Home News Local news MORE INSURERS NEEDED IN TERRITORY

MORE INSURERS NEEDED IN TERRITORY

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July 10, 2001 — About the only thing insurance industry representatives and politicians agreed on during a Senate committee meeting Monday is that commercial and homeowners’ insurance in the territory is too expensive.
Lt. Gov. Gerard Luz James II, who also serves as the commissioner of Banking and Insurance, spoke about the scope of the problem. Because of the lack of capacity and the ensuing high cost for coverage, many customers are only partially renewing policies or opting out of more expensive windstorm coverage. That leaves them vulnerable to hurricanes.
And even though the territory has withstood strong storms since the devestation caused by Hurricanes Hugo and Marylin in 1989 and 1995 respectively, rates remain high.
"With the mitigation efforts the Virgin Islands has done . . . there is no way we will receive the loses we’ve had in the past," James said. "And that is something insurance companies need to look at because it is very significant."
Still, the risk for insurance companies is great, causing many to avoid doing business in the territory. And the ones that do are not cheap.
Lloyd's of London’s representative in the territory, St. Thomas attorney Henry Feuerzeig, said that a number of factors need to come together before rates become afforadable. There needs to be a period of time without major claims, more insurance carriers and time for market forces to play out.
"There is a lack of capacity in the Virgin Islands at rates that are affordable," Feuerzeig said, adding that the territory is too dependent on Lloyd's of London syndicates, which manage between 55 percent and 60 percent of the insurance in the islands. "Only the free market will solve that."
Lloyd's and other companies are looking to increase rates, primarily to offset the escalating cost of reinsurance. According to David Ridgway, president of the Virgin Islands Insurance Association, the cost of reinsurance has increased "considerably." Reinsurance is essentially an insurance policy that companies buy to cover themselves.
Ridgway agreed with Feuerzeig that additional insurance companies need to enter the Virgin Islands market to drive down prices. But considering the numbers Lloyds has dealt with over the decade, attracting more companies could be difficult.
Feuerzeig said that since 1988, Lloyd's has taken in about $286.4 million but paid out $412 million.
"Simple math says that is a losing proposition," he said.
Meanwhile, James said that at the National Conference of Lieutenant Governors last week he was successful in winning the adoption of a resolution calling for Congress to establish a federal insurance program to protect individuals in disaster-prone states and territories.
The conference members also voted to promote the establishment of a federal reinsurance program to enhance and improve state insurance programs created in response to natural disasters.
Feuerzeig said a program similar to the national flood protection program could help the territory, but that it would need to be funded with "billions of dollars."
However, he said the territory "can’t get that in the immediate future."

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