of the international reinsurance market which controls the pricing.

The combination of Jamaica’s small size and exposure to two major catastrophic risks (hurricanes and earthquakes) means that local insurance companies are dependent on international reinsurers to provide capacity for the potential liabilities. A substantial portion of their risk portfolios, up to 95 per cent, is reinsured by overseas reinsurance providers.

What’s driving up prices?

However, a confluence of factors in recent years have been driving reinsurers to move their capital away from the region to more lucrative, less risky areas.

“The main factor driving homeowners premiums is the availability of capital willing to take on the risk. Recently there has been a reduction in that willingness,” Peter Levy, managing director of British Caribbean Insurance Company (BCIC), told Observer Online.

Levy attributed the “reduction in that willingness” to three main factors: high levels of interest rates for lower risk investments attracting capital away from insurance; increasing cost of catastrophe claims globally; and concerns about climate change leading to even more catastrophes in the future.

“The projected active 2024 hurricane season is part of an overall trend of more frequent and more intense hurricanes, which will drive up the cost of homeowners insurance,” Levy said.

It paints a daunting picture for homeowners who were just recently hit with a major insurance premium hike.

“The rates have gone up substantially since last year,” noted Thomas Smith, managing director, JN General Insurance. “We have had to increase our prices to be able to afford the reinsurance that we need [and that] has put the market in a bit of distress.”

Smith described 2023 as a “watershed year” that saw huge rate increases.

“It was the hardest market that we have been in since probably 1992 after Hurricane Andrew had hit Florida. For homeowners (the increases) would have varied between 30 and 40 per cent, and for commercial business it would have varied between 60 and 70 per cent,” Smith told Observer Online.

Insurers use highly developed scientific base modelling tools to assist them in pricing. However, due to changing weather patterns, as a result of climate change, trends are becoming less predictable.

Smith noted that this development has resulted in reinsurers now “adding a layer for this unpredictability and so it increases the price”.

Hurricane Beryl and the unpredictability factor

Underlining the “unpredictability” is the fact that Hurricane Beryl, which brushed Jamaica’s south coast in July 2024, was the earliest Category 5 storm observed in the Atlantic on record and only the second Category 5 hurricane to occur in July, after Hurricane Emily in 2005.

“None of the predictive tools had that this year, none of the predictive tools had Beryl…. Is this the impact of climate change? The answer by sheer deduction is yes. Why is it every year now we are breaking boundaries?” Smith said.

The development does not auger well for insurance rates, noted BCIC’s Levy.

“A single event is not likely to move the market unless it is a huge loss – which Beryl wasn’t. But in the context of climate change it is a data point that will support the view that higher prices are needed,” Levy said.

“It’s early to predict the impact of Beryl on rates but my best guess is the most likely effect is that it will serve to delay any possible softening in price, and more likely lead to current prices being maintained, or at worst a small increase,” Levy added.

Payment plans for consumers

Acknowledging that “consumers are finding it hard”, JNGI’s Smith told Observer Online that the local insurance industry, which is comprised of 10 general insurance companies, is working towards coming up with solutions to help customers through payment plans.

“We haven’t gotten to the extent yet of first world markets where personal line insurance for house and car business is all paid monthly,” Smith said, noting that credit facilities are set up in overseas markets to facilitate that process.

“We are not as sophisticated and that is one of the areas that we are working on for customers where you can pay your insurance over 12 months,” he noted.