The Caribbean region has a long history of natural disasters and calamities, which have made economic insecurity a central concern across the region. Read the white paper to learn how technology modernization can help Caribbean insurers overcome the challenges of catastrophe insurance. https://www.damcogroup.com/resources/insurance/guide/technology-modernization-guide-for-caribbean-insurers.pdf

1. The Caribbean region faces a high degree of catastrophic events and natural
disasters. A history of repeated natural calamities has made economic
insecurity a major concern across the region. In this white paper, we are
analyzing the challenges the Caribbean insurance sector is facing at the
occurrence of catastrophe and the possible technology recommendations
to deal with such situations and bringing operational efficiency in general.
MANAGING CATASTROPHIC
INSURANCE CHALLENGES
WITH TECHNOLOGY
MODERNIZATION

2. TABLE OF CONTENTS
Catastrophe Insurance Marketplace Overview in Caribbean
Challenges with Catastrophe Insurance
How Technology Modernization can Help
About Damco & InsureEdge
1
2
3
4

3. Over the last two decades, the Caribbean countries are threatened by the significant loss of life, property
damage, and social disruption as a result of natural calamities. The consequence of natural devastations
prevails long after the disasters have happened. Though it can’t be stopped but preparedness can lessen
the impact of disasters by structuring the emergency response system in advance. There has to be
planning for both short-term and long-term damage control towards the reduction of vulnerability in this
sector.
The short-term measures can include – monitoring of hazards, prompt forecasting, identifying early
warning systems, evacuation plans, and shelters, specialized networks of responders and contingency
plans in critical sectors. For long-term planning— Insurance is one proven tool. It’s a coping mechanism
that has proven successful and treats everybody equal when compensating for the losses. It comes as a
huge relief while fulfilling financial needs at the time of disaster. Insurance can take care of financial
resurrection after the disaster, however, not everyone is eager to be insured and even if they do, they try
to cut short on the sum insured to save on premium amount. This is nothing but a careless
short-sightedness. There are many examples in both private and public sector where people fall short of
insuring themselves even when they have the budget. Adding to this un-insured group is the
underprivileged lot who cannot afford the insurance premium, hence stays uninsured.
In most Caribbean countries, property owners are required to purchase catastrophe insurance to access
mortgage financing and once the outstanding mortgages have been paid off, a large number of property
owners either underinsure or do not insure their properties at all to save on premiums. In all this, the
underprivileged lot is left out as the requirement to buy catastrophe insurance only applies to those who
go for mortgage financing. Ironically, the catastrophe insurance market does not cater to all segments of
the economy. The proportion of residential and commercial properties covered by insurance is significant
in the Caribbean region. However, the vast majority of insured properties are hotels, tourism-related
properties, large and medium-size private industrial and commercial businesses while many dwellings
and small businesses remain uninsured. For example, a large segment of the population in Barbados,
Jamaica, and Trinidad and Tobago lives in vulnerable, uninsurable properties (lacking dug-in foundations,
secured frames or bolted roofs) which could be easily dislodged in the event of flooding or strong winds.
The public sectors also don’t take insurance seriously and the public assets against catastrophic events
are not insured. State-owned enterprises are not insured either, except Trinidad and Tobago, where
state-owned enterprises do have some catastrophe insurance.
CATASTROPHE INSURANCE MARKETPLACE
OVERVIEW IN CARIBBEAN
1

