Managing Director of BCIC Insurance, Peter Levy, says commercial property owners could see up to a 40% increase in their insurance cost come 2023. 

Speaking on Taking Stock with Kalilah Reynolds, Levy said local insurance providers will have to raise their prices if the cost of doing business with international reinsurers goes up. 

Levy explained that a reinsurer is a larger country or institution that provides insurance to other insurance companies. 

“Jamaica, and the Caribbean generally, are subject to significant catastrophe exposures from hurricanes, earthquakes, and volcanic activity and the economies are small, so we don’t generate enough premium income to absorb all those potential losses,” he said.

“So, we have to spread the risk that we accumulate to other countries and companies that have much bigger balance sheets,” he added. 

Spreading the risk

Levy said that most reinsurance companies are located in Europe and North America and can take on risks from all over the world.

“They are able to spread the risk around. That way if there’s an event in the Caribbean, they have premium coming in from other parts of the world to cover those costs,” he explained. 

However, the Managing Director said that global events have caused reinsurers to adjust their pricing. 

“Reinsurers are concerned about a number of factors that have kind of created a perfect storm,” Levy said.

Many countries have increased interest rates to combat rising inflation. 

“Higher interest rates mean that the reinsurance company’s balance sheet, to the extent that they were invested in equities, will be depressed because the equities market is struggling right now,” he noted.

He also added that the value of their bond holdings would have fallen as newer bond issues have come out at higher interest rates. 

Impact of climate change

Additionally, climate change has caused an increase in the number and severity of adverse weather events, which leads to more insurance claims.

On the flip side, however, Levy said there is still a fair amount of demand in the housing sector. 

“Therefore, reinsurance companies are derisking and they’re saying, well, for the premium we get from the Caribbean and the risk that we are exposed to, we don’t like that balance,” he explained. 

The Managing Director said that while many local insurance companies are still negotiating, reinsurers will likely charge a higher premium to continue doing business in the Caribbean. 

“It looks like we’re going to have a sharp increase in pricing for 2023,” he said.

Levy said that commercial property insurance could increase anywhere from 30-40%, while residential insurance is likely to go up by 15%.

Currency depreciation

He noted another factor facing European reinsurers is the weakening of the euro against the USD. 

“So if they had US$1.2 million set aside for the Caribbean at the start of the year,  that is now worth US$1 million,” he said.

He noted that many factors affecting these larger companies are temporary and may resolve during the year. 

However, customers should expect to see some change in their payments. 

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