June, 5, 2002 – The "gush down" effect — as it was referred to — of the territory's insurance crisis threatens every area of the Virgin Islands economy. That was the dire determination of an assembly of Realtors, legislators, insurance industry leaders and business people gathered Wednesday night to find solutions to the crisis.
The territory's insurance problems have been building for well over a decade, but have reached dramatic proportions in recent days as two of the islands' three remaining major property-insurance carriers have announced plans to discontinue writing property and casualty insurance in the U.S. Virgin Islands.
They cite an impasse between themselves and the Division of Banking and Insurance, the industry regulatory agency, over requested rate increases as the reason for the pullout. Royal and SunAlliance and NEMWIL, which jointly write nearly 20 percent of the property coverage in the territory, both announced last month they can no longer afford to do business in the V.I. with the current rate cap.
Lt. Gov. Gerard Luz James II, who also serves as commissioner of Banking and Insurance, recently denied NEMWIL's request for a rate increase, saying it wasn't justified.
Randy Knight, moderator of Wednesday night's panel discussion and town meeting, started by reading articles from the Wall Street Journal and the London Financial Times about a global increase in the cost of insurance, caused in part by the events of 9/11 and the rising cost of reinsurance — the insurance that insures the insurers for catastrophic losses.
Knight called on the nine expert panelists to elaborate on what the problems are and to offer solutions.
Reinsurance costs have also been cited as the reason carriers in the V.I. are requesting rate increases, but that's where the similarities between the V.I. and other areas end, panelists agreed.
"This is a worldwide condition, not peculiar to the V.I.," David Ridgway, president of the V.I. Insurance Association, said. "What is peculiar is the decision by the Banking and Insurance Division to have a ceiling" on insurance premiums.
Ridgway said rates have gone up and down three times in the last 13 years, adding, however, "This is the worst situation that any of us can remember."
The Virgin Islands, he said, "needs to have a free market," suggesting that competition would drive down costs.
But business people and homeowners, who are currently paying rates as high as 2.4 percent or $2.40 per $100 of coverage for property insurance, as compared to 25 cents on the dollar in the 1980s before the islands were hit with two major hurricanes, are afraid of the skyrocketing costs associated with rate increases.
Some say James, who recently announced he will run for governor, is playing politics with the industry by claiming he is protecting consumers from the predatory insurance companies.
Ridgway said Lloyd's Underwriters paid out about $487 million in claims over the last 12 years, while collecting about $200 million in premium.
Cassan Pancham, president of both the V.I. Bankers Association and the St. Thomas-St. John Chamber of Commerce, was asked how much profit the insurance companies made prior to Hurricane Hugo in 1989. "The companies are in it to make a profit," he replied. "They answer to their investors every year, not over the period of a century."
However, the companies that were writing property insurance in the territory then — CIGNA, Continental, Chubb Insurance Group and others — "are gone," Ridgway pointed out.
Another peculiarity of the V.I. is the cost of jury awards in tort cases. Attorney Joseph Arellano said they are 10 to 20 times higher than in other jurisdictions. His solution: "Get rid of juries."
Sen. Emmett Hansen II agreed, saying that the Legislature takes a lot of the criticism, when "we need to look at the judicial branch." He noted, "Any judge has the right to vacate a jury award."
But Hansen said judicial reform is not the job of the Legislature. Two entities, the Law Revision Commission and the V.I. Bar Association, are charged with oversight for the V.I. Code, he said. "If the Bar Association wants to change the code, let them bring it to us."
The high cost to insurance carriers of jury awards drove the automobile insurance industry out of the Virgin Islands in the early '80s, forcing the Virgin Islands to do away with compulsory automobile insurance because it simply wasn't available, Ridgway said.
Speaking from the audience, Richard Doumeng, general manager of Bolongo Bay Beach Club and Villas, said he has watched his liability policy at the hotel go "from $60,000 to $90,000 to $118,000," and that was without "one claim until this year."
That claim involved a "slip and fall" which resulted in a "simple broken arm -– no compound fractures" or other complications, he said.
"They had an attorney in the states and were asking for $75,000," he said. "They got a local attorney and they are now asking for $600,000."
Cheryl Sturgess of Majestic Construction offered a list of at least 10 different types of insurance a construction company must have in order to do business. For a company employing about 50 people, she said, general liability insurance alone can run as much as $225,000. Her group health insurance went up 120 percent, she said. When it comes to getting performance bonds, "You have to sell your soul to get those bonds." Her solution? "I just pay for it."
And so does everyone else, the panelists agreed, in every area from construction to a can of food at Pueblo.
"They just pass it on," Frank Fox, St. Croix Chamber of Commerce president, said.
Another problem, according to Fox, is the concern insurance carriers have about adequate fire protection. He said St. Croix has a newly renovated fire station on the East End, but "no firefighters, no fire equipment."
So, "during rush hour, if a fire started on the East End, it would take fire trucks 45 minutes to get there. By that time it's over."
The meeting, attended by about 200 people, leaned more toward citing problems than finding solid solutions, but some were offered.
One, brought to the table by Sen. Lorraine Berry, is to create an independent Bureau of Banking and Insurance, staffed with industry professionals appointed by the governor and approved by the Legislature. She held a meeting in January to discuss the draft legislation to create a de-politicized agency to oversee the industry. She expects to introduce the final legislation soon, she said.
Pancham suggested giving income-tax credits to property owners paying excessive insurance premiums.
The 24th Legislature recently offered a potential solution by adding insurance companies to the list of eligible Economic Development Commission beneficiaries, in an effort to lure domestic insurers to the V.I.
But Hansen said the EDC needs to be funded in order to go out and market to the companies.
There is also the matter of a $5 million capitalization fee required to set up an insurance company in the V.I. But business executive and gubernatorial candidate John deJongh said he still thinks that creating a local insurance industry could be a short-term solution.
Ridgway agreed but said that "domestic carriers tend to be very conservative," not writing more business than they can cover.
Other suggestions were:
– Tort reform
– Anti-fraud enforcement
– Hazard mitigation
– Infrastructure improvements
In the short-term, however, the insurance industry representatives said, the only solution is to remove the cap on rate increases and let competition reign.
Berry said if she cannot convince James to sit down with the insurance companies and reach a compromise on the current standoff, she will introduce a bill in the next full S
enate session to create a commission to review rate requests and reach a conclusion on a settlement.
Taking part on the panel along with Berry, Fox, Hansen, Pancham, Ridgway and Sturgess were Denyce Singleton, state director of AARP; Marian Mathes of Mathes Insurance; and Rosemary Sauter, president of the St. Thomas Board of Realtors.
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