Insurance Losses Could Lead to Hike in Reinsurance Rates
Editor’s note: The following article originally appeared in the December 14 print edition of Caribbean Business.
SAN JUAN – Hurricane Maria’s impact on Puerto Rico has not only caused material losses to businesses and homeowners but “should drive reinsurance pricing higher” amid concerns the damages may cause billions in losses to the insurance industry.
Local Insurance Commissioner Javier Rivera Ríos said the Association of American Reinsurers expressed concern about reinsurance pricing and that failure to raise it could prevent insurers from paying out claims.
“They are worried about the claims and the tariffs are low,” he said.
The possibility of a hike in reinsurance rates was predicted in September when AIR Worldwide’s catastrophe models put insured losses for Hurricane Maria at $40 billion to $85 billion. with Puerto Rico accounting for 85% of that loss. Gov. Ricardo Rosselló has said rebuilding the island would cost $95 billion.
Iraelia Pernas, executive director of the P.R. Insurance Companies Association, better known as Acodese, said the insurance industry will have to “resign itself” to the inevitable reinsurance premium hikes to avoid losing clients.
When insurers insure a risk again, it is called reinsurance. Insurers spread the costs of paying out on large risks by reinsuring part of what they have agreed to insure with other reinsurers. This “spread” means the loss incurred by each individual insurer is not as severe. A hike in the reinsurance rate could mean a possible hike in insurance rates for the entire industry.
She noted that reinsurance premiums tend to go up after a catastrophic event, as happened when Hurricane Georges hit the island in 1998 and after Hurricane Katrina struck New Orleans. This increase also occurred after Hurricane Hugo ripped through Puerto Rico in 1989.
Rivera Ríos also sent auditors to the streets last week to monitor the work of eight of the island’s largest insurance companies amid complaints over delays in processing claims.
“We are monitoring. We aren’t looking to fine or to point anyone out, but to learn about how the event is being handled,” Rivera Ríos said in an interview from Hawaii, where he was attending the National Association of Insurance Commissioners and advocating for the elimination of a sales tax on health insurance (called HIT by opponents).
The insurers visited by auditors included Mapfre, Universal Insurance, the Cooperatives Supervision & Insurance Corp. (Cossec by its Spanish acronym), and Integrand. Rivera Ríos said the companies were chosen for having the greatest number of business claims.
Although Rivera Ríos said some 25 official complaints were filed in his office, he said they receive up to 40 calls a day from property owners complaining about delays with their claims.
The Insurance Code states that claims must be processed within 90 days. However, after Hurricane Maria, Rivera Ríos issued Normative Letter 220D, which reduced the processing period for claims filed by certain businesses such as supermarkets, gas stations, hospitals, restaurants and manufacturing companies. The letter also included what is known as business interruption insurance, a policy that covers financial losses.
“In that normative letter, we emphasized that [the insurer] had to respond to the claim within 15 days. The payment, whether total or partial, must be issued within 10 days. What we wanted was to give an incentive for businesses to recover,” Rivera Ríos said.
Nearly 200,000 insurance claims have been logged since the hurricane hit. Of these, some 35,000 were filed by businessowners and more than 95,000 by homeowners. These numbers are expected to rise. They are also much higher than the number of insurance claims filed after Hurricane Georges in 1998. At that time, 24,596 claims were filed for damages to businesses, 64,482 for houses and 1,238 for condominiums.
Acodese’s Pernas noted that while the Insurance Commissioner had the right to monitor and hold companies accountable for their actions, “we cannot forget that we are handling over 200,000 claims. Puerto Rico has not had a catastrophic event such as this.”
She also noted that insurance companies went out of their way to provide service after the hurricane while continuing to handle regular claims involving car crashes and other types of accidents.
“The 90 days are not up yet. We are still in the middle of the process,” she said.
When insurance companies have an excessive number of claims, they hire claims adjusters from the U.S. mainland or abroad to temporarily assist. In the case of adjusters from foreign countries, the Insurance Commissioner’s Office announced in a letter that it would not provide permits for temporary business visas (B1 or B2), which several insurance companies said delayed the processing of claims. However, the office later issued another letter eliminating the requirement after consulting with the State Department.