In recent years, Jamaican homeowners have faced significant increases in property insurance prices. Unfortunately, these higher costs are expected to continue, especially with the forecast following an active 2024 hurricane season. But why have insurance prices been rising and what can homeowners do to manage the situation going into 2025?
Why Are Insurance Prices Going Up?
The main reason behind the rising insurance premiums (the cost you pay for coverage) is the tightening of the international reinsurance market. Reinsurance is a way for local insurance companies to protect themselves from large losses. Since Jamaica is a small island and faces major risks like hurricanes and earthquakes, local insurance companies rely heavily on international reinsurers to share the financial burden. In fact, up to 95% of their risks are reinsured by companies outside Jamaica.
However, in recent years, reinsurers have been pulling back from the Caribbean, moving their money to areas that are considered less risky and more profitable. This has led to a shortage of capital available to cover risks in the region, causing insurance costs to rise.
Peter Levy, managing director of British Caribbean Insurance Company (BCIC), explains that the availability of capital is one of the main factors driving up premiums. High interest rates for safer investments, the rising cost of catastrophe claims globally, and concerns about climate change all contribute to the situation.
Climate Change and More Active Hurricane Seasons
Another major factor driving up insurance costs is climate change. Scientists have observed that hurricanes are becoming more frequent and more intense. For example, the 2024 hurricane season has been particularly active. This increase in extreme weather events means that insurance companies face higher risks, which in turn leads to higher premiums for homeowners.
Thomas Smith, managing director of JN General Insurance, noted that 2023 was a "watershed year" for insurance rate hikes. Homeowners saw price increases between 30% and 40%, and commercial businesses faced even larger hikes, between 60% and 70%.
Insurance companies use sophisticated tools to predict the likelihood of storms, but these tools are becoming less reliable due to changing weather patterns. This unpredictability is another reason why insurance rates are going up.
The Impact of Hurricane Beryl
A clear example of this unpredictability was Hurricane Beryl, which brushed Jamaica's south coast in July 2024. Beryl was the earliest Category 5 hurricane ever recorded in the Atlantic and the second Category 5 storm to occur in July. None of the predictive tools had anticipated such a powerful storm at that time.
Experts like Thomas Smith believe that the increasing unpredictability of storms, possibly due to climate change, will continue to push insurance rates higher. While Hurricane Beryl itself didn’t cause massive damage, it serves as a reminder that the weather is changing, and insurers will likely need to adjust their pricing to account for these new risks.
What Can Homeowners Do?
For many homeowners, paying higher insurance premiums can be difficult. However, the insurance industry is working on solutions to help. One idea being explored is offering more flexible payment plans, allowing homeowners to pay their insurance premiums over a 12-month period rather than in one lump sum. While Jamaica is not yet as advanced in this area as some other countries, insurance companies are moving in that direction to make it easier for people to keep their homes insured.
Conclusion
The rising cost of home insurance in Jamaica is a result of a combination of factors, including the tightening of the reinsurance market, the increasing frequency and severity of hurricanes, and the effects of climate change. While these price hikes are challenging for homeowners, the insurance industry is working to find solutions, such as more flexible payment plans, to help people manage the costs. Understanding these factors can help homeowners make informed decisions about their property insurance and prepare for the upcoming hurricane season.
Disclaimer:
The information provided in this article is intended for general informational purposes only and should not be construed as professional advice. While every effort has been made to ensure the accuracy of the information, homeowners are encouraged to consult with their insurance providers or financial advisors for personalized advice and guidance regarding their property insurance needs. The insurance industry is subject to changes, and rates may vary depending on individual circumstances and market conditions.