Experts call insurance estimate 'ridiculous'

Mon, Sep 19th 2011, 10:38 AM

While a leading catastrophe modeling firm has revised its insurance losses estimate for Hurricane Irene, local experts believe the number is still grossly exaggerated.
AIR Worldwide reduced the losses for The Bahamas to between $200 and $400 million, down from its August 26th $300-to$700 million estimate.
But Brice Ferguson, president of Professional Insurance Consultants, said the revised figure was still "ridiculous".
In fact, Ferguson said the true figure to be closer to $30 million, and believes the manner in which firms collect the data is not only inaccurate, but could also be costing local premium payers.
"We continually talk to [the reinsurers], but the problem is they tend to sit in their glass towers, get the computer models and slavishly go by them instead of getting out here themselves, which in the old days they used to do," Ferguson told Guardian Business.
"[The computer models] are very inaccurate, and nothing can beat people on the ground for assessing the damage that was actually caused."
Better loss estimation by the major reinsurers in London, Zurich, Munich and France could result in lower premiums for Bahamian property owners, according to Ferguson.  The modeling does not take into account many of the on-the-ground realities such as the protection reefs lend New Providence to mitigate potential damage on this island, he added.
"They lump us in with the US ... it makes it difficult to get the insurance that we want at the price we want," Ferguson said.
He pointed to the fact that Bahamians were paying comparable home insurance premiums to those paid in Jamaica, despite the fact that Jamaica's property owners are exposed to earthquake risk as well.
But according to President and CEO of Bahamas First, Patrick Ward, Bahamians may be spared unduly inflated premiums due to the close relationship local insurers have with their reinsurers.  In a separate interview, he told Guardian Business that while he did not know where AIR was getting its numbers from, in terms of actual assumptions for insured properties, reinsurers were more likely to rely on feedback from the local market and real time "actuals" rather than the computer estimates.
"[AIR's estimates] would have had an impact, and a negative impact if it weren't for the fact that local companies are in direct communication with the reinsurers, which ultimately will be the determinant factor," Ward said.
He stated that the industry consensus was placing insured losses at between $30 and $40 million.
To arrive at more accurate insured loss estimates going forward, Ward said AIR must better analyze actual data and calibrate their forecasting models accordingly.
According to AIR, its revision was based on a refinement of information about how many properties were actually insured, based on feedback from local experts during its recent damage survey, and a reanalysis of what insurers of a "significant" portion of the market detailed their exposure to be.
AIR noted that its estimate represented all insured properties in The Bahamas - not just those insured by Bahamian companies.
From Ferguson's perspective, however, it's highly unlikely the handful of Bahamian properties insured offshore would bridge the $170 to $360 million gulf between the local and AIR's estimates.  Resort properties such as Atlantis, Sandals and Breezes have offshore insurers, but based on what is known about their damages, "it's not going to make a huge difference", said Ferguson.
"Since [the] initial posting, AIR conducted a damage survey in the Bahamian islands of New Providence, Eleuthera, Abaco, and Green Turtle Cay," said Scott Stransky, scientist at AIR Worldwide.
"The levels of observed damage from both wind and flood were consistent with expectations and with AIR model results.  Wind damage to well-built concrete structures was limited to the roof, as the model indicates, while the less prevalent wooden structures suffered more substantial damage.  Well-engineered commercial properties typically suffered significant damage to signage."

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