Chief executive officer of Guardian Holdings Limited, Rory O'Brien, says climate change makes seafront properties high-risk business. - File Linda Hutchinson-Jafar, Business Writer
Erratic climatechange in the Caribbean is impacting hard on insurance companies to the point that they're walking away from millions of dollars coming from high-risk business.
"The world insurance market is acutely aware of what is going on in the climate," said Rory O'Brien, group chief executive of Guardian Holdings Limited, the largest insurer of risk in the English-speaking Caribbean.
"The reality is, how we know it is happening is because of the impact on our bottom line and on our profitability."
Guardian, which covered 70 per cent of the losses sustained in Grenada in 2004 by Hurricane Ivan, one of the most intense Atlantic hurricanes on record, which damaged nine of every 10 private homes, devastated the tourist industry and destroyed 90 per cent of the country's nutmeg trees - formerly mainstays of the economy.
Altogether, the losses amounted to 200 per cent of Grenada's gross domestic product.
Still reeling from the effects of the financial losses it suffered in pay-outs in Grenada, Guardian took a hard decision to walk away from millions of dollars in business when it turned down coverage insurance to 48 beach-front properties in Barbados two years ago.
Not a risk
"We decided that that was not a risk that a Caribbean basin insurance company should take on itself," O'Brien said at the second U.K.-Caribbean Business Forum held in Port of Spain, Trinidad.
Based on the type of scale that Guardian Holdings operates, the CEO said the financial services group, which sustained losses of TT$235.8 million in 2006, cannot afford to take big risks on its books.
The insurance company also recorded losses of TT$216 million in its first quarter to March.
"I'm worried again that we've become blasé as an industry and as a consumer of insurance products," said O'Brien, noting that complacency was seeping back into the sector after a storm-free 2006.
"We've got to realise that not having the hurricanes in one year is as much as an anomaly as having the large-scale hurricanes. The way the climate is changing is in fact beyond our ability to assess what insurance risk is all about."
Globally, catastrophes in 2006 consumed 31,000 lives and US$48 billion in losses. Of that, only US$16 billion was insured.
This hurricane season, 17 storms are predicted.
Dodged the bullet
"We have been extremely fortunate to have dodged the bullet over the recent past, but if we are hit by a hurricane, then insurance premiums and conditions might change forever," said Bernard Aquing, consultant to the Association of Trinidad and Tobago Insurance Companies.
"The present insurance prices are unsustainable but there is difficulty in adjusting premiums on account of the competitive business climate."
Instead, insurers have become more selective, opting not to offer coverage deemed high-risk.
He suggested that owners of seafront properties might be the first to find insurers offloading those risks when the market hardens since the international insurers are not keen to underwrite this kind of business.
On the issue of premiums, O'Brien said reinsurers who are the big players in the markets are the ones who effectively determine the rate the industry is going to charge.
In 2005, the average increase in premium by the reinsurers in the Caribbean was 16.5 per cent.
Guardian Holdings, to mitigate its exposure to risk, has been excluding certain coverage from its policies, such as hurricane-wind and flying-debris damage.
"We have to protect ourselves," said O'Brien.
"Insurance is a funny industry; it's a combination of a capitalist approach for individuals wanting to protect their own assets to a socialist concept of pooling their risks and resources.
Historically, Guardian was able to pay cover losses from accumulated premiums, but 2004 has changed that, he said.
"As a result, we are putting up premiums, as a result of which businesses are feeling the impact on their bottom line."
business@gleanerjm.com
Guardian Holdings Limited
FY 2006
| Revenue | $4.6 billion |
| Net Profit | -$235.8 billion |
| Total Assets | $19.3 billion |
| Equity | $3.6 billion
|
