July, 8, 2003 – Lt. Gov. Vargrave Richards and David Ridgway, president of the V.I. Insurance Association, have both called on Gov. Charles W. Turnbull to veto an amendment approved in a June Senate session that would see the Insurance Guaranty Fund "raided" to the tune of $30 million.
The amendment allowing the governor to use the Insurance Guaranty Fund was expected to help ward off a payless payday during the last pay period in June, senators said during the June session. However, according to administration officials, the payroll was met by holding up income tax refunds and vendor payments.
The amendment involves the transfer from the insurance fund into an Economic Development Fund of money which may be substituted with a letter of credit, surety bond or reinsurance certificate. It urges the governor to substitute up to $30 million with a standby letter of credit.
But Richards, who as lieutenant governor serves as commissioner of insurance, and Ridgway agree that repeatedly tapping the fund has sent a bad message to potential insurers, putting the territory's insurance industry, and therefore Virgin Islanders, at great risk.
Ridgway expressed his concerns in a July 2 letter to newspaper editors. (See "Misuse of guaranty fund could hurt V.I.")
"Aside from the obvious risk created for policyholders in the Virgin Islands (we have just entered the second month of the hurricane season)," Ridgway wrote, "this action sends a damaging message to all property and casualty insurers active in the territory and, as importantly, to those insurers that may be considering entering or re-entering the territory."
Further, in a release sent on Tuesday, Richards said: "The repeated raids or attempts to raid the Insurance Guaranty Fund undermine the purpose for which it was established." That was to protect islanders in the event that insurance companies went belly up under the strain of catastrophic occurrences — as happened after Hurricane Hugo in 1989.
Damages from that storm exceeded the ability of some of the territory's insurance companies to pay, and they folded under the weight of the huge claims, leaving policyholders with no insurance and little recourse. The guaranty fund was used to pay $10 million in Hugo claims, Richards said in his release.
The legislation establishing the fund calls for it to have up to $50 million. Once it reaches that threshold, any excess spills over into the General Fund. The guaranty fund is financed primarily by a 5 percent premium tax paid by all insurance companies doing business in the Virgin Islands.
At the annual Insurance Association of the Caribbean conference in the Dominican Republic last month, Ridgway, Richards and Deverita Sturdivant, director of the Division of Banking and Insurance, met with potential insurers. Ridgway said they expressed "concern over unpredictable government actions, including specifically the repeated raids on the Insurance Guaranty Fund."
Richards echoed Ridgway, saying that "the repeated raids on the fund will hamper my efforts as commissioner of insurance [in] trying to lure potential companies to the territory to establish businesses sorely needed to fuel the economy."
Between September 1999 and December 2002, Richards said, $800,000 in claims and attendant costs were paid out of the fund. Currently, he said, $1.6 million is being held in reserve to pay pending claims.
If the territory is to be successful in attracting more insurance companies to the territory, Richards said, the integrity of the fund "must be made a high priority."
Ridgway said that "time and time again" the raids on the fund are cited by potential insurers as one big reason they are skittish about doing business in the Virgin Islands.
"The Virgin Islands Insurance Association encourages Gov. Turnbull to veto the amendment," Ridgway's release stated.
"The solution to both the shortage and the high price of property and casualty insurance in the U.S. Virgin Islands is to attract more providers. This latest raid will surely worsen the territory’s insurance problems," Ridgway said.
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