By Cedric E. Stephens, ContributorQuestion: Is insurance coverage against terrorist acts available in Jamaica? How much does it cost? If such coverage is not available, shouldn't our insurers be providing it as a matter of course? Do you think that the government would pay for these types of losses?
TW, Kingston 7
Answer: You have posed four timely, but very tough, questions. Hardly a day passes without some mention of the 't' word; we marked the second anniversary of 9/11 last Thursday; and in a news report coming out of the Eastern Caribbean a few weeks ago, a US expert warned that countries in this region faced threats from [foreign] terrorists.
A columnist in this newspaper wrote recently about the "born-ya" terrorist threat while another discussed compliance with new standards to protect passengers and crew of vessels using our ports.
Your questions are also difficult to answer. They involve many complex matters, such as: What do we mean by terrorism? Does it apply only to acts committed by foreigners or, does it refer to the "born-ya" type? What is the situation when the local and foreign terrorists work hand-in-hand? Definitions of terrorism differ. However, they have one thing in common terrorism involves the use or threat of force to achieve political or other ends.
HISTORY
Insurers in Jamaica exclude losses from terrorism from their policies. The situation is not unlike what happens in the US. However, that market suffered a loss estimated at US$30-50 billion from the events of two years ago, the biggest loss ever recorded.
Because it exceeded in-surers' wildest dreams, they took steps to reduce their exposure to future losses. That created a lot of hardship for consumers. Several organs of state and the private insurance market worked to cushion that blow.
Insurance against terrorism is now available there. It is offered under the Terrorism Risk Insurance Act of 2002 but applies only when foreigners cause the losses. The plan runs for three years. The Federal Government carries 90 per cent of the risk and private insurers carry the balance.
Even though there is no market here for terrorism insurance, consumers can still get coverage. They can buy it overseas. There are syndicates at Lloyd's that specialise in this product.
Any local broker who has contacts with that market can get a quotation and arrange coverage for you. How much you pay for the coverage depends on your type of business. It simply extends whatever insurance you have on your physical assets.
LOCAL COVERAGE
If you are in the shipping, air transport or the airline business it is quite easy to get coverage against terrorism. This is because war risks coverage has always been available for these types of buyers that purchase either marine or aviation insurances.
Local insurers do not have the financial resources to cover terrorism. They are very dependent on foreign reinsurance that protects them against hurricane and earthquake. They paid about 94 cents of every dollar in premium they got last year for reinsurance.
Insurers in the US and United Kingdom that are much larger and have more financial resources than our insurers, cannot shoulder the terrorism risk by themselves. Coverage is only available there because those governments stepped in.
The Government of Jamaica gave the national airline "terrorism coverage" when its insurers stopped writing this type of insurance shortly after 9/11. Would it step in the future if something untoward were to take place? Quite frankly, I would not bet on it. I don't believe that they have the funds.
Cedric Stephens provides advice on risks and insurance. If you need free information or advice, write to The Financial Editor or, contact Mr. Stephens directly at aegis@cwjamaica.com.
