It will take many years to rebuild insurers’ “shattered” confidence in the Cook Islands, says one of the biggest international players in the market.
Insurance company Willis Towers Watson says it has paid out for $18 million of losses in just 12 floods and fires, and confirms that 60 per cent of its underwriting capacity for Cook Islands risks has been withdrawn.
Yesterday, Cook Islands News reported major resort operators’ calls for the government to set up an insurance company to protect homes, businesses and public sector agencies in the face of rising insurance premiums.
The premiums were rising because of the risk of storms and floods cause by the climate crisis, they said, and because of a series of arsons. Tata Crocombe from The Rarotongan estimated the impact of the arsons at $1 million a year across the tourism industry. And his company alone was paying $350,000 more because of climate change.
Federal Pacific Insurance supported calls for a government property insurance scheme: “I personally would prefer to share the programme with both Tower and the Willis panel of overseas insurers. In this way we could all take a third of the entire risk each on a co-insurance basis at the same terms and premium,” said regional underwriting manager Philip Holdway-Davis.
“I like this idea because it creates community resilience in the event of natural disaster. Yes we are healthy competitors offering consumer choice, but when faced with large scale natural disaster we really should stand side by side and pool our resources to quickly rebuild a shattered community.”
In some areas of Japan, no private insurer will protect against earthquakes, so the government has a scheme which can provide some cover. Similarly in New Zealand, where the government’s Earthquake Commission takes a portion of the risk.
Willis Towers Watson’s Pacific Islands practice manager Ged McCombie said he had been in discussions about the problem for the past 12 months, and their company has warning that London underwriters’ confidence in this country has “taken a serious blow”.
The reinsurers had little patience with a high-risk market like the Cooks, where the resorts face the threat of climate change inundation and have been hit by a spate of fires.
It’s now harder to get insurance, and for those who have insurance, premiums are going up.
The London-based market of big reinsurers like Lloyds, who back the world’s insurance companies, was already reeling from US$150 billion in losses, in just two to three years, most caused by major storms around the world.
Cook Islanders pay about $8 million a year for property insurance, McCombie said. That was now rising.
The reinsurers were already concerned about cyclones. “The arsons highlighted to our global underwriter panel a portfolio vulnerability that they had not previously considered and this contributed directly to the loss of underwriter risk appetite for the Cook Islands property business,” he said.
Two arsonists have been jailed in the past few months: David Tonorio, who torched Raro Mart and two smaller stores, and Australian deportee Iovane Paerau, who has been convicted of arsons and burglaries. Police believe he is responsible for many more.
The impact on business varied, McCombie said: those who hadn’t claimed fire might expect 15 to 20 per cent premiums increases; those who had claimed for fires might face premiums hikes of 40 to 100 per cent.
“The arsons have changed the insurance landscape for the Cook Islands,” he said. “It took many years to develop underwriting confidence for the Cook Islands territory and within the space of 12 months (between October 2017 and October 2018) this confidence has been shattered with many of our international markets electing to deploy their capacity in less risky environments.
“As such, the insurability of the Cook Islands property market (both commercial and domestic) has been profoundly altered and it is going to take many years to rebuild this confidence and restore a competitive pricing environment.”
Federal Pacific Insurance did not see arson contributing to premiums increases for its customers: it was simply priced into insurance contracts in advance. And while the climate was “most definitely changing”, they said they would only raise premiums when their reinsurers lifted premiums.