Jan. 26, 2002 – The word on the insurance street is that the U.S. Virgin Islands is a "hostile environment" in which to conduct business, according to Nosh Marfatia, president of Dorchester Insurance Co. Ltd., one of only three domestic insurance companies doing business in the territory.
And Marfatia was not the only industry specialist who carried that message to a forum on insurance Saturday.
Jim Tunick, president of Theodore Tunick and Co., said, "The Virgin Islands has a terrible, terrible reputation in the insurance world as a place to do business."
Virgin Islands drowning in regulations
In fact, Tunick said, the regulatory issues in the V.I. are a "hot topic" in the industry everywhere from London pubs to San Francisco bars. Right after discussions about Sept. 11 and Enron, the next discussion, he said, is, "What's going on with Lt. Gov. James — any more orders been issued?"
"I don't remember any other administration that has issued as many regulations," Tunick said.
The result, according to the insurance professionals, has been the absence of available insurance to local home and property owners, including a total lack of windstorm coverage, which is required to obtain a mortgage.
Natural disasters don't help
In addition to regulatory problems, two major and several minor hurricanes since 1989 have driven up the risk of doing business in the U.S.V.I.
In a territory of only 100,000 people, more than $1 billion was paid out for property damage from Hurricanes Hugo in 1989 and Marilyn in 1995, according to David Ridgway, president of the V.I. Insurance Association.
Nick Bailey, president of the Territorial V.I. Association of Realtors, said an informal survey of 10 insurance agencies done last week revealed that not one of them could offer windstorm insurance "at this time … and none could say when capacity might open up."
"If you are the owner of a frame home," Bailey said, "the future doesn't look good no matter what. The lieutenant governor has been so diligent in protecting the homeowners against unscrupulous insurance companies, there is now no insurance."
The cost of reinsurance, partially due to the events of Sept. 11, has turned what was a big problem into a crisis.
Tami Noel, president of Red Hook Agencies Inc. and managing agent for N.E.M. (West Indies) Insurance Ltd. (NEMWIL), one of the other companies writing property coverage in the V.I., said of every premium dollar she collects, 90 cents goes for reinsurance, leaving little to pay claims and cover administrative costs.
"Insurance is a capital business," Marfatia said, and "capital moves to where it gets a better return."
Noel said NEMWIL paid out $156 million in hurricane claims alone over the last 10 years, while collecting about $8 million per year in premiums.
Seeking industry professional for oversight position
Saturday's forum, sponsored by the Virgin Islanders for Democratic Action Club, was called in part to try to slow the escalating war between the insurance industry and Lt. Gov. Gerard Luz James II, who by virtue of his position as lieutenant governor also serves as the commissioner of banking and insurance.
Some see this as the problem.
José L. Velez, assistant vice president of marketing for Royal & SunAlliance, which has been writing insurance in the V.I. for more than 15 years, said, "If you don't have that (insurance) background, you won't understand our business."
Tunick called for "getting a professional as commissioner of insurance and commissioner of banking. Take the politics out of it."
In a controversial move last month James ordered a moratorium on cancellation or non-renewal of insurance policies in the Virgin Islands. Lloyd's of London underwriters then filed a complaint in Territorial Court seeking a temporary restraining order on James' order.
Judge Rhys Hodge denied the request and scheduled a hearing for Jan. 15. The hearing never took place because James and Lloyd's agreed to work things out on their own.
James did not attend Saturday's forum, having announced two days before that he had to attend top-level meetings in Washington with Lloyd's underwriters.
Henry Feuerzeig, Lloyd's U.S.V.I. representative, opened Saturday's panel discussion by reading a brief statement "on behalf of underwriters at Lloyd's" which said "significant progress in resolving differences over pending insurance issues" had been made in the meeting in Washington.
Feuerzeig would not discuss the terms of the agreement that had been reached, but the statement said Lloyd's has assured the lieutenant governor of "its commitment to the Virgin Islands."
Lloyd's is one of only a few companies continuing to write property insurance in the U.S.V.I.
According to Ridgway, 10 years ago Lloyd's was writing 2 percent to 3 percent of the business. Today Lloyd's is writing 60 percent.
In real people terms
General contractor Spencer Brown told of having to pay $20,000 for insurance on his own home, valued at about $350,000, despite having taken substantial mitigation measures and despite never having had a claim against his insurance.
Ridgway told of two deals gone bad in the last week because insurance was not available to close on them. One was the case of a St. Croix woman trying to buy her first home from an aging owner forced to move to Florida to be closer to family for medical reasons.
Denyce Singleton, spokesperson for AARP, decried the lack of insurance capacity, saying it has left 500 AARP members in the dark about their homeowner's insurance.
Velez explained that there is enough capacity — nearly $400 million — for AARP members in the U.S.V.I., but until the requested rate increases are approved Royal & SunAlliance has had to stop writing new business.
Velez said he has been awaiting approval on a requested rate increase, substantiated by an updated actuarial study, since 2000.
What next?
Another reason for the meeting called by VIDAC's president, Sen. Lorraine Berry, was to discuss her draft legislation to replace the lieutenant governor as insurance commissioner with a director of banking and insurance.
Some saw this as a potential solution, but Marfatia said it didn't go far enough. He suggested there be both a director of insurance and a separate director of banking.
Former Lt. Gov. Derek Hodge, who acted as moderator for the discussion, said the lieutenant governor has covered both areas as a practical matter, but Marfatia said the two industries are entirely different and need professionals in each area to carry out the duties of the separate offices.
Several people called for national natural disaster insurance that would be funded, as the National Flood Insurance Program is, with federal dollars.
The problem with that, Velez said, is "folks in Montana" would want to know "why they should subsidize homeowners in South Florida."
Berry said the draft proposal needs more work and invited participants to offer more suggestions.
