Professional Centre > Bahamian Industry

Bahamian Industry

Background

The Bahamian general insurance market found its origin in a few isolated insurance agents formed mainly as a by-product of local merchants who through agency agreements wrote business for composite general insurers mainly domiciled in the U.K.

Slowly as the economy expanded and the demand for general insurance products grew merchants spun off their insurance business into stand alone agencies. The Road Traffic Act 1958 spurred this demand amongst the general population by the imposition of compulsory third party liability insurance for motorists.

The agency market grew steadily and in early 1972 the Bahamas General Insurance Association was formed. Originally the association consisted only of general insurance agents under the name of the Bahamas General Insurance Agents Association (BGIAA). In 1975, with the addition of underwriters and adjusters as members, the name was changed to the Bahamas General Insurance Association (BGIA). In February of 1993 the BGIA was incorporated under the Companies Act 1992, as a Company Limited by Guarantee.

The objects for which the BGIA was established are: -

  1. To develop, promote and protect the interests of its members and the General Insurance business in the Commonwealth of The Bahamas, and to increase public awareness and education with respect to the benefits of General Insurance;
  2. To foster the education of persons working in the General Insurance industry in The Bahamas;
  3. To participate in civic affairs;
  4. To consider all matters pertaining to the General Insurance industry in particular, and to trade and commerce in general in The Bahamas;
  5. To represent the opinion of the Association to responsible persons and bodies;
  6. To promote or oppose legislative and other measures affecting the General Insurance industry, trade and commerce in The Bahamas;
  7. To collect, examine and distribute among its members statistical and other information in relation to the General Insurance industry and trade and commerce in The Bahamas;
  8. To print and publish newspapers, periodicals and books or leaflets which the Association may think desirable for the promotion of its objects, and from time to time engage in public relations activities in whatsoever form the Association shall deem fit;
  9. To become affiliated with any active, commercial, civic, or professional organisation or association in any part of the world whose objects, purposes and work shall be similar in part or in whole to those of the Association;
  10. To promote and maintain high ethical standards amongst the members of the Association; and
  11. To do all other lawful things as are incidental or conducive to the attainment of the above objects.

The early 1980's saw the emergence of the first general insurance company voluntarily formed and supported through its associated agency portfolio.

In the late 1980's composite insurers that wrote business in the Caribbean and The Bahamas had a rude awakening to the reality of their property portfolios' exposure to hurricanes after experiencing losses from Hurricane Hugo. The resultant retraction of capacity in the territory by insurers and their reinsurers saw some of the composite insurers withdraw from The Bahamas, thereby creating the opportunity for the establishment of other insurers in the local market.

The local companies wrote business primarily for their associated agents. However, in the 1990's there began a divergence by a few local insurers to offer their products to other non-associated agents/brokers in the market.

In the late 1990's and to-date we experienced the dilution of the foreign ownership of local insurers, and subsequent years saw the acquisition and mergers of agency portfolios of business by industry players to increase their market shares.

As you may gather the pattern of distribution of general insurance products throughout The Bahamas is predominantly through agents or brokers. The general insurance market today is not the languid industry it once was. It is now saturated by a number of insurers, agents and brokers all competing for market share with price, particularly in the property or fire class, being driven by reinsurers.

The industry faces internal pressures by further regulatory control and the increase in cost of doing business to be introduced by the revised domestic insurance act and the various compliance requirements brought on by a bevy of legislation from the financial services sector.

Externally, the industry faces further challenges as it looks ahead to the effects of the liberalization of trade through the regional initiatives of CSME and FTAA, and its need to look for local capital capacity to reduce its dependence on reinsurance and align itself with the other markets in the region to remain competitive in a broader market.

Regulation of the General Insurance Industry

The local insurance industry is governed by the Insurance Act 1969, and regulated by the Office of the Registrar of Insurance Companies (ORIC), with the Minister responsible for insurance matters having the ultimate responsibility for overseeing the insurance industry in The Bahamas.

Presently, the insurance industry falls under the Ministry of Financial Services and Investments. The Hon. Allison Maynard-Gibson, M.P., currently occupies this position as our Minister.

It is the Office of the Registrar of Insurance Companies that has the primary responsibility to protect the interests of policyholders through the supervision of the insurance industry operating in The Bahamas.

According to the statistics produced by the ORIC as of 2001, the number of registered insurers in the property and casualty class amounted to some 41 and the life and health industry some 15. The total of intermediaries amounts to 55, consisting of agents and brokers.

However of these there are:

The Insurance Act 1969 restricts insurers and intermediaries from carrying on insurance business in or from within The Bahamas unless they are registered as such in accordance with the provisions of the Act.

The Act also sets out:

Legal Matters
Revised Domestic Insurance Act
A draft bill to replace the Insurance Act of 1969 has been prepared for Cabinet to debate after consultation with the local life and other than life representatives. The revised act is intended to strengthen the protection given to policyholders by:
Amendment to Road Traffic Act

In October of 2004 the Road Traffic Act 1958 was amended to change the statutory requirement from unlimited third party liability in respect of bodily injury to $2.5 million per person, and $30 million any one event.

This amendment has been introduced in part because local insurers have been advised by their motor reinsurers, in this respect, they will no longer provide unlimited protection, and their exposure has to be capped.

The Reinsurance Market

Local insurers have traditionally been undercapitalized in relation to the risk inherent in doing business in The Bahamas and instead, have been content to lay-off to reinsurers the greater part of their insurance business. This has resulted in their overwhelming dependence on foreign reinsurers from protection of their capital base and their ability to provide insurance protection to consumers.

For example; on looking at the results of five major insurers in 2002 with a total gross written premium of $228 million, $170 million was used to purchase reinsurance.

This outsourcing of capital puts pressure on our foreign currency reserves; however, this outflow is reduced by reinsurance and profit commissions paid by reinsurers and by reinsurers' share of claims e.g., $200 million received after Hurricane Floyd.

The steep declines in equity markets in 2001 and 2002 compounded by the loses from the September 11th attacks have lowered reinsurers capital bases and consequently reduced the capacity in the industry. As well, the industry has been negatively impacted by higher claims from asbestos and directors and officers (D&O) liability policies.

As a result, subsequent to the September 11th attacks, the pricing of reinsurance products increased substantially.

Quite apart from the problems of the industry alluded to earlier; The Bahamas is located in a catastrophe prone area. The recent hurricane activity only exacerbates reinsurance capacity restrictions. The geographic proximity to Florida and the eastern seaboard of the USA also negatively impacts our ability to attract capacity as reinsurers aggregate their total exposure by combining The Bahamas with that part of the world. As well, due to the potential volume of premium to be derived from that area when compared to The Bahamas it is in a capacity competition, which The Bahamas loses. It is not surprising that the international reinsurers would rather employ capital in North America, which although subject to similar hurricane activity provides a much shorter payback period than The Bahamas. This is one of the reasons The Bahamas has a higher rate for catastrophe cover than our Caribbean counterparts who are not faced with the same demand and supply restrictions. Furthermore, in the last 12 years we have experienced five major catastrophes, whereas other single Caribbean nations have not had a similar claims history.

Whilst it is admirable to try to reduce the outflow of funds from The Bahamas, it is well to note the challenge facing insurers and consequently intermediaries here, that of operating in a region with a small population, modest economic base, but with severe exposure to natural hazards such as hurricanes. This is a perplexing problem, which has plagued the whole Caribbean for some time but with no real solution in sight. The local insurance industry should take a strategic view which would hold that whatever the reinsurance climate, long term interests are best served by strengthening all elements of the industry infrastructure to meet the expectations of existing and potential policyholders.