PHILIPSBURG:--- On the eve of the 15th anniversary of Hurricane Lenny, one of the most devastating Hurricanes to affect this island, the St. Maarten Insurers Association(SMIA) takes this opportunity to remind property owners and residents of the importance of having adequate protection against the risks of loss or damage caused by Hurricanes and associated events. Mr. Eric Ellis, Chairman of SMIA, said that the members collectively and unanimously urge residents to check with their Insurance Company, Agent or Broker to verify that their policy provides adequate and valid insurance against the risks of Hurricane or other losses.
SMIA the legally authorized body to represent insurers, has in its membership a number of experienced and knowledgeable individuals with diverse experience and knowledge on topics such as reinsurance, insurance, finance and risk management. With this diversity in knowledge and experience SMIA is naturally suited to speak on matters pertaining to reinsurance and insurance as far as it concerns the operations of these important industries. SMIA also recognizes that there are other stakeholders in the industry such as regulators and intermediaries who from time to time will also provide valuable insight into the industry and its operations. As we are in the Hurricane Season, it is prudent to caution policy holders and residents against the lure of lower rates and premiums especially that this was also the tactic of some who in the past failed to live up to their obligations to policy holders after Hurricanes Luis and Lenny. SMIA believes that it is in the best interest of the policyholders and country St. Maarten to have an insurance industry where insurers can meet its obligations to clients repeatedly and without the risk of insolvency that can occur when insurance companies fail to charge adequate premiums for the risks they assume.
Additionally, it is of great importance that insurers do not charge excessive premiums to policyholders for the risks they assume. In order to ensure that premiums are not excessive and unaffordable to policyholders, insurers usually transfer some of the risk they assume from their policyholders to reinsurers in exchange for a reinsurance premium. Recently the reinsurance market has become 'soft' (a market cycle where premiums reduce) which is mainly attributable to the absence of major catastrophes worldwide in the past 12 months and also as a result of an influx of investors looking for better returns than the stock markets. The Caribbean contributes a very small portion of the global reinsurance premiums annually and as a consequence is usually the first region where premium rates increase after natural disasters or catastrophes irrespective of where these events occur, since reinsurers tend to prefer allocating reinsurance capacity to North America and other regions where premium rates are much higher than in the Caribbean. This creates a demand and supply effect, as many of us would remember in the 90s that insurance premiums skyrocketed immediately after the Hurricanes in 1995, 1998 and 1999, when reinsurers imposed high reinsurance premiums on insurers needing Catastrophe Reinsurance coverage. In order to reduce their exposure to reinsurance premium hikes, insurers usually purchase increased limits and broader coverage of reinsurance during soft cycles where the premiums are lower to protect their policy holders and reduce the risk of the need for additional capital in the event of potential insolvency after a Hurricane that caused significant damage. Competition amongst insurers on St. Maarten has already resulted in premium rates reducing by 10-20% over the past two years, further reduction in rates can potentially render the market vulnerable, since it could result in insurers not collecting sufficient premiums to first purchase adequate reinsurance or not being able to pay all of its claims in the event of a Hurricane or major catastrophe.
SMIA's members contributes significantly to employment, government taxes and other consumption industries on St. Maarten, further decline in income would simultaneously impact these contributions as premium have to be first allocated for payment of reinsurance costs, policyholders claims, and operating expenses for maintenance of services to policyholders.
In conclusion, SMIA would like to encourage residents to continuously engage their respective insurance providers for insurance coverage that is fairly priced and also sufficiently protects their property against the devastations that Hurricanes and accompanying perils can cause.
