Jamaica will be recovering from the effects of the destructive category 5 Hurricane Melissa for some time, with substantial expected damage.

Potential exists for major economic fallout in the country because of the relative lack of insurance penetration, projected by AM Best to be as low as 5 per cent, which could limit funds for rebuilding.

Apart from the threat to lives posed by such a powerful storm, economic losses are likely to be in the billions of dollars, according to analysts.

Sridhar Manyem, senior director, industry research and analytics, said that these types of events highlight the need to build awareness of the protection that insurance can provide across the Caribbean region.

The analyst said: “Fallout from this storm is predicted by weather experts to be catastrophic, with heavy rain of up to 30 inches or more in isolated areas, with the potential for landslides, and destructive winds of up to 180 miles per hour and storm surge on the island’s southern coast.

“The primary focus once the storm passes will be humanitarian aid to the residents and visitors to the island, and so it will likely be days if not weeks before data is available to estimate losses.

“Jamaica’s tourism-driven economy accounts for approximately 35 per cent of its GDP; Melissa could cause long-term damage to the country’s infrastructure, which would in turn bring about severe disruptions to its tourism industry and potentially hamstring its economy.

“There are several local insurers that will be impacted by this storm, but as is the norm for the Caribbean islands, insurers there rely heavily on reinsurers.

“Reinsurance partnerships are the cornerstone that provides the capacity for insurers to profitably write property business in the Caribbean, especially in catastrophe-affected years.

“According to Jamaica’s Financial Services Commission, there were 17 registered general and life insurance companies as of the end of 2024; AM Best rates two insurers domiciled on Jamaica.

“It remains to be seen how this event will affect reinsurance pricing going forward. It’s also likely that a $150 million Jamaican parametric cat bond will trigger. This is part of the World Bank’s catastrophe risk insurance programme for the region.”

The analyst said: “While facilities such as the Caribbean Catastrophe Risk Insurance Facility have provided some economic relief to the governments of member countries, which includes Jamaica, a combination of macro-initiatives and microinsurance may have greater potential in narrowing the region’s protection gap.

“However, catastrophe models in the Caribbean are generally not as robust as the ones used to model US hurricanes.

“Modelling in the Caribbean region presents greater challenges, owing to disparate building codes and data quality, as well as their proximity and vulnerability to catastrophic events.

“Models need to consider the correlation of events between geographies in the region as catastrophe risk can potentially be spread across the entirety of the Caribbean.”

Mr Manyem said AM Best will continue to monitor the impact of Hurricane Melissa on Jamaica and other Caribbean islands, as well as the eastern Bahamas and the Turks & Caicos.