Insurance premiums to rise

Avia Collinder, Business Writer

Local insurance industry executives say premiums will rise both life and general insurance products, whose pricings are impacted separately by reduced investment earnings and reinsurance costs.

The adjustments are expected to protect profits within the industry which, up to November 2011, earned J$22.32 billion in premium income in the life and general markets combined. The income was a 10 per cent improvement on the J$20.26 billion earned for the same 11-month period in 2010.

Jamaica's largest insurance company, which operates in the life market, says the falling earnings on interest-linked products will likely be offset by adjusting the cost of coverage.

Horace Johnson, assistant vice-president, actuary and risk officer at Sagicor Life Jamaica Limited, said last Thursday that 2012 premium rates are expected to increase by at least five per cent depending on the type of product and the age of the insured.

But he also said polices which do not savings components are unlikely to be affected.

"The main factor that will drive a rate increase this year is interest rates (which) have been heavily impacted by the JDX. The JDX took place in early 2010 and led to an immediate reduction in interest rates - as much as 600 basis points at the long end," said Johnson.

"We have been monitoring and analysing the potential impact on our portfolio and as a result, we have reduced the interest rates credited to our block of interest-sensitive business," he said.

Paul Lalor, president of the industry group, Insurance Association of Jamaica (IAJ) said Thursday that catastrophes last year will feed into higher reinsurance costs for general insurers.

"On the general side, I expect a steady state with perhaps a very slight increase on the residential and commercial property side," said Lalor who is also president of general insurer, Insurance Company of the West Indies (ICWI).

"The cost of reinsurance increased because of all the catastrophes globally in 2011 which was not a good year with earthquakes in New Zealand and Japan, floods in Thailand and other storms and big losses around the world," he said.

Locally, on the residential market, costs attached to insurance are usually quoted at 0.85 to one per cent of replacement value. A house valued at J$10 million would therefore attract an annual premium of between J$85,000 to J$100,000.

For motor insurance, the IAJ president also expects coverage to increase.

"On the motor side, I do expect some further increase in rates as companies bring their prices into line with what it actually costs us to offer that form of insurance. These increases will largely be seen in third party rates which have for many years been too low," he said.

JDX effect

Last year, Lalor had also noted that the JDX - Jamaica Debt Exchange - in which the government of Jamaica swapped out its domestic bonds for issues of lower tenor, had forced many local companies to increase premium charges in order to support profit, especially for motor insurance, but that property had not been adjusted to the same extent.

The JDX cut interest rates from around 18-20 per cent to 12 per cent on average. Since then Bank of Jamaica policy rates have been reset several times toward even lower rates and is now at 6.25 per cent.

Johnson of Sagicor promised the company would be gentle with its price adjustments.

"As the year progresses, we continue to monitor all factors that could have an impact on our products, and we will strive to ensure that the effect on our customers is minimal," he told Sunday Business.

The insurance executive said that for other products in the Sagicor life portfolio that are not savings oriented, such as living benefits and non-medical policies, adjustments are usually linked to the rate of inflation and are already priced with a presumed inflation rate.

The expectation is that prices will remain flat for those products.

"Currently, the inflation rate has gone down and has been hovering in single digits. It is now down to six per cent and so for 2012 there is no need to make an adjustment," Johnson said.

At Guardian Life Limited, president Eric Hosin says product pricing is now under review.

Unwilling to anticipate the level of increase, he said the adjustments are usually influenced by a complex set of factors.

General considerations include information and assumptions related, he said, to benefits provided, policy size, issue age, mortality or morbidity rates, lapse or withdrawal rates, interest rates, expenses, commissions and profit target, as well as regulatory requirements, reinsurance and underwriting costs and updating of computer systems.

"For example, for a universal life type plan, the factors affecting price are as above, but additionally consideration would be given to the level of cost of insurance charges, whether these remain level over the life of the policy or are increasing; and whether the plan is linked to one fund or multiple funds," said Hosin.

Pricing also includes administrative costs which may be recovered as a policy fee priced into the premium rate, the Guardian Life president said.

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Correction & Clarification


An earlier version of this story incorrectly stated that the Financial Services Commission approves fee increases.

business@gleanerjm.com