The Covid-19 pandemic has had a significant impact on Cook Islands businesses, says a regional insurance leader.
Michael Sargent, the former director of Willis Towers Watson New Zealand, says the worldwide pandemic has caused approximately US$140 billion (NZ$220 billion) of claims so far lodged into the London insurance market.
Sargent is retiring from the global broking company, after 29 years in which he worked closely with Cook Islands businesses.
Globally the insurance landscape had changed significantly, Sargent said, particularly to insure assets and loss of revenue.
He said insurers and reinsurers are looking to “remediate their books” after having no return on their investment in recent years, because of storms, earthquakes, fires and, now, Covid-19.
All this change has had a significant impact on Cook Islands businesses, particularly with providing capacity for property risks, Sargent added.
“There is only so much capacity in the local insurance market, requiring offshore support,” said Sargent.
“Capacity is also limited from the New Zealand and Australian insurance markets, so the logical alternative is London – ‘the home of insurance’, for example Lloyd’s.”
But the London market had been reducing its capacity for Cook Islands risks, as a consequence of large fire and flood claims in recent years, said Sargent.
He said they had seen around $18 million in claims, while the total annual premium pool was approximately $8 million.
“Cook Islands businesses are not the only ones experiencing a reduction in capacity and significant premium and excess increases; insurers had a similar reaction after the earthquakes in Canterbury, New Zealand in 2010 and 2011.
“They cost the insurance market approximately $22 billion but the premium earnings were only $3.8 billion (excluding life insurance).”
Fletcher Melvin, the chair of the Private Sector Taskforce, said they had all been aware of the rise in premiums over the past few years.
Melvin accepted the arsonist had an impact on all of their premiums, so it was essential to prosecute the perpetrators and support the fire service.
Cook Islands were also part of the global insurance risks and climate change would mean more pressure on insurers and increasing cost in the future, he added.
Sargent said Cook Islands clients were able to buy insurance securely, although the cost profile had increased.
One strategy would be for Cook Islands clients to maintain their insurance programmes but review the level of cover, he suggested.
“Based on my experience, I would urge all clients in the Cook Islands to maintain insurance cover even if they adopt a limited, reduced basis in the short term.”
Sargent said considering reductions in cover in the short term without cancelling their insurance altogether will help protect the balance sheets of local businesses.
“Those covers typically considered essential and which I have always stressed in my discussions with Cook Islands clients are assets, loss of revenue (which would apply to the majority of businesses when tourism recommences) and all liabilities.
“To illustrate a reduction in cover, clients could perhaps not insure motor vehicles, other than for liabilities, or burglary. They could insure assets only for indemnity value (i.e. replacement value less depreciation) or insuring the standing charges plus additional increased costs of working.”
Cyclones are an ever-present risk in the Cook Islands but there appears to be a far greater impact with fire, given the number of losses over recent years, Sargent added.
“An option for clients is they may elect to self-insure the risks associated with storm perils. Having said all that, adopting insurances on a limited basis in the short term will be qualified by what lenders will allow.”
Fletcher Melvin said local companies are already making decisions on their cover options.
“We should be looking at Captive Insurance schemes that is particular to our country. One example is Vanuatu, where their Superannuation Fund has an insurance product.”