The Tribune

• Policy count ‘getting back to pre-pandemic’

• VAT exemption ‘makes a huge difference’ 

• No taxpayer ‘back stop’; better affordability

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First’s top executive says general insurance policy lapses have “peaked out” with auto and homeowner coverage uptake closing in on pre-COVID levels as the economy rebounds.

Patrick Ward, the BISX-listed underwriter’s president and chief executive, told Tribune Business in a recent interview that the Government’s decision to leave residential homeowners insurance as one of the few remaining VAT exemptions will also “make a huge difference” as to whether Bahamians can afford such protection.

Besides creating massive refunds for the Government when multi-million hurricane claims payouts occur, he said that imposing the 10 percent levy on homeowners insurance premiums would have created “an additional burden” that might have left Bahamians unable to cover their major asset against hurricanes and other catastrophes.

While mortgage lenders often mandate that borrowers must take out homeowners insurance as a condition of the loan, and often step in to pay it if the client is unable, this only adds to the sum that must be repaid. And, if such coverage became increasingly unaffordable for those who do not have a mortgage, many will “fall back on the taxpayer” to fund reconstruction after a hurricane.

“I would say certainly that the lapse in coverage has peaked out and we are starting to see a return to pre-COVID levels in policy count and take-up,” Mr Ward told this newspaper. “Auto insurance was by far the biggest area of policy drop-off.”

While unable to provide figures, he added that “some of it was not true lapses; it was more a question of late renewals. It’s [coverage] not quite to pre-COVID levels but it’s getting back there”.

This, Mr Ward said, will be aided by the Government’s decision to continue the VAT exemption on homeowners insurance policies. This means Bahamian households will not have to pay the additional 10 percent levy on top of already-high premium rates, although the underwriters themselves still have to pay the tax on all their input costs.

“One critical element that’s a positive development is we have not seen an adjustment in the policy as it relates to the application of VAT on homeowners insurance,” Mr Ward added. “We were happy to see the non-application of VAT remained in place otherwise it would have created an additional burden of affordability for the average homeowner.

“The absence of VAT will make a huge difference in whether the average homeowner can afford to purchase. Our concerns thankfully didn’t materialise, and that’s a favourable development on the part of the average homeowner.”

If VAT had been implemented, and made insurance unaffordable for many, Mr Ward said it would have had “implications across the board”. He explained: “To the extent individuals don’t buy insurance, if there is a catastrophe-related loss that will have a widespread impact.

“The Government is then going to have to be a back stop for a lot of people. It falls back on the taxpayer to fund disaster reconstruction which could have fallen on private insurers.”

Mr Ward said The Bahamas “certainly does have a coverage gap” when it comes to hurricane-related insurance for residential and commercial properties that do not have a mortgage lender mandating that they take out coverage.

“The penetration rate isn’t high enough, and anything we can do to improve on that will be helpful,” the Bahamas First chief added. “It’s not just a Bahamas issue; it’s a Caribbean issue, and even in developed countries there are gaps for certain types of exposure.”

Mr Ward said the number of uninsured, and/or underinsured, properties in The Bahamas was difficult to calculate, but based on evidence from recent hurricane claims settlement payouts, these accounted for a “high double digit percentage” of the total market.

The Bahamas First president, meanwhile, said he did not foresee any widespread homeowners premium rate increases in 2022 as the underwriter had already implemented rises to better reflect risk - and satisfy reinsurers - following Hurricane Dorian in September 2019.

“In our case we’d already gone out to market to get rate increases where it was necessary, and we don’t anticipate any wholesale rate increases for 2022,” he told Tribune Business. “One-off homes may require a rate adjustment, but we certainly don’t anticipate doing it across the board.”

Mr Ward said some reinsurance renewals for 2022 “were a little bit tricky”, but said Bahamas First’s existing premium rates - and those that are projected a year from now - had reassured its partners as they accurately reflected the prevailing market risk.

Bahamian insurers on an annual basis have to purchase huge amounts of reinsurance to cover the multi-billion dollar risks they underwrite annually due to their relatively thin capital bases. This effectively means reinsurers have the biggest influence on property and casualty rates in this country.