PHILIPSBURG–In his first major interview since the 2017 hurricanes, NAGICO Chairman Imran McSood has defended the company’s policies and claim-settling record, lamented the divisive influence of social media, disclosed the US $17-million loss the company suffered from Hurricane Irma’s more than 13,000 claims, and reassured policy holders the company will continue its insurance coverage as major reinsurers stand by NAGICO.
Asked if it was fair to say NAGICO’s image had been tainted over a broad perception the company had been “difficult” when it came to settling claims, contrasting with its good corporate citizen image, McSood said in his view it was largely unfounded, but blamed social media commentators, some of whom were not even NAGICO clients, for singling out the island’s biggest insurer for criticism.
“NAGICO has not changed its claims payment philosophy after the hurricanes, it’s always done according to the policies and role of adjusters,” he stressed. “Before the hurricanes you would rarely hear of NAGICO being spoken of in this light. We would not have the phenomenal success we’ve had without a good claim-settling record. Prior to Irma, we had six hurricanes in five years and yes there were similar sentiments of frustration over claims, but most people are very happy with their settlements.
“Our claim-settling ratio has not significantly changed from Hurricane Luis to Irma,” he insisted. “We’ve settled claims at the same rate and our average loss ratio is in line with historic performance. But there is a bigger social media movement now that you didn’t have in the old days.
“You only need one or two people to make negative comments which other people then pick up on. Social media has had a bigger impact with Irma. I do believe we were singled out for being the biggest, most recognised insurer. You don’t hear about people switching to NAGICO from another insurer because that’s not a popular narrative.”
McSood states there is no perceptible decrease in its client base. “On the contrary, our year-on- year analysis sees growth of about 10 per cent in all the islands that were affected by the hurricanes. Increase in premiums has not kicked in yet everywhere. The growth is attributed to settling more than 90 per cent of claims within seven to nine months. Of course, there are a few cases where people are distressed about their settlement, but that percentage is less than 10. It’s impossible to please everyone but by and large if we were not paying claims fairly and reasonably, you would have hordes of people protesting.
“We have a duty to insure our reinsurer interests are also looked after. They are our partners. None of our regulators expect us to show up with an open cheque book. They expect a fair settlement according to policy and amount of loss. We are not in a popularity contest. We are in a business that is well regulated and reinsured, and we have a duty to all policy holders not to pay some more than others, but to pay everyone fairly and reasonably according to their policy.”
Addressing the problem of many clients being under-insured, he said the company is well aware of it. “We do advise clients about this in red in their renewal notices. With values rising we can’t automatically increase the policy without increasing the premium. People have to make that decision for themselves. Under insurance affects property but not vehicle insurance.
“We expect our agents and brokers to discuss this with their clients every year. When you first insure with us, we do inspect the property and do our own valuation and advise them if they need to insure for more. But we don’t have the resources to inspect thousands of risks every year. It’s not our function, the responsibility still lies with the property owner. If we had to do it, we would need five times more staff.
“Some 95 per cent of property insurance is handled by agents or brokers and sometimes by banks. NAGICO is not directly involved in this aspect. The client has a better understanding of property values than NAGICO does in terms of an appraisal. People are renewing their policies, and some are adjusting their property values, but not as much as you would think. Despite this under insurance talk, we are not seeing many homeowners or businesses rushing to increase their property values.”
He disagreed claims have been settled for as much as 50 per cent lower than asked for because of under insurance, a few maybe, but generally the settlement of those claims was 20 per cent lower. “In many cases no under insurance was applied.”
“I do think people don’t read their policies fully. We are governed by the terms of the policies and people may be relying on their brokers to advise them. Under insurance is not unique to Irma. It existed with all the hurricanes that came before.”
Will NAGICO now improve its communication with clients on this important issue?
“Yes,” he replied. “We are currently working on a document that will be sent out. But bear in mind under the insurance governance we have to channel any communication through the agents and brokers. The St. Maarten Insurance Association has started to engage with the Brokers Association on how to disseminate this information better. We are also working on general advertisements for radio and print.”
