IAJ raises alarm over up to 100% jump in insurance industry fees

Executive Director of the Insurance Association of Jamaica (IAJ) Everton McFarlane says players in the insurance industry are concerned about the magnitude of increase in insurance fees, in some instances as high as 100 per cent, which was approved on Thursday by the Regulations Committee of Parliament.

Asked whether insurance companies are likely to pass on the increase to consumers, McFarlane told The Gleaner that it would be left up to individual entities to make that decision.

While the cost of the fees will vary depending on the size of each company, McFarlane said insurance firms would be faced with increases ranging from 45 per cent to more than 100 per cent.

“The increases are clearly substantial. It’s high, and every dollar that goes toward fees is a dollar less to invest and a dollar less to build the business,” he said.

However, he said the Government should have dialogue with the industry to ensure that the increases are done in such a way that the effects are managed so that there is no significant impact on the companies or consumers.

At Thursday’s meeting of the Regulations Committee, head of the Financial Services Commission (FSC) Lieutenant Colonel Keron Burrell said the commission has not increased its fees in the last 18 years.

He said the size of the assets of the industry has increased from $170 billion in 2008 to $728 billion at present. Starting out with a staff complement of about 130, Burrell said the FSC has only been able to increase its workforce marginally, owing to fixed resources flowing into the commission by way of fees.

The FSC executive director told the parliamentary committee that as the industry grew the insurance division required the requisite resources to effectively monitor and assess the risk for both market conduct and prudential reasons. However, he said this could only be done by an increase in resources.

The FSC does not get a subsidy from the Government but instead operates a full cost recovery model.

He said the commission had engaged players in the insurance industry on the proposed fee increase.

SHORTFALL OF $262.5 MILLION

Aisha Wright, divisional director in the Financial Regulations Division at the Ministry of Finance and the Public Service, told members of the Regulations Committee that an analysis of the FSC for 2024-25 showed that the estimated cost for supervising the insurance industry was $749 million. However, she pointed out that the FSC only collected $487.2 million in fees over the period, leaving a shortfall of $262.5 million.

“It is critical that the fees be revised so that the FSC can carry out its mandate of supervising the insurance industry and protecting the consumers as well,” Wright said.

Asked how the FSC managed while making an operating loss, Burrell said the commission made a loss of $500 million, and has had to dip into its reserves to continue carrying out its regulatory mandate. He said the oversight body has had to delay employment and the roll out of IT systems.

However, McFarlane argued that while the FSC is self-financing, the cost of regulation “can’t simply be driven by the need to pay more salaries”.

“These fees could contribute to heightened pressure on insurance companies in terms of extracting resources from these entities without there being any immediate tangible benefits in terms of earnings,” McFarlane noted.

“At a time when we are looking for insurance companies to become stronger, not just in the aftermath of Hurricane Melissa, but to prepare themselves to be more resilient and to expand the coverage of insurance, the increase in the cost of doing business is not something that is necessarily well-timed,” he observed.

edmond.campbell@gleanerjm.com