By Andrew Green, Staff ReporterBUSINESSES located in certain areas regarded as being risky can end up being very costly to insure, says Leslie Chung, chairman of the Jamaica Association of General Insurance Companies (JAGIC).
The Financial Gleaner received information from within the insurance industry that insuring a small business in certain inner-city areas was nearly impossible. Mr. Chung said insurance might be expensive, but it was available.
"I would not give a blanket answer to that question," Mr. Chung said. "Maybe one underwriter would not take the full risk, but you could have a schedule of underwriters who would take a smaller line on the risk."
It might take five companies to cover the risk in a particularly problematic location, "but you could get the insurance," he said. "That is where a broker comes in as the broker could package the coverage for the client."
The insurance coverage might be available, but one large property owner told The Financial Gleaner that many buildings in downtown Kingston were still
effectively uninsurable. He said buildings were insured on the basis of their replacement cost, but the disorder in Kingston meant that the market value of these structures, based on their rental value, was a fraction of their replacement cost.
Someone paying 1.5 per cent of the replacement cost of a structure for insurance might effectively be paying 15 per cent of its market value if it cost $10 million to replace a building valued at $1 million, the property owner said. The insurance could thus amount to more than the rental income.
Many buildings are not being insured or repaired because it costs more than they are worth, the landlord said. This was a problem particularly affecting downtown Kingston, but there were buildings across the island which suffer from this problem, he said.
Not all downtown Kingston is the same, said Jamaica Chamber of Commerce president Michael Ammar. A main commercial street such as King Street has a different character from some other streets further to the east and west of its axis.
But insurance rates have generally been climbing faster in downtown Kingston than elsewhere, Mr. Ammar said. One particular problem is with burglary insurance, which has become "extremely expensive," he said.
"I don't see downtown being more risky than anywhere else," Mt. Ammar said. "I am very comfortable downtown."
Burglary insurance may be expensive based on the exposure, "but certainly it is available, if at a price," Mr. Chung said. When insurers assess their risk exposure, "this need not relate to the fact that it is in the inner-city."
Areas in parts of Negril are regarded as risky due to concerns about the exposure to storm-surge damage, Mr. Chung said. "So if you build on the seaside, you are going to find that your insurance is expensive and a little more difficult to obtain."
Some insurance considerations are whether an area is flood-prone, whether fire services can reach the premises, and whether there is a risk of large-scale looting after a fire, Mr. Chung said. The assessment of the risk will determine the insurance rate.
And being able to pay that rate is critical for businesses, "as otherwise you are insuring yourself," Mr. Ammar said. "For 99 per cent of the time there is no problem with self insurance. It is that 1 per cent of the time which could destroy your business."
No one should operate a business without adequate insurance, Mr. Ammar said. "It is one of the necessary costs you incur."
