By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Homeowners and businesses have been warned that soaring inflation could leave them under-insured as the 2022 hurricane season looms, with one underwriter describing catastrophe cover as an “expensive but necessary evil”.

Anton Saunders, RoyalStar Assurance’s managing director, and Stan Charlton, NUA Insurance Agents and Brokers’ chief, both told Tribune Business in recent interviews that residential and commercial property owners could face significant rebuilding costs after a storm strikes if their insurance policies fail to account for higher building materials costs.

If catastrophe coverage is not adjusted for these hikes, then insurance payouts post-hurricane could be insufficient to cover reconstruction costs - especially in the event of a Hurricane Dorian-type storm. In such a scenario, the insurance duo warned that homeowners and companies would have to finance the difference from their own financial resources or scramble to secure extra funding - a situation that will set their recovery back and that of the wider economy.

“We always have the issue, and we always battle with, under-insurance or sums insured,” Mr Saunders told this newspaper. “If you have inflation creeping up, it means the sums people may be insured for are not adequate. Rebuilding costs will have gone up, those kinds of things. And if there’s a major hurricane there will be an interruption in supplies.

“You have an issue, or your bank. We do a lot of work with our clients, and do what we can as fairly as we can for everybody. Certainly, when things happen the Government steps in with duty relief and the like.” However, Mr Saunders said business and homeowners should not rely on government support and concessions to aid the restoration of hurricane-battered properties.

Acknowledging that The Bahamas’ location in the hurricane belt, combined with the increased frequency and severity of storms, had made all-perils coverage prohibitively expensive for many, the RoyalStar chief argued that the multi-billion dollar damage inflicted by Hurricane Dorian showed why consumers cannot do without it.

“We understand the premium is high and the costs are high,” Mr Saunders said, “but we need the protection. Everyone can see what happens in a major, extraordinary storm such as Dorian. People who had insurance fared better than those that did not have it. It’s very expensive but it’s a necessary evil.”

His position was echoed by Mr Charlton, who said: “The whole thing with the pandemic and inflation, that’s going to affect everyone. We’re trying to educate consumers on the importance of ensuring their home values are kept up-to-date with inflation to ensure they are not under-insured. We try to tell them to get an appraisal done every two-three years to ensure your home is insured for the correct value.”

And, in a nod to Mr Saunders’ acknowledgement, the NUA managing director added: “We’re trying to ensure premiums are not too much. We’re trying to meet consumers where they are.” Insurance penetration, or the lack of it, has been an issue in The Bahamas for decades and was brutally exposed during Hurricane Dorian.

While banks and other formal lenders mandate that their mortgage clients are fully insured as part of the loan terms, those whose properties have no liens secured on them often tend to drop or reduce all-perils coverage to save costs. And insurance penetration tends to be far lower outside Nassau and the major islands, with the result that home and business often look to the Government (taxpayer) for help following natural disasters.

In common with the cost of imported goods, Bahamian insurers have minimal influence over the premium prices charged to consumers because these are largely dictated by external factors outside the country. The main one is the reliance on reinsurers, who underwrite or cover the vast majority of risks in this nation because of the relatively thin balance sheets of Bahamian property and casualty insurers.

The latter have to rely on reinsurance support to provide cover for assets collectively worth billions of dollars, effectively making the local industry a price taker. “Let’s all be candid that the reinsurance market, where we get our support, is having its challenges,” Mr Saunders told Tribune Business.

“A lot of the traditional companies are scaling back in the Caribbean, or have scaled back, and so for us what we want is to ensure we are close to our reinsurers, develop alternative markets if they are out there, and ensure we have sufficient capacity in our company, so small spikes we can absorb as long as we get the reinsurance support.

“Customers understand that we live in a hurricane zone area, and some of it is dictated by reinsurance. This year, we have decided not to pass on any costs [premium increases] to customers in The Bahamas. In the future, as long as we keep reinsurance costs manageable, we will determine it from year-to-year,” he added.

“There will always be that pressure as long as we rely on reinsurance, and the foreign reinsurance market. That pressure is always going to be there.”