Working Paper Series: Special Edition of 2016 to 2018 Interns

One of the ramifications of a disaster is that it influences the rate structure of a firm. An insurer may encounter high loss ratios 50 in the year of a catastrophe and low loss ratios in non-catastrophe years. For example, post hurricane Ivan in Grenada, claim payments were as high as EC$250 per person (a 126.0 per cent increase over prior years) (Figure 3). In addition to the money paid to claimants for compensation, the insurer generally incurs loss adjustment expenses (LAE) 51 ,and, as a result, premium rates are likely to increase to maintain profitability in the long run.

Figure 3: Claims Paid Per Capita in the ECCU, 2000-2017 (EC$)

Claim Per Capita

300

Hurricane Ivan

Hurricane Omar, Excessive

Tropical Storm Erika, Flooding & Landslides

250

Flooding & Landslides

200

Hurricane Omar

150

100

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Dominica

Grenada

St Kitts and Nevis

St Vincent and the Grenadines

Source: Central Statistical Office, the World Bank and Eastern Caribbean Central Bank

One of the primary deterrents to insurance is cost. Over the last two decades, the cost of property insurance has increased in the region (see Figure 4). Due to the high claim payments in Grenada following hurricane Ivan, premium rates increased by at least 42 per cent. It must also be noted that the cost of insurance and reinsurance, as a result of the 2017 hurricane season, is expected to

50 Loss ratio is a measure of the portion of each premium dollar used to pay losses. 51 Loss adjustment expenses are expenses incurred in the process of settling claims. For example, legal and administrative fees.

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