Three major fires in one year is prompting calls from within the insurance sector to show prudence over how buildings in the commercial zone are covered and demands for greater urgency in fully equipping the fire service.
Following Tuesday's Metropole fire, Insurance Commissioner Maria van Beek is repeating her warning that companies may struggle to sustain any more big hits.
She notes that generally the sector is in good enough shape in terms of liquidity but she is "definitely concerned" about whether it can continue to sustain large shocks as they have done in the past.
This rash of fires has meant higher re-insurance premiums. These are the rates charged to local insurers by re-insurers as part of a spiral of re-insurance that aims to spread risk among the global industry. Local companies can re-insure as much as 80% of the value of a policy thus limiting their exposure but this also reduces the potential for profits in good years.
Observers note that the sector had already seen increases in recent years that reflect concern from the re-insurers about Guyana's risk level. Re-insurance premiums as a proportion of gross premiums have risen from as low as 15% for one company to as much as 50%. But this may also be an indicator of the continuing competition in the sector since some companies have been reluctant to pass on increased retail premiums in line with re-insurance increases. "It does not make good business sense to charge uneconomic rates," notes one observer who adds that it is a matter of too many companies chasing too little business.
Howard Cox, the fire manager at Hand in Hand which has taken a very cautious approach, says he is really surprised by some rates and suggests some companies "are underwriting just for cash flow" but at the end of the year the books do not look so good.
He says the company took a decision about four years ago, given the many fires, to raise premiums in particular in the "high risk zone" which is the Water St area and the Regent St corridor. But while their rates have doubled, the rest of the industry's premiums have gone up by perhaps 20%, Cox says, and naturally Hand in Hand has lost some business. But he also points out that in the last two fires, they have not been affected. GTM took a decision in July to raise rates and they have gone up around 20%. But that company also faces significant exposure in Grenada from Hurricane Ivan which may have far-reaching implications for re-insurance rates across the region.
Another aspect is further competition. Guyana's market is very small with total annual premiums only around US$7M a year. And with the advent of the Caribbean Single Market and Economy, overseas insurers can enter Guyana's market. Observers say that at some point something must give and this could include takeovers of some of the smaller local insurers.
Insurance broker Peter Abdool of Adbool and Abdool Inc. is not so sure the influx of overseas insurers will materialise, noting that the fact that Guyana is such a small market may make it uneconomic for them to establish themselves. He notes that Lloyds of London is winding down its long established direct dealings in Guyana and is more likely to work through local insurers.
He does not see the Metropole fire as a major catastrophe for the industry and he points to the Lombard St blaze as more of a watershed because it highlighted the fact that the fire-fighting system "left a lot to be desired." He adds that there have been significant improvements since then and in the case of Metropole, he thinks the service did a good job in limiting damage at the CNS building. He says that since the Lombard St blaze, insurers have been both prudent on rates and on limiting their exposure in each block. It is no longer a soft market, he says and he feels the presence of the Insurance Commissioner means companies are having to justify rates. He predicts that there will come a time when insurers will be unwilling to offer coverage for some of the older wooden buildings in the city or may raise rates to a level that is in keeping with the risk. As such he sees a greater divergence in premiums between wooden and concrete structures that might compel owners to rebuild. He also thinks insurers will start demanding that owners better maintain wooden buildings.
Not everyone shares his view on the state of the industry. One observer confirms that save for Hand in Hand there really has been little movement in premiums over the last two to three years although there was some up tick after the September 11 terrorist attacks. They say it is unlikely insurance companies will turn around tomorrow and raise rates, instead it will be driven by the re-insurers.
There is also the worry that re-insurers, who since September 11 have had to reassess the whole concept of risk, may take a much more guarded approach towards Guyana. One observer notes that if they were to see any pattern that might suggest more than just random activities then they could become reluctant to even offer cover to local insurers.
Bish Panday of P&P Insurance Brokers and Consultants Ltd says the major concern is having proper facilities to combat fires and most importantly to contain them to single buildings. He describes the recent blaze as a major fire and that it must also be seen as another blight on the urban landscape pointing out that in almost all the other spots there has been little or no rebuilding. Hemraj Kissoon had in 2001 declared that the insurance settlement would have been used to finance the construction of the largest mall in Georgetown on the group's property at Camp and Robb Streets. Some of the money would also be used to service loans with the group's bankers.
Plans were also being drawn up for the reconstruction of a complex at the burnt out Park Hotel site on Main Street. The complex would include a hotel, stores and other commercial centres, Kissoon had revealed.
Meanwhile Panday is also worried that despite the heroic efforts of the fire service these fires often involve the flames marching across buildings and in the case of Tuesday's across a street - from the Metropole to the CNS building.
"I think the industry has to assert itself in the economic scheme of things and let it be known that at the end of the day they are the ones expected to foot the bill. After Royal Castle there was gross uncertainty over who was responsible for the maintenance and functioning of the fire hydrants. And I don't know that this issue has been resolved satisfactorily and that there is a programme in place within a timeframe to have all the hydrants in the city fully operational." He stresses that the primary challenge for the sector is to work to ensure that the fire service is fully equipped and that includes access to water.