By Joy White
General manager, Great National Insurance Underwriters Inc.
Lillian S. Cabrera
General manager, Marianas Insurance Co. Ltd.
Insurance manager, Personal Finance Center
Pamela A. Cruz
Executive vice president, Takagi & Associates Inc.
David Silva III
General manager, Aon Risk Solutions
Marketing manager, Alpha Insurers
Guam’s insurance industry remains soft as various insurance companies compete for their fair share of profits. Meanwhile, lessons learned from Typhoons Dolphin and Soudelor are fresh on the minds of residents of the Northern Mariana Islands and Guam, though the former was impacted on a far greater scale. Insurance experts evaluate what a competitive and post-typhoon market means for their products and the viability of the industry. Guam Business Magazine checked in with insurance industry experts in Guam and Saipan to gauge the trends in the industry.
Has Typhoon Soudelor proven to be a wake-up call for businesses and residents to get coverage?
Cabrera: Yes, it has and we are first-hand witnesses of this. As with anything that causes financial or emotional detriment, one is more apt to consider avenues of protection. Obtaining some sort of insurance coverage in preparation of the possible detriment is definitely one of those avenues.
Cruz: People have become more open to reviewing their insurance — their coverage, limits and deductibles and cognizant with claims handling services.
Silva: Typhoon Pongsana in 2002 was the last large storm to come through the region; it impacted Guam more than Saipan. It’s been longer since the CNMI has been hit by a bad storm. Typhoons Dolphin and Soudelor were wake-up calls for us all.
How would you describe the climate of the insurance industry in the region the past year?
Besagar: It remains to be competitive, but I do not really see any dramatic change in the insurance industry the past year. A majority of the insurance companies would prefer to keep the business here on island thus engage more in building new relationships between competitors. There are agents whose primary business is not really in insurance but engage in this industry to complement their income.
Cabrera: I think the climate [in Saipan] is still one of heavy anticipation as the industry braces for final financial outcomes which arose from 2015 storm-induced damages. The storms that passed through in 2015 definitely served as wake-up calls for carriers in terms of preparedness, claims execution and capacity.
Camacho: In the property and casualty segment of the market, there seems to be a downward trend of overall rates, which is good for the consumers. This is the result of a very competitive environment. Guam’s market is not very large but saturated with insurance companies. In order for companies to capture market share, rates have been dropping.
Cruz: Guam has been experiencing a “soft” market for some years now, and as a result there is very strong competition amongst agents to fight for clients from other agencies.
Silva: Typhoon Dolphin and Typhoon Soudelor, in May and August of last year, respectively, caused some damage in Guam, but most of the significant damage was had in the CNMI after 15 years or so without a typhoon passing through. The industry and community was quickly reminded about the material and economic loss typhoons bring with them. I would describe the insurance climate as “re-acquainted with typhoons.”
Hsiao: Auto insurance has continued to remain strong with car sales continuing to grow at a fair rate. Home insurance is also growing steadily, though not as fast as previous years, due to stricter loan requirements. Commercial insurance remains flat or in decline with a number of business closures or very few new businesses opening on Guam. We predict flat or little growth in 2016. In 2017, we suspect it will also be the same condition as this year, with things probably picking up in 2018 when more new businesses and construction start again due to military movements.
What changes has your company seen in structure, products or otherwise in the past year?
Besagar: Great National Insurance has invested in renovating our place of business and upgrading the tools we use to conform with the changing times but most importantly to the needs and convenience of our clients. We enhanced our automobile product by making loss of use and plus tow coverage available.
Cabrera: In terms of construction, there has been a definite push in the introduction of more technologically advanced products that comply or exceed building codes, as well as construction methods akin to these products. But the more prevalent change is the attitude of the public in seeking stronger or more storm-proof products and materials available in the region and incorporating the same in their repairs or rebuilding of damaged structures.
Camacho: Educating the public of the benefits of going through a broker who can provide value.
Cruz: We are always striving to improve our products and services — providing our customers with the best service through knowledgeable staff and fair and quick claims service. We are constantly having our staff trained by outside consultants, as well as providing in-house product training and encouraging the achievement of stateside examinations and insurance designations. We have enhanced our policies by including features which are similar to those offered in the U.S. mainland — we see this as a huge benefit for our customers.
Silva: We have seen an increase in requests for typhoon coverage for properties in the CNMI, many required by FEMA after it paid for repairs to damaged properties. We’ve also seen parallel restrictions by insurance carriers, of typhoon coverage for properties that are not of concrete construction.
In the 1990s, Guam had a series of bad storms that devastated many aspects of the island. The devastation did, however, trigger a significant hardening of construction and infrastructure. Eventually, typhoon insurance rates for these hardened homes and properties came back into an affordable range.
Hsiao: We are starting to build a website that is mobile ready with unique functionalities, including live chat with customer service representatives, auto and home quotes within five minutes, application and claims forms for download and much more. The other exciting thing we are working on is a mobile app for both Android and iPhone users with the same unique services as our website offers, including the ability to check insurance account and premium balance and to pay premiums. We will also have a special rewards program.
What do you see as the biggest challenge facing the industry right now?
Besagar: Reasonable rates that would sustain the industry in the long term is the biggest challenge that I see right now.
