More fires could spark premium increases
Stabroek News
February 12, 2004
The general insurance sector is sitting on a solid $2 billion cushion after meeting all its liabilities but this could be quickly eroded if there are any more large fires.
Insurance Commissioner, Maria van Beek says the general insurance sector is worth $7.5B, with its liabilities at approximately $5B and its solvency margin calculated at half a billion, meaning it is in pretty good shape.
"That is big, that's a lot of money," says van Beek. But she adds, "if they are losing year by year it does not matter how much money they have [it will diminish]....These kinds of losses cannot be sustained every year."
Last year the sector sustained millions of dollars in losses because of the fire on Lombard and Hadfield Streets, and then on Water Street.
On November 13, Moham-med's Enterprise, Royal Castle and Auto Supplies Company Ltd on Lombard Street were destroyed. The Guyana and Trinidad Mutual Fire and Life Insurance Com-pany Ltd last month, offered to pay Mohammed's Enter-prise $33M after the company submitted claims for $60M. Proprietor Nazir Mohammed said the offer was too small.
Claims for the other two companies are yet to be settled. Fire gutted the Muneshwers building on Water Street on December 19. Co-owner of the building, Robert Hanoman estimated his losses at US$15M. A settlement in this matter is still pending.
Van Beek, whose job it is to check that insurance companies have sufficient funds according to their liabilities, says "[Overall] I feel some level of confidence [about the state of the industry]." And she does not advise insurers to increase their premiums at this point.
But if the fires continue as they have in the past few years, rate increases might be unavoidable.
"If it is a case that they are making losses every year, then you have to start looking at the premiums."
If companies do take that route then fewer people would take out policies. But if the large fires continue unabated and the premiums do not increase there are grounds for trouble, van Beek argues.
She says intervention would only come if the commission is worried an insurer is running into the 'red' at which time the company would be accessed and a decision made.
She adds that for the commission to suggest a rate increase, insurers "... will really have to be [in] a lot of trouble." Under the law, she says, "I cannot call for a rate increase." Van Beek also presents a scenario where insurers are experiencing diminishing returns on their investment and the outgoing stream is getting bigger. But she adds that the industry can sustain a further shock.
In a Stabroek Business article on January 1, Howard Cox, fire insurance manager at Hand in Hand Mutual Fire and Life Insurance Co stated that, "the rate (premiums) has gone up slightly." Officials from Demerara Mutual, John Fernandes Insurance Com-pany and the Guyana & Trinidad Mutual Fire & Life Insurance Company Ltd (GTM) say increased rates may be unavoidable but caution will be taken in doing so.