Events of yesterday still impact us today

Catastrophic events of the past without a doubt have a lasting impact on individuals, families and businesses that were directly affected; however, the impact on the wider insurance industry cannot be overlooked.

This from Kelly Marshall, Assistant Vice President – Reinsurance, Sagicor General Insurance, who was explaining the correlation between major events of the past, such as hurricanes, earthquakes and flooding, and the structure and pricing of present-day insurance policies. She explained that the price of insurance coverage for an individual is heavily influenced by external forces, specifically the relationship between local insurance companies and their international reinsurance partners.

“Reinsurance, simply put, is insurance for the insurance company”, she stated. “As Insurers we have to insure ourselves relative to the amount of risk that we as a company are taking on. For example, if we insure five

properties at $10 million each, it means that we should have the equivalent of $50 million available on our balance sheet to be able to settle each of those claims in the event of simultaneous total losses.”

“After a natural catastrophe, such as a hurricane, resulting in a significant level of cash settlements due to the number or level of claims, it is very possible that our reinsurance cost in the following year will increase. If our premium is affected, it stands to reason that this should trickle down to the individual policyholder”, said Marshall. However, the reinsurance specialist indicated that this has not in recent years been the case, given the level of competitiveness in the local market and the pressure to keep prices low.

“The price for us as an insurance company has risen over the last three years due to the increased frequency and severity of natural disasters. Companies are still paying for claims from Harvey, Irma and Maria in 2017, followed by 2018 earthquakes and floods in Trinidad and Hurricane Dorian in 2019. These events significantly affected insurance companies in the region and by extension their reinsurance partners”, she explained.

“Insurance companies throughout the Caribbean purchase reinsurance from primarily the same international companies across the globe, so one can appreciate that events that are happening in Japan for example, will have an impact on us because they have an impact on the reinsures that we do business with. It will impact us on a pricing level because it’s the same capital that’s being used by the reinsurers in each region”, she added.