95% of Jamaican Homes Are Underinsured. Melissa Made That Expensive

Roughly 95 percent of residential properties in Jamaica are underinsured, according to figures previously cited by the Insurance Association of Jamaica, leaving many homeowners exposed to reduced payouts once replacement costs exceed the value they insured against. That figure went from an abstract industry statistic to a lived problem for thousands of Jamaicans after Hurricane Melissa.

The mechanism doing the damage is called the average clause, a standard but poorly understood insurance provision. Rather than pay a straightforward claim, insurers apply it to reduce a payout in proportion to how underinsured a property was, so a homeowner who insured a house for 70 percent of its true rebuilding cost may recover roughly 70 percent of their loss, not the full amount, even on damage the policy nominally covers. The IAJ has acknowledged that many policyholders simply dont grasp the effect of the clause until a major loss forces them to.

The scale of Melissas claims has strained the system generally, not just individual payouts. The Financial Services Commission reported that the general insurance industry recorded a pre-tax loss of $200 million-plus in its Insurance Sector Quarterly Review for the period, and the regulator has since stepped in on the pace of claims settlement, directing policyholders with unresolved complaints to escalate through the FSCs own complaints process once an insurers internal process is exhausted.

For any homeowner who hasnt reviewed their coverage recently, the practical lesson is the same one the IAJ itself is now pushing: get an updated valuation of what it would actually cost to rebuild the property today, not what it was worth or cost to build originally, and insure to that figure. Premiums rise when coverage does, which is exactly why so many policies drift out of date in the first place. But the alternative, discovering the gap only after a Category 5 hurricane, is considerably more expensive.

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