Cabrera: In relation to losses from the previous year, the biggest challenge would be the probability of carriers either increasing or decreasing their capacity for certain perils or lines of risks which would ostensibly affect their underwriting rates for these perils or lines of risks.
Camacho: Guam is different than other jurisdictions where products and services are the primary focus. On Guam, these have taken a back seat to competitive pricing. This could set the stage for major problems in the future should there be a catastrophe.
Cruz: One of the biggest challenges we face is conveying to our customers that insurance is not always about price. You will see many companies pushing price in their ads and offering give-aways, but what they don’t mention is that the cheap price may not provide you with the coverages you need. This becomes apparent when, for example, there is a total loss on an auto — do you have an actual cash value or a stated value policy? The difference in settlement can be significant.
Silva: The ongoing challenge in our industry is getting customers to appreciate the value of insurance and to make smart buying decisions. The recent typhoon experience has re-raised a typhoon insurance awareness, but the economy still drives ability and willingness to buy the insurance.
Hsiao: Three things that will highly affect our insurance industry are:
1) Decline in tourism and/or changes in the military buildup. Should there be a decline in our major tourism industry or if the military buildup schedule is affected or delayed again, this will cause businesses to close, reduce staff or scale back on new business developments, which will affect everyone including the insurance industry.
2) Stricter bank loan requirements and higher interest rates. Should the banks continue to tighten loan requirements and be more strict on loan approvals and should interest rates move higher, this will reduce the number of people being able to obtain loans for new cars, building or purchasing new homes/apartments or opening new business, which will lower growth in insurance premiums.
3) A possible minimum wage hike. Should the proposed minimum wage hike be approved and move forward, this will certainly cause not only a reduced workforce, but also increased prices, including insurance premiums.
Do you feel that Guam and/or Saipan are due for an updated review on insurance rates and deductibles? Why or why not? What do you think would be the outcome?
Besagar: Yes, we do have to review the rates and deductibles. Competition drives this down as insurance companies become creative in coming up with products and discounts that drive down premiums. Discounted rates should be able to sustain the insurance business in order to prevent closure, pullout or inability to pay valid claims.
Cabrera: The CNMI is definitely due for review and revamp of tariff rates and regulations, as these have not undergone the same for quite some time or even since they were last implemented. Certainly, the cost of doing business has changed since the tariffs went into effect, and it is high time that carriers are given the opportunity to charge a fair fee for government mandated coverages. Unfortunately, I think it would be a struggle for the industry to sway regulators on these issues as public sentiments more often than not are of the complete opposite.
Camacho: The rates and deductibles are established based on tariffs. It is up to the industry to review and decide whether the tariff needs updating.
Cruz: At this time I don’t believe that Guam would be in a position to increase rates and deductibles on property coverages since we have had a number of years without typhoon and earthquake losses. Workers’ compensation and auto would certainly benefit from rate increases.
Silva: I suppose they are due for a review, and like any open market system there are organic influences to rates and capacity. In our world, typhoons and earthquakes are the great equalizers. We can go through a period of no losses and rates will soften (things get cheaper and more flexible). Then a typhoon or earthquake will happen and rates harden (get more expensive and less flexible) for a while. Like every cyclical market, it’ll eventually come around again. This El Niño period is causing strange weather patterns. Catastrophe modelers or insurance statisticians are predicting more typhoon activity in our region because of the extreme change in water temperature. We anticipate this may lengthen the period of hardened insurance.
Hsiao: The last time the Guam insurance industry raised their premium, I believe, was more than 20 years ago. It is time the insurance premium rate increases due to high cost of labor, notwithstanding increase on material cost, especially on auto parts, which is subject to 30% shipping cost. It is inevitable that minimum wages will increase and to offset the increase of operation expense, the insurance industry will have no recourse but to increase the premium rates, and in doing so, the only way to reduce insured increase of premium is to raise deductibles to negate the premium increase.
The auto insurance premium rate should be increased as Guam has the lowest auto insurance rate, especially on the third-party liability. The number of litigations on bodily injury claims from auto accidents has quadrupled from previous years and auto parts and labor are getting more and more expensive. The fact is the current auto insurance rates can no longer sustain auto loss ratio.
What is the status of unresolved claims from last year’s storms, if any?
Cabrera: The majority of storm claims have all been settled. Those remaining are in process of being settled.
Cruz: We were able to settle majority of our claims within 60 days and, as of now, we have only one claim which is still under negotiation.
What affects the timeliness of claims resolutions?
Cabrera: Preparation and cooperation of clients. The more prepared and cooperative a claimant is, the quicker their claims can be resolved.
Cruz: Typhoon Soudelor’s damage to personal property was compounded by the damage to the public utilities. Without water and power, businesses were unable to operate normally, and manpower was diverted as all residents tried to get through daily living challenges. As a result, obtaining estimates from contractors for repair work, and for the contractors to maintain a workforce and obtain materials, impacted submission of claims documentation and, consequently, claims settlement.
Silva: We found the biggest delay on claims resolutions was caused by a limited availability of building contractors in Saipan. Even as late as January there was still a waiting list for quality contractors. We understand that it’s settling and things are now getting resolved.