Cyclone season a critical risk [1]
Saturday, November 30, 2002 - 09:00. Updated on Wednesday, February 17, 2016 - 17:41.
From Matangi Tonga Magazine Vol. 17, no. 3, November 2002.
What will be critical for insurance costs in Tonga and every other island in the Pacific is this year’s cyclone season, said Gary Callaghan, the executive director of Dominion Insurance, of Fiji, who visited Tonga in October.
“If there was a really big cyclone here, and in Fiji, I would suggest that next year that no-one would be buying cyclone cover because it’s coming at a time when the market is so hard, in the same way you cannot buy terrorism cover anywhere in the world now, it’s gone.”
Gary said that the basis of insurance was reinsurance on the international market and this was becoming more expensive. “I don’t think I have ever seen it more difficult,” said Gary who has been in the insurance business for 30 years.
“September 11 was the nail in the coffin. If everyone had been healthy before that might not have been so bad. After that about half the reinsurers in the world have just gone out of business.”
Gary said that Tonga was a little bit protected because it does not have many large risks, but in Fiji most people’s premiums were going up by about 25 per cent, “and that will happen two years in a row.” He said there were one or two risks in Fiji now where the cyclone deductable was more than $5 million. “Our reinsurance costs are going up and we are passing it on.”
However, the good news was that the hard market will not last and Gary could see prices coming down again after 2004.
Dominion has been in Tonga for three years, and Gary said they had done well in picking up business, “as a foreign investor it’s a very easy place to come and do business, far easier than Fiji”. Gary said Fiji followed the Australian system of regulations, which made it more difficult than Tonga where there was a lack of such regulation and controls.
He noticed that for people in Tonga there was a danger of becoming underinsured as the pa‘anga continued to devalue because the replacement cost of property would increase, a hidden cost of devaluation.
Dominion Insurance is a Fiji-owned company, which is part of the Flour Mills of Fiji group of public companies founded by Harry Punja.