4. To find out why few entities skip catastrophe insurance, we have to see what role catastrophe premium
plays and understand where the premium for catastrophe is coming from. The provision of insurance is
classified into life insurance and non-life insurance with the former insuring against the loss of life.
Although it varies slightly across countries, the classification of non-life insurance may be divided into
six classes – Property, Marine, Aviation and Transport, Motor Vehicle, Pecuniary Loss, Liability, and
Personal Injury. Insurance against damages done by natural hazards such as hurricanes, earthquakes,
etc. are covered under the first four classes. The coverage against catastrophic perils is bundled and sold
together with other adversities such as fire, explosion, riots and strikes, aviation and motor vehicle
collision. There is no clear bifurcation of the premiums.
An estimated 45 percent of total non-life premiums corresponds to insurance against natural hazards.
In Trinidad and Tobago and the Dominican Republic, premiums are split between natural hazards and
other risks. In these countries, under property insurance, the premiums that correspond to coverage for
catastrophic events account for about 45 percent of total premiums. However, most Caribbean
insurance companies do not routinely split the catastrophe elements of their premiums. Earthquake and
hurricane premiums are bundled with the premiums of other perils. Premium splits are available from
re-insurance companies, which indicates that on average about 25 percent of the premiums in the
property class correspond to insurance against earthquake, 20 percent against hurricanes, and the
remaining 55 percent against other perils including fire.
Mainly, a portion of premium taking care of catastrophe part is neither well-defined and nor properly
calculated in all of the Caribbean islands, and this leads to many blind spots for losses at the time of
calamities.
CHALLENGES WITH CATASTROPHE INSURANCE
Listed below are a few other reasons, which undermine the popularity of catastrophe insurance.
Provision of risk identification and forecasting is insufficiently developed.
When it comes to natural disasters, risk identification is the most critical aspect of risk management
as risk-reduction and preparedness policies directly depend on the original assessment of risk.
Additionally, forecasting the location, frequency, duration, and magnitude of future catastrophic events
is the major part of being prepared. As the cost attached to risk identification and forecasting of future
catastrophic events is high, there are no clear pointers to define appropriate catastrophe premiums.
2
1

5. Insurers do not discriminate by a zone of risk or the implementation of risk-reduction
measures, which amplifies adverse selection and moral hazard.
In Caribbean region, catastrophic risk insurers do not discriminate between areas that are considered
high risk for natural disasters and those areas where risks are lower. Moral hazard refers to the fact that
once insured, individuals are not likely to engage in risk-reduction activities that would reduce the
negative effects of potential natural disasters and assist in reducing insurance premium. This ignorance
leads to high premiums which further depress risk transfers.
Individuals ignore the facts
Leading to the low-frequency risk of natural disasters and their complexities, individuals tend to
under-insure. For instance, Hurricane Georges hit the Dominican Republic in 1998, and last time it was
hit by a significant catastrophe was back in 1979.
Insurance payments are delayed
There is a general belief that insurers are quick to collect premiums but very slow to settle claims or meet
other customer needs at the time of crisis. This becomes more obvious with catastrophic events, which
may generate at once a large number of claims that may exceed the response capacity of most insurers
and lead to lengthy appraisals of damages.
Regulation is inadequate
Except Dominican Republic, there is no regulatory barrier limiting the access of foreign firms and
protecting the local insurance industry. The presence of regulatory guidelines, which restrict
investments, together with the presence of underdeveloped financial markets, limits insurance
companies’ profitability. Restrictions to invest in the international financial markets also prevent the
insurance companies from buffering their assets against a possible fallout from catastrophic occurrences
(their assets may be heavily concentrated in housing, which an earthquake could damage). This leads
insurance companies to set prices above those that would prevail if they could diversify their
investments. “High” prices lead to a “low” level of risk transfer.
3
2
3
4
5

6. Technology modernization can help Caribbean insurers attract new-age customers and increase their
customer base. It also allows staying ahead of competitors and making informed decisions on behalf of
insured individuals and themselves. To spur growth faster in an underinsured market, new products,
services, distribution channels, sales, and marketing techniques are becoming a great tool. By leveraging
telematics and IoT technology, insurers can make their life products more relevant to buyers with healthy
living incentives, investment tips, and dynamic pricing, while Robo-advisers can bolster life and annuities
services for middle-market prospects. Some consumers shy away from complex Life insurance and Annuity
products that are hard to understand. With the help of technology, insurers can create simpler policies
designed to meet clearly defined needs, for instance, a guaranteed income in retirement.
To advance operational market, new systems will require modernization to enhance efficiency, more precise
risk selection and pricing, and stronger insurer/client relationships. Insurers can use techniques such as
advanced analytics, robotic process automation, and other emerging Insurtech applications for core
operations to streamline sales and underwriting and make the customer side of transactions more
user-friendly.
To adapt to today’s rapidly evolving, consumer-centric culture, and increasingly technology-driven economy,
insurers need to continually upgrade their operating systems, business models, and value proposition in
2019 and beyond. They should also consider undertaking an ongoing, holistic transformation of products,
services, legacy systems, and business processes to drive growth, bolster efficiency, improve customer
experience, and head off emerging competition. Learning from natural disasters and hurricanes in 2017,
Caribbean Insurers need to be mindful of optimizing their business processes. Below are the details on how
they can get benefitted from technology.
HOW TECHNOLOGY MODERNIZATION CAN HELP?
4
Natural disasters not only cause structural damage to business but can also cause catastrophic data
and document loss. Digitization of these documents and maintaining them in a digital document
repository would secure Insurers against these losses and also add efficiency in claims processing,
fraud detection, and customer profiling.
Document Digitization
1