Foreign adjusters, he explained, were important because of the unbiased independence they bring to the process. Almost all insurance companies would have done 90 per cent of inspections with non-resident adjusters. Resident adjusters are few.
“You don’t want to have someone with a vested interest in the outcome. These were extraordinary circumstances we were dealing with. The adjusters we used were professional and knowledgeable in the insurance business and well versed in quantification of loss. It’s not an issue that adjusters are foreign. It’s not difficult to find the cost of materials in the local market, talk with architects and do quantification.
“There’s a list of materials that all professional adjusters know are needed to repair a property. They can establish what the cost per square metre is in St. Maarten, the cost of zinc, doors, tiles, etc. They also figure in a surge factor (increase in labour cost for example) to the cost of materials. The adjustor is then able to say if your estimate is fair or not fair.”
He said it is incorrect to say a one-year renewal of the policy is deducted from a settlement.
“This is an automatic reinstatement premium which is there in the interest of the insured, not for NAGICO to make money out of you or to reduce your claim. After you are paid a claim, the amount available on the policy is reduced by the amount paid for the claim. The reinstatement premium is applied to take you back to your full insured value. This is to avoid policyholders becoming insufficiently insured after they start repairing the property and the value starts going back up eventually to full value as repairs progress, so they are not out of pocket in case of another loss during the repairs.
“The reinstatement premium is calculated on the amount you need to return to full value and pro-rated for the time left. So, if four months are left (33,33 per cent) and property is insured for $200,000 and a loss of $100,000 (50 per cent) is paid, then the reinstatement will be 33.33 per cent of 50 per cent of the annual premium and not the full annual premium. It’s a known international practice and designed to protect the policy holder because in years gone by a lot of people suffered from not having automatic reinstatement.”
Policy holders are free to choose another insurer, but they would have to terminate the contract.
The expected hike in insurance premiums has started already. That also depended if reinsurers wanted the increase in premiums or not.
“It’s not easy to tell people they have to pay 25 per cent more after what they have suffered. I feel for them. But we have no choice but to have that conversation because if reinsurers say after paying hundreds of millions of dollars their costs have gone up by 25 per cent we have to pass that on otherwise we go bankrupt.”
Switching gears to car insurance, McSood was asked if clients are properly informed that car claims are based on the depreciated value of the car.
“We’ve had very little dispute about that. Some 99 per cent of our auto claims have been settled without problems. Out of thousands there might have been a hundred who were not satisfied. I think it’s better understood as actual cash value, not depreciation. Most people understand that if they bought a vehicle for 20,000 and it is five years old, they can’t sell it for that amount. But NAGICO does have a policy that if your new car is considered a total loss within two years, we will replace the vehicle without depreciation. We’ve had hundreds of cases like that where we have given a new vehicle.”
On the Princess Juliana Airport court case, McSood was guarded over how much he could say for client confidentiality reasons but said NAGICO settled without problem with other airports in the region that were also considerably damaged.
“PJIA is a big and challenging case. It has more complications than the average home owner’s claim. So, the requirements to substantiate and quantify the loss would also be more complicated. That’s to be expected. We have acted in good faith towards PJIA and its claim. NAGICO has no intentions of disputing claims that are fair and reasonable. We would rather it had not reached court, but the airport feels it is their right to go to court and we will defend based on the terms of the policy.
“As an expression of our good faith, we gave them a significant amount of money to facilitate the repairs to the airport. The airport submitted a claim for US $105 million. Our adjuster does not feel that the loss is near that amount. The adjustors NAGICO is using are independent international adjustors. Access York is one of the largest professional firms in the USA and around the world. These are not people coming here with any agenda.”
Aside from the airport, NAGICO has one other case in court. But as the NAGICO chairman points out, it’s two cases in court out of 11, 000 claims already settled.
“Other cases may go to court, but so far that possibility is slim considering we have already settled over 90 per cent of cases,” he said.