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LT. GOVERNOR LIMITS INSURANCE COMMISSIONS

June 18, 2001 – The government's latest attempt to mitigate skyrocketing insurance costs could end up doing little more than costing local agents significant money, according to one longtime Virgin Islands agent.
Last week Lt. Gov. Gerard Luz James II issued an order providing that property and insurance carriers that file for rate increases must limit the agent's commission to the dollar amount paid on the prior premium.
James also said that "astronomical rates" are leading to many residents opting to do without insurance altogether.
John Harper, spokesman for the V.I. Insurance Association, had nothing to say Monday in response to the order or the press release James circulated about the order. He said he wants to poll individual agents.
One agent, who asked not to be identified by name, criticized James's plan. The lieutenant governor, who is also the insurance commissioner, has failed to take into account how the agents' commissions work, he said.
Most commissions are determined on a percentage basis of the total premium, he said. For example, if an agent worked on a 15 percent commission, he received $150 for a $1,000 policy last year. But this year, if his commission is frozen at the $150 amount, but the policy goes up to $1,500, that means he has dropped to 10 percent.
An agent's own liability insurance is determined by the volume he writes, not the commissions he earns. So if his percentage of commission drops, "then we end up a little bit short," the agent said. And the agency's bad debt increases, too. In other words, the cost of the agent's liability insurance is increasing but his commissions are not.
The agent also criticized James for turning down some rate increase requests. He said Royal and Sun Alliance Insurance Company of Puerto Rico pulled out of writing commercial business in the territory this year because its request was denied, contributing to the unavailability crisis. "There are some people not going to get insurance at any price," he warned.
Royal is still writing homeowner's insurance in the territory.
The agent agreed with James about the scope of the problem. Rates have increased as much as 50 percent on some commercial properties. And many customers –"I'd say 25 percent" — are only partially renewing policies, opting out of the more expensive windstorm coverage and leaving themselves vulnerable to hurricanes.

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