7. 5
Develop new products to meet emerging coverage needs in a shared and connected economy
Expand digital distribution and virtual service to cut costs and gain competitive advantages
Enhance cyber risk management to stay ahead of evolving threats and comply with new regulations
Treat technology modernization as a journey rather than a final destination
Deepen client engagement beyond renewals and claims while differentiating with ancillary services
Drive IoT strategies beyond auto insurance for personalized pricing and risk management incentives
Explore potential M&A opportunities to deploy excess capital, create scale, and add capabilities
Facilitate Insurtech innovations by launching pilot tests and perhaps financing startups
Hurricane Irma almost generated 10,000 claims by the time it left the Islands. One can imagine the
anxiety and pressure associated with each of these claims and the pressure it brings on to Insurance
company’s employees. Outsourcing Insurance Claims Processing services can not only save Insurers a
lot of time, money, and paperwork but also allow them to rapidly scale up and scale down the team
size to accommodate a sudden surge in the claims volume because of such adverse calamities and
situations.
Claims Processing
When things are settling down after the crisis, how fast one can get back on his feet matters. A
dedicated mobile application can help underwriters and agents to manage their business from remote
locations, irrespective of their locations to bring back things to normal. Customers can swiftly submit
their FNOL and concentrate on other life-critical things. Additionally, they can track their status of
claims and submit any missing documents online.
The journey might look challenging, but the destination has many promises to make. With little
investment in technology and support of a reliable and experienced technology partner, Caribbean
insurers can put up a good plan to tackle catastrophes in a much better way and improve operational
efficiency tremendously in general.
Mobile Apps for Agents, Customers, and Underwriters
Other technology recommendations are listed below for empowering Insurers to:
1
2
3
4
5
6
7
8
2
3

8. USA UK Luxembourg India
ABOUT INSUREEDGE
InsureEdge is a complete insurance solution developed by Damco that helps insurers deal with
increased competition, consumerization, shifting consumer behavior, major catastrophic events, and
regulatory changes. It is a scalable technology platform designed to help insurers achieve maximum
benefits through its comprehensive modules covering policy administration, claims processing,
reinsurance, dashboards & statutory reporting, agency management, and more. InsureEdge has the
industry’s most comprehensive and flexible insurance processing functions for multiple lines of
businesses including P&C Insurance, Life Insurance, and General Insurance.
Powered by DAMCO
ABOUT DAMCO
Damco Solutions is an established technology partner of Insurance, Wealth Management, and
Financial sector businesses enabling them to leverage IT as a strategic asset. Empowered by
technology expertise, immaculate execution capabilities, and unwavering focus on the customer
needs, we support our clients to achieve sustainable business growth.
Insurance is a dedicated practice at Damco and we have a long history of providing support to
various insurers to address their unique business challenges through our technology consulting
services, legacy modernization, and enterprise transformation solutions. We have more than 1000
person-years of experience in successfully delivering diverse projects for Insurance customers
across the Caribbean, USA, UK, and APAC.
Damco Solutions Inc.
2 Research Way, Princeton, NJ 08540, USA
www.damcogroup.com | info@damcogroup.com | +1 609 632 0350