March 30, 2001 — Responding to concerns of the territory's insurance industry that there isnt enough capacity to handle local need, Lt. Gov. Gerard Luz James II said Thursday that his office is developing a plan to attract carriers.
James, who as lieutenant governor also wears the hat of insurance commissioner, told members of the V.I. Insurance Association that even though the Division of Banking and Insurance is a regulatory body and not responsible for marketing the territory to insurance companies, it has hired a consultant to provide "alternative approaches to resolving the current capacity crunch."
The capacity problem, James contended, isnt due to burdensome policies that companies encounter when they try to obtain a local license. To prove his point, he said that since he took office in January 1999, 11 companies have applied for licenses to conduct business in the territory. Seven of those have received licenses. Additionally, he said 12 other carriers have applied for licenses to conduct business as surplus-line carriers. Of those, 10 have been approved, with one application still under review.
The four companies that didnt receive approval had various problems, including not having the minimum capital and surplus required by law and a criminal conviction of one company officer, James said.
Meanwhile, more companies are coming to his office seeking rate increases that average 20 percent to 40 percent, including Lloyds of London, James said. And while the need for the increases is disconcerting, James said it dispelled rumors that Lloyds, whose syndicates manage between 55 percent and 60 percent of the insurance in the territory, is pulling out.
St. Thomas attorney Henry Feuerzeig, Lloyds of Londons representative in the territory, also dismissed reports that Lloyds is bailing out.
"That is absolutely false," Feuerzeig said. "There is no intent of Lloyds leaving the Virgin Islands."
Lloyds and other companies, however, are looking to increase rates, primarily to offset the escalating cost of reinsurance, said Maryleen Thomas, director of Banking and Insurance. Reinsurance, which has increased in cost by as much as 50 percent, is essentially an insurance policy that companies buy to cover themselves.
James said the insurance climate in the territory doesnt warrant the rate increases of the last few months.
"There is no dispute that the cost of insurance is astronomical in the Virgin Islands," James said. "And while we were spared from the ravages of hurricanes last year, our insurance consumers in the territory . . . find themselves paying more for insurance than they did last year."
The dilemma then, James said, is balancing the need for affordable insurance with the need for rate hikes for companies that are "threatening to cease writing in the territory should my office disallow the rate increases."
David Ridgway, president of the Virgin Islands Insurance Association, said the capacity problem is a real one. As far as companies requesting rate increases, he said Banking and Insurance should implement a fast-track system.