Dec. 13, 2001 — Although insurance companies in the territory and the man that regulates them, Lt. Gov. Gerard Luz James II, study the minutiae of the same industry, neither side appears to come up with the same answers.
The industry says it is being managed in a "dictatorial" manner. James insists he is protecting the public's interest.
James, who serves as the commissioner of banking and insurance, said in a press conference on Tuesday that the "London market" is dictating the price of insurance in the Virgin Islands. He said that some London-based reinsurers, basically companies that sell insurance to insurance companies, were threatening not to provide reinsurance to primary carriers in the territory if "certain rate increases" aren't allowed by Dec. 31.
"In other words, the London market is dictating the price of insurance in the territory," James said. "I find this to be unconscionable and grossly unfair considering the fact that filings received thus far have no evidence linking the Sept. 11 events to greater insurance costs in the territory."
But in a statement Wednesday, the V.I. Insurance Association said it was thankful that Lloyds of London and other London-based companies were doing business here because without them, at least half of the territory's homeowners would be uninsured.
"The reason Lloyd's writes so much business here is because few other insurers want to," said David Ridgway, president of the Insurance Association. "The members of the VIIA are actively trying to attract other insurers. Underwriters at Lloyds' understand that they write too large a portion of the market. Several underwriters have expressed that they do not want any more exposure here and would be happy to yield a portion of the market to other insurers, but where are they?"
While both sides agree that insurance rates in the territory are high, they disagree on how to make costs manageable. That is where the dissonance on rates increases. The association said that rates in other jurisdictions have seen increases of up to 150 percent. James, however, maintains that his office is working to keep rates down in the "face of rising pressure from some members of the insurance industry into giving significant increases without justification."
Ridgway said Banking and Insurance's "adamant stance" that rates must be frozen at 1998 levels takes away consumers' right to choose and underestimates their ability to make informed decisions.
"The Division needs to protect the consumer's opportunity to purchase a product at some price instead of creating the availability problem that exists now," Ridgway said. "This shortage has reached a critical stage during the last two quarters of 2001.
"To the best of our knowledge, there have been no rate increases approved in the major standard Homeowners facilities since 1998."
James said that despite opposition from the industry, he has established a procedure where a actuary review is made of rate increase requests that are not supported by "credible loss and expense statistics or an actuarial study to ensure that rates do not continue to escalate without justification."
James said that in 2001, he approved three rate increases.
Ridgway pointed to "dramatic" rate increases of 50 percent to 150 percent in other jurisdictions. But increases requested by local companies average less than 20 percent, with some as low as 13 percent. And, he said, most have been pending since prior to Sep. 11.
"The sooner we create a competitive environment where coverage is available, the sooner competition will force rates down," Ridgway said. "Each of our members live and die by our ability to bring to the market better, more affordable insurance coverage than that of their competitors. It is only through the operation of this free market system that the crisis in the pricing and availability of insurance will be solved."
