Statement By Honourable Lorna Smith, Obe
Deputy Premier And Minister For Financial Services, Labour And Trade
Fifth Sitting Of The First Session Of The Fifth House Of Assembly Of The Virgin Islands
Tuesday, 31st October 2023
Insurance & The Effects Of Climate Change
Madam Speaker, please permit me a few moments to address the very complex issue of the high cost of insurance which our country is facing. The rising costs of homeowner insurance policies is a multifaceted challenge influenced by a combination of local and global factors. It is important to recognise that this issue is not isolated to the British Virgin Islands but is part of a broader global challenge.
Madam Speaker, it is no secret that climate change is driving an uptick in the frequency and intensity of natural disasters, including hurricanes, wildfires, and floods. These events result in billions of dollars in damages annually, placing significant strain on the insurance sector.
In recent years, the world has witnessed a surge in hurricanes in the Americas, wildfires in locations like Australia, Canada, and the United States, as well as devastating flooding in Pakistan and Afghanistan, not to mention the catastrophic earthquakes in Turkey and Syria.
Right next door in Acapulco, Mexico, Hurricane Otis recently struck as a Category five hurricane, causing substantial destruction and loss of life.
These events have led to annual insurance losses exceeding $100 billion since 2017, putting immense pressure on reinsurers, the same entities that provide coverage to the BVI.
According to the Insurance Information Institute, Hurricane Ian was the second-costliest hurricane in US history, after Hurricane Katrina in 2005. The cost of the damage is estimated to be between $112.9 billion and $117 billion.
In a report released in January 2023, Gallagher Re predicted that global insurance losses in 2023 could reach $120 billion. This would make 2023 the sixth consecutive year in which global insurance losses have exceeded $100 billion. The report cited a number of factors contributing to the rising cost of insurance losses, including the increasing frequency and severity of natural disasters, climate change, and inflation.
Compounding the issue, some global insurance and reinsurance companies are withdrawing from reinsuring key markets or reducing their capacity for catastrophe coverage. This is due to the increased risk associated with these markets, which is further contributing to the rising cost of insurance.
In Florida, for example, three major home insurers have withdrawn from the market since last year while others are opting not to renew insurance policies, substantially increase rates or make eligibility for coverage extremely difficult, and in some extreme instances, insurers have themselves liquidated, per BankRate.
Here in the British Virgin Islands, the escalating cost of homeowner insurance is also driven by factors such as high pay-outs in the wake of Hurricanes Irma and Maria in 2017, inflation, and limited reinsurance capacity for the Caribbean.
I recognize that this is cold comfort but the USVI next door has to pay at rates still 40% to 50% above what is available in BVI, with much of the rest of the region in the same boat as we find ourselves.
Madam Speaker, the high cost of insurance continues to be a huge concern. To address this challenge, while we consider other long term options, I will work with my colleagues in government to explore the following immediate measures:
- Investigating the feasibility of lobbying for a regional risk sharing programme or reinsurance solution, which may involve expanding partnerships with entities such as the Caribbean Catastrophic Risk Insurance Facility (CCRIF). In fact, this conversation will jumpstart in early December 2023, as BVI will be represented when an international body which promotes international financial stability meets to discuss among other issues, climate change, and the impact on the availability and cost of insurance. The focus of this discussion will be the impact of climate change on the rising costs of residential and commercial property insurance given that extreme weather events and subsequent property damage have had a substantial impact on property insurance.
- Collaborating with the insurance industry to develop solutions for managing and mitigating risk associated with natural disasters and more affordable and accessible insurance products.
- Strengthening regulatory oversight to monitor the market conduct of insurance companies particularly on the justification for rate increases, offering policyholders a better understanding of why their premiums are rising, and adherence to fair pricing practices.
- Educating property owners about methods to reduce their property damage and insurance risk, such as hurricane shutters and storm surge barriers.
- Enforcing building codes and possibly funding the development of resilient infrastructure to mitigate damage caused by natural disasters, which can lead to lower insurance costs.
- Developing long-term strategies for risk management and disaster resilience to reduce the frequency and severity of property damage.
Madam Speaker, I reiterate that this is a complex issue, and there is no easy solution. However, I am committed to working with all stakeholders to ensure that our residents and businesses have access to the most comprehensive and reliable insurance coverage possible.
Thank you Madam Speaker.