Insurance sector may be affected by the global financial crisis

Nov 12, 2008 News

If the global financial crisis is prolonged or leads to a full blown recession, it can directly affect Guyana in several areas, particularly remittances and Foreign Direct Investments (FDI).
However, other sectors can also be indirectly affected including the insurance sector.
Maurice Odle, of the Caricom Secretariat, at a recent forum on the crisis had said that reinsurance costs are likely to increase for all local insurance companies as a result of uncertainty in the global economy.
Commissioner of Insurance, Maria Van Beek, said that the insurance sector may suffer from the impact of the financial crisis indirectly and it is also possible that reinsurance premiums will go up.
According to Van Beek, the impact will mainly come through a downturn in the economy.
“If there is a slowdown in the Guyana economy insurance will be affected by that.”
She added that her office has been following the crisis since its initial stages in September.
However, Van Beek noted, unlike the banking sector, the insurance sector is a bit more complex. “It’s not just the investments that you have to monitor but you have to monitor the reinsurers — those are the insurance companies overseas that are backing the local guys.”
She pointed out that they have been monitoring every main risk factor that is related to the crisis and she does not feel that Guyana is very exposed when compared to some of the developed countries. However, it is a situation that requires continuous monitoring.
“One of the factors is obviously the failure of a big overseas insurance company. That will have ripple effects on us and again it will only affect us if there is a claim that is attached to that. So we are monitoring the overseas companies and the investments that the companies here have…But directly there has been very little impact.”
Van Beek reiterated that the impact will come through a downturn in the economy.
She noted that insurance companies get their business from construction and when they have to cover all the projects that are being executed and if there is a slowdown, companies will be affected.
“If people are buying fewer houses; if they are taking out fewer mortgages, sure the banks will be affected but the insurance companies will be affected too, because people buy life insurance or fire insurance.
“If fewer cars are being bought…there are all these indirect effects when there is a financial slowdown.”
According to her, the insurance companies here are very prudent in their investments, outlook and approach and that has really served them well.
“But indirectly, as people have less money to spend they may not renew their insurance policies or they may not feel that they can purchase insurance this year or next year. That’s where the insurance sector will be affected.”
As it relates to reinsurance, Van Beek said that if there is a failure by a reinsurance company linked to Guyana the locals may have to increase their premiums.
“If they are struggling financially they may have to increase it and we are monitoring that.”
Van Beek said that the fact that these companies are huge can sometimes mean that they are more exposed in a perverse way but most of the insurance companies with which Guyana is associated are “the top insurance companies.”
“Our insurance companies here like to deal with the well known ones.”
She noted that some of the big names have also been falling in the financial crisis but that doesn’t really mean anything.
“I can’t say that Swiss Re or Munich Re will not fail. I can’t say that. But so far, I hope we’ve seen the worst of it in terms of an initial thing but everybody is saying that it is going to get worse so we might see reinsurance premiums going up.”
According to her, the insurance sector has seen increases in reinsurance premiums over the years recently and it would be “bad news” if it is further increased.
“I think it would be bad news if we see further increases because it’s hard on the local guys to absorb that cost. On the other hand, you may not have a choice so let’s hope. I wouldn’t write it off that next year there may be an increase in reinsurance premiums. I would say it’s probably more likely to happen than not happen. But we’ll monitor it.”

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