Cedric Stephens, Contributor

Question:In last Sunday's Gleaner you advised readers that whatever the rates charged, cancellation of perils insurance was "not an option." To underline the point you posed the question: " Why is it that in some countries, for example, Switzerland, perils insurance is compulsory?"

Readers need to know that Jamaica and Switzerland are light-years apart in terms of the costs of and access to perils insurance. This year in Switzerland, perils insurance for a house valued at SF664,636 costs SF332.30 per annum. In Jamaica, the premium for a $10 million house is $99,025.00. The cost in Jamaica is 20 times more than in Switzerland! There are no deductibles in Switzerland unlike in Jamaica. Perils insurance is hardly an option in Jamaica.

- nldams@bluewin.ch

Answer: You misread my article - "Have non-life insurers lost the battle for hearts and minds?" It was that local insurers are doing a lousy job. You seem to be in agreement with me on this point. Your argument is, however, based on the price of perils insurance here. To support your conclusion, you compared the price of insurance in Jamaica with that of Switzerland, where you live. Based on that comparison, you say that the local price is too high. You and I disagree. Since I do not want you, and other readers, to believe that I am the mouth piece of insurers, I decided to debate the subject with you - in public.

My second motive for a public debate was driven by issues in the news. Politics, the pending general election and global warming - surprisingly, the latter did not merit any attention during the big debate between Portia and Bruce - are connected with perils insurance.

Jamaica is a very risky place. Like Grenada, it is exposed to hurricanes and earthquakes. (In 2004, that country lost two years of its wealth (GDP). Only one in 10 of the buildings there survived Hurricane Ivan. Few house owners had insurance).Your mail led me to look at the PNP and JLP manifestos. Was risk management on their agendas?

First, I did not "advise readers that cancellationof perils insurance is not an option." My remarks were made in a very specific context. They were in response to questions raised by one consumer.

Second, the actual words that I used were: "cancellation of your insurance is, probably, not an option." They were followed by two statements. The first was: "This assumes that your house has a mortgage." The other was: "Lenders require insurance and say so in their mortgage agreements." In short, I said the particular consumer probably had no choice about perils insurance because of the terms in the mortgage agreement.

Informal self-insurance is common in Jamaica

Risk transfer (or buying insurance) is a formal way to handle risks. It is not the only one. The average Swiss earns more than the average Jamaican. Self-insurance of houses there is a no-no. Government decided that the risks associated with home ownership should be transferred to the private insurance market. The transfer of risks benefits society. In Jamaica, our government has fewer resources than the Swiss government. The Jamaican Government does not have the funds to act as insurers of last resort. 'Informal self-insurance schemes' for houses are widespread. What will happen when the next big disaster strikes? Who will fund the repairs? Given his scenario, aren't there many opportunities for non-life insurers?

Why does perils insurance cost more in Jamaica?

Location affects the prices of houses. The same can be said about the price of perils insurance. Jamaica is exposed to earthquakes and hurricanes. The island has a long history with them. Many persons, including university graduates and employees of insurers, fail to make the link between Jamaica's geography, geology, the threats posed to lives and property and the price of perils insurance. For reasons best known to them, insurers do not tell home owners these things; that those factors are the main reasons why perils insurance costs so much here. Switzerland does not have hurricanes. This peril accounts for about 40 per centof the premium in Jamaica. While that country is also exposed to earthquakes, the risks there are deemed 'low to moderate' as compared to 'very high' here.

What the manifestos said

The manifestos do not deal adequately with the threats from earthquakes and hurricanes. This is based on the probability of the threats and the potential impacts. If appropriate policies and plans for handling them are not developed and embedded in all areas, economic growth will suffer. As is to be expected, the PNP document provides more details about its plans in this area. The JLP's, on the other hand, is short on details. It deals generally with principles.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com