Insurance Helpline, With cedric Stephens

Question: I tried buying insurance for my house in Mandeville when Hurricane Dean was approaching the island a few weeks ago.

None of the five insurers I contacted was interested. The two brokers with whom I spoke were useless.

As a result, my house was not insured.

It is unjust for insurance companies to refuse to provide insurance against hurricanes in a country like Jamaica.

Does this practice take place in other countries? Are there any good reasons why insurers behave this way? Can house owners and other persons work around this problem?

- W.B., Mandeville P.O.

Answer: Hurricane events like 'Dean' affect all sorts of markets. Hardware, other consumer goods, fruits and vegetables, garbage collection, financial services (example, banks, building societies and insurers) and gasolene are among them.

Some markets feel the crunch before the occurrence. Others experience it before and afterwards.

To some, it presents chances to boost their sales and to raise prices. To others, it threatens profits and weakens their balance sheets. It is within this context of markets in general, that I will try to answer the three questions you posed about the market for hurricane insurance.

What happens in other countries? The demand for hurricane insurance increases when a storm or hurricane approaches.

Maybe the surge is linked to the sale of candles, batteries, corned beef and sardines during the months of August to October.

Some house owners and business persons who avoid thinking about insurance use the 24 to 36 hours when storm or hurricane conditions are possible, to try to buy coverage.

I saw proof of this while I was in a broker's office last month.

Telephones were ringing off the hook. Clients and would-be clients, according to employees, were in a mad rush to get insurance or to top-up existing policies.

There were even calls from persons in Caribbean Terrace, Kingston.

At that time, insurers were saying no to new contracts or granting extra coverage.

The situation that you experienced here is similar to what happens in the Eastern Caribbean. Insurers there, as in Florida and other coastal areas of the United States, behave the same way.

can ruin insurance companies

They get very nervous during each hurricane season. They 'lock-up shop' when a hurricane or storm approaches.

In much the same way that houses were wrecked by Dean, storms and hurricanes can ruin insurance companies.

When Hurricane Ivan struck Cayman in 2004, it caused one local insurer, Dyoll, to go out of business. Other regional insurers were also hurt by that event.

It did lots of damage to their balance sheets.

Local and regional insurers often carry all their eggs in one basket. They operate in one country or throughout the region. The risks that they write are concentrated here.

Unlike international insurers, they don't trade in countries that are earthquake and hurricane-free. Taking on more risks when a threat exists, is like placing more eggs in the same basket.

If an accident were to happen, all of the eggs might get broken. This explains why local insurers were rejecting risks when Dean came near to Jamaica. In contrast, overseas insurers that had a wider spread of risk still found it possible to write local hurricane insurance.

EARLY COVERAGE

How to work around the problem? Consumers can avoid problems by buying coverage before a storm or hurricane threatens.

Waiting to make a last-minute purchase is like trying to place a bet on a horse at Caymanas Park after the starter 'fly de gate'.

House owners and business operators should plan to make their purchases early.

If they try to hedge their bets by waiting until after the hurricane season has started or when a storm or hurricane is nearby, they may find - as you found out - that coverage is unavailable.

The laws of supply and demand also apply to insurance. Further, insurers like consumers, also use the practice of hedging to cancel or reduce the negative impact of events on their business.

Locking up the shop when a storm or hurricane is near is one of the many things they do to protect themselves.

If your house is still not insured, give insurers a call. If a hurricane is not on the way, you may still be able to buy protection, even though the season still has many more weeks to run.

Cedric E. Stephens is an insurance consultant. He provides free, independent information and advice to consumers. Email: aegis@cwjamaica.com.