Higher insurance premiums could send up mortgages

Higher insurance premiums could send up mortgages

Senior staff reporter

Saturday, February 22, 2020

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THE National Housing Trust (NHT) says it is unable to speculate at this time on the impact of an anticipated adjustment in property insurance premiums from reinsurers on rates to its mortgagors.

“It must be noted, however, that our mortgagors will continue to pay their existing property insurance premiums until August 2020. Any decrease or increase in insurance premiums will be communicated to our mortgagors by this time,” the NHT said yesterday.

The Insurance Association of Jamaica (IAJ) has said that property owners should brace for an increase in insurance rates of between 10 and 15 per cent this year.

Executive Director Orville Johnson said the pending spike in property insurance premiums is due to increasingly destructive Atlantic hurricane seasons in recent years.

Johnson told the Jamaica Observer that the insurance industry has not made any significant payout since 2012, when the island was impacted by Hurricane Sandy, which has led to complacency. He said the rates have remained relatively low as a result of the absence of major claims.

He said the recent devastation in The Bahamas by Hurricane Dorian has, however, affected rates in the region. “With climate change, you have to prepare,” he said.

Johnson added that exposure risks have been amplified by the recent spate of earthquakes in the region, emphasising that while Jamaica has escaped major weather events, the country falls in the same reinsurance pool as countries in the wider Caribbean, which have not been as lucky.

“Jamaica has been very fortunate, which is why only 20 per cent of residential houses have insurance,” Jonson noted, pointing out that Dorian was the most powerful storm since 1935.

Prior to that, in 2017 a total of 17 storms ravaged the Caribbean, causing insured losses of more than US$90 billion, he said.

“The risks we face are similar to those of the rest of the region, consequently; in response to an increased Caribbean risk rating, premiums are set to increase this year,” he said.

Insurers pool insurance premiums from their customers, which they use to cover the losses only a few customers experience. Insurance companies in turn protect themselves against extraordinary losses by buying reinsurance from large international reinsurance companies.

Meanwhile, the NHT noted that its mortgagors' monthly payments are subject to annual changes in insurance premiums due to an increase in the coverage and/or peril rate. “As a practice, the trust does consider the impact of increases in premium on our mortgagors. This, however, is based on an assessment upon renewal of the insurance arrangements,” the trust said.

Johnson noted that although the increases are coming, it is not a done deal, as the insurance market is competitive.

“We have 20 general insurance companies competing and insurance brokers who will shop around for their clients and get the best rates possible – big clients, especially may have more leverage,” he told the Observer.

The NHT said that for the calendar year 2019, it wrote approximately 7,400 mortgages. It noted also that all its mortgaged properties are insured, with strata properties insured for the outstanding loan balance, and non-strata properties for the replacement value as determined by the size of the unit.

Approximately 130,000 residences are insured, with the largest block being NHT mortgagors, which accounts approximately 111,000 units.

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