## Property Insurance Challenges in the ECCU

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### A. Context: Property Insurance Developments and Risks
- Global reinsurance market tightened notably in the early 2020s, with a particularly pronounced shift during 2022-23 driven by record-breaking global losses, evolving climate-related catastrophe risk assessment, higher inflation, and asset-side revaluations from changed global monetary conditions.
- Recent market conditions in 2025 show early signs of softening following increased global capital supply and growth of catastrophe bonds, but future trends remain highly uncertain and near-term renewals could be affected by significant losses from recent catastrophe events.
- ECCU market characteristics and exposure:
  - ECCU average 2023 retention ratio for property lines was 13 percent (Net Written Premium/Gross Written Premium).
  - In 2023, ECCU property insurance penetration (gross premium income relative to GDP) was 2.3 percent.
  - Swiss Re (2024) estimate cited: 75 percent of economic global losses from natural catastrophes are uninsured; estimated insurance protection gap in emerging markets is 85 percent.
  - Quantifying protection gaps in the ECCU is difficult due to lack of detailed data on retail real estate valuations and potential loss exposure.
- Transmission and amplification channels:
  - High reliance on global reinsurance implies a high pass-through of reinsurance market pressures to local premiums, exacerbating non- and under-insurance where coverage is not mandated by mortgage terms.
  - A sustained rise in property insurance premiums can weaken borrower debt service capacity, raise lender credit risks, suppress housing market activity and investment, increase uncertainty over collateral values, and amplify macro-financial stability risks if primary insurers reduce underwriting or withdraw from property lines.
  - The ECCU faces an “affordability gap” relative to higher-income regions with similar risk profiles (e.g., coastal US), implying weaker capacity to absorb correlated future reinsurance cost pressures.

### B. Policy Implications
- Overarching recommendation: adopt a regionally coordinated approach to enhance readiness to manage property insurance risks, strengthen data and supervision, and inform policy design to close protection gaps and mitigate financial stability risks.
- Strengthen risk monitoring and data collection:
  - Develop systematic regional monitoring frameworks for property risk exposures, protection gaps, and reinsurance capacity.
  - Create a real estate cadaster mapping property values to disaster risk exposures, incorporating historical and forward-looking model data differentiated by geography and risk type.
  - Implement regionally standardized supervisory collection of pricing data for primary insurance products, including average property premiums and rates by risk category.
  - Track reinsurance market indicators: number of reinsurance providers by product line, provided capital capacity, prevalence of proportional versus non-proportional contracts, treaty reinsurance limits and quota shares, and average price of catastrophe excess of loss cover.
  - Note: ECCU is shifting toward more granular IFRS17-based supervisory reporting; a more risk-tailored approach can fill remaining gaps.
- Enhance regional supervision and collaboration:
  - Move toward consolidated cross-border supervision of general insurance companies operating across jurisdictions to better manage disaster and reinsurance risk.
  - Leverage planned common regional regulatory standards under the Eastern Caribbean Financial Standards Board (ECFSB) and consider more centralized oversight structure or, in the interim, close supervisory collaboration and information exchange.
- Encourage private resilience investment to mitigate disaster risks:
  - Insurers increasingly price based on location, elevation, and structural resilience (example: St. Lucia average premiums for high-risk properties are 50 percent or more above low-risk properties).
  - Strengthen and enforce regional building codes and land use standards.
  - Provide financial incentives (targeted subsidies or tax credits) for retrofitting resilience investments.
  - Support public disaster risk awareness and financial literacy efforts, including clarity on insurance policy terms.
- Consider carefully calibrated public policy interventions (public-private insurance programs — PPIPs):
  - Any broad-based scheme in small ECCU economies would likely require regional scope and private sector participation, robust union-wide monitoring of exposures, and assessment of public sector risk-bearing capacity given fiscal fragilities.
  - PPIP design considerations: prioritize broad insurance coverage, set adequately risk-based premiums for financial sustainability, ensure cost-effective program structure, define public-private risk-sharing arrangements, incorporate risk prevention incentives, minimize disruption to private insurance markets, ensure competitive playing field, and enable prompt claims handling (parametric components where cost-effective).
  - International experience shows trade-offs: subsidies can improve affordability but strain public finances; fully risk-based premiums incentivize risk reduction but challenge affordability. Programs could use premium discounts conditional on risk-prevention measures and targeted funding for policyholder risk reduction, supported by public investments in risk adaptation.
  - Cited example: the 2024 GRADE for GRD and VCT suggests resilient structural improvements could result in potential savings of more than US$ six for every US$ one spent for highly vulnerable asset classes.
- Operational sequencing and prerequisites:
  - Build regional supervisory capacity and standardized data frameworks before launching large-scale public interventions.
  - Use improved monitoring to inform the appropriate design and calibration of policies to close protection gaps, contain future market pressures, and mitigate broader financial system risks.

*Prepared by Janne Hukka and Jonas Nauerz; IMF Selected Issues Paper SIP/2025/069.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025069.pdf_