Lead Editor-Newsgathering
ryan.bachoo@cnc3.co.tt
There is a meme circulating on the internet that says, “If you don’t believe in climate change, your insurance company does.”
The wildfires in Los Angeles have reignited the battle between insurance organisations and homeowners, pushing the issue back into the headlines. And while that catastrophe seems to be a world away, there are far-reaching consequences that will inevitably reach the doorstep of people in T&T, as well as the Caribbean.
David Richardson, who is a senior research fellow at The Australia Institute, explained in an article last month, “The increasing number, scale and intensity of natural disasters like bushfires, cyclones, and floods—due to our changing climate—is a global phenomenon that will impact insurance premiums around the world.”
There will be a ripple effect from top to bottom. Reinsurers, which are global companies that provide financial protection to insurance companies, will increase premiums to cover their losses from natural disasters. Your insurance company will pass that cost on to you. Such a scenario is a major cause for concern.
Some homeowners in flood-prone areas such as Penal, Debe, Maraval and Diego Martin may not be able to afford the higher premiums, and when they’re not covered, they will be left vulnerable to floods, and recovery will be very challenging.
“It’s climate injustice,” said Dean Romany, who currently serves as president of the Association of Trinidad and Tobago Insurance Companies (ATTIC).
He further explained to the Sunday Guardian that while premiums will go up, some homeowners will have to pay more than others.
He said, “What you have is a rate for a home in Trinidad. Let’s say the average rate for a building is four dollars per thousand (just a figure for educational purposes), and then you have areas that are prone to flooding like Penal, Diego Martin and parts of San Fernando; they may pay five dollars per thousand because of that flood-prone exposure that they have.” Romany said this was a risk adjustment because insurance companies anticipate they will have to pay out more to these areas than other parts of the country.
With the LA wildfires, insurers’ losses could climb north of $US30b, forcing insurance companies to look towards their reinsurers for help.
With just one month into the year and 11 months still to go, reinsurers could increase premiums for the Caribbean region as early as four months before the start of the wet season.
Rising costs, shrinking coverage
However, internationally recognised expert on climate change Steve Maximay warned that even for homeowners who can afford the increased premium, their insurance may not want to sell them coverage. “Worldwide, insurance companies have been literally backing away from covering some of these climate hazards, and these hazards run the full gamut from wildfires in LA to flooding in Valencia, and if you bring it closer to home, hurricanes in the Caribbean,” Maximay told the Sunday Guardian last week.
Last July, roughly 3,600 policies in Los Angeles were dropped by the insurance company, State Farm. There are similar stories in Florida, and Romany said it has already begun creeping into the Caribbean.
“You already have Lloyd’s saying that they are not doing business in the US Virgin Islands right up the Caribbean. You already have a number of multinational reinsurers saying that we are not going to provide more capacity for the Caribbean, including Trinidad and Tobago.
“Remember, values are increasing, so where are we going to get the reinsurances from?” he asked.
Romany, who also serves as president of Guardian General Insurance Limited (GGIL), said this was where local insurance companies have to entice reinsurers with strong packages, which can include higher premiums to be paid by residential customers so that reinsurers could continue being interested in T&T.
“It is better to have insurance demand well supported by local insurance companies and backed by the best reinsurers in the world, even at the sacrifice of paying higher premiums,” Romany said.
Insurance isn’t enough; Adaptation and mitigation investments needed
Such scenarios, be they residential or agricultural, can leave people who are most vulnerable to natural disasters such as flooding in T&T without coverage.
Maximay and Romany said this points to climate injustice.
Maximay explained, “It is just another example of how climate finance ought to be linked to climate justice and just transition, and there should be a reduction in terms of the money that comes to the region as debt. The time for loans is long gone. What we need now is redress.”
He touted the idea of climate finance being invested in insurance companies, saying, “Every time the Green Climate Fund or the Global Environment Facilities of this world provides the region with a grant, as it pertains to the climate justice issue—you are being awarded these grants because it is their way of attempting to redress the injustices the region continues to suffer—I’m saying if you can tie that to an insurance facility ... “In other words, it makes no sense if a multilateral agency gives Trinidad $US50m if Trinidad is going to take that money and buy services and goods from the same countries that caused the problem in the first place. To me, it would make more sense if that money went into a facility like an insurance-like facility so that the next time we have an issue—at least we have that money as an insurance back-up. In other words, it could be used to fund CCRIF and agencies like CCRIF.”
CCRIF is the Caribbean Catastrophe Risk Insurance Facility, of which T&T is a member. According to its website, since its inception in 2007, the facility has made 78 payouts to 22 members totalling approximately $US390m.
CCCRIF CEO Isaac Anthony agreed with Maximay but said countries must also do their part.
He added, “I agree that if there is a grant, some of that grant could be earmarked towards increasing the coverage of the countries so that hopefully if they are impacted by an event, they will be able to get a much bigger payout than what they had been receiving.”
However, Anthony underscored that insurance is not the only instrument, and there are other things a country should be doing. He pointed to investments in adaptation and mitigation.
“Regardless of how much you mitigate and adapt, there will always be the residual risk, and this is where loss and damage come in, and that is where insurance comes in as a very important tool.”
Both complement each other, Anthony added.
The impact on agriculture in T&T
The agriculture industry also faces an uncertain future as it pertains to insurance. Presently, there are limited options when it comes to crops and land being insured.
President of the Agricultural Society of T&T (ASTT) Daryl Rampersad, said that roughly 90 per cent of farmers in T&T are not insured. He explained, “We do not have sufficient coverage as it pertains to the agricultural activities to which we have in T&T. We do not have coverage in crop farming. We do not have companies that are actually willing to cover crop insurance in T&T because of the low-lying areas we have agricultural production taking place. The risk is too high.”
Rampersad said another factor that needs to be taken into consideration is that farmers are self-employed, and a proper coverage package can run anywhere between $300 and $1,200 per month.
“In most cases, a farmer cannot afford that. A farmer is a sole trader, and he is one who takes all his risks for himself. There is a cost factor that will deter a farmer from taking out insurance in certain areas,” Rampersad added.
As a start, the ASTT president said a more organised structure of agriculture in the country was needed to persuade insurance companies to cover the sector.
He added, “Until we can identify areas that are safe for agriculture and mitigate some of the risks that are involved, you are not going to get the insurance companies buying in.”
As premiums increase for the people of the Caribbean, some may be able to afford it, others will not and remain uncovered, while some won’t have access to private insurance at all.
This story was published with the support of the Caribbean Climate Justice Journalism Fellowship, which is a joint venture of Climate Tracker and Open Society Foundations.
