In­surance as a tool for so­cial and eco­nomic de­vel­op­ment

Jamaica Gleaner - - BUSINESS - Cedric E. Stephens pro­vides in­de­pen­dent in­for­ma­tion and advice about the man­age­ment of risks and in­surance. For free in­for­ma­tion or coun­sel, write to: aegis@flowja.com

THE IN­TER­NA­TIONAL Mon­e­tary Fund (IMF) has urged the Ja­maican Govern­ment “to es­tab­lish a fi­nan­cial in­clu­sion coun­cil as part of the ef­forts to achieve higher eco­nomic growth by, among other things, im­prov­ing fi­nan­cial ac­cess”, ac­cord­ing to an ar­ti­cle pub­lished last week in this news­pa­per.

Fi­nan­cial in­clu­sion is “ac­cess to af­ford­able fi­nan­cial ser­vices to credit, in­surance and sav­ings, par­tic­u­larly for dis­ad­van­taged and low-in­come seg­ments of the so­ci­ety”.

That advice was given shortly after a govern­ment-ap­pointed Eco­nomic Growth Coun­cil (EGC) of­fi­cially pre­sented its re­port to the An­drew Hol­ness ad­min­is­tra­tion.

In the week that fol­lowed the IMF’s rec­om­men­da­tion, the coun­try had a last-minute es­cape from a very pow­er­ful Hur­ri­cane Matthew. Most res­i­dents — in­clud­ing in­surance com­pany heads — breathed huge sighs of re­lief. The hur­ri­cane went on to cause the loss of more than 800 lives in Haiti and sub­stan­tial dam­age in East­ern Cuba.

At the time of writ­ing, it hit The Ba­hamas and led to the evac­u­a­tion of thou­sands of per­sons in Florida and other ad­join­ing states as it threat­ened to make land­fall in North Amer­ica.

After Hur­ri­cane Matthew’s near hit in Ja­maica, self­de­scribed for­mer rat, Gordon Robin­son — an at­tor­ney at law who spe­cialised in per­sonal in­jury claims on be­half of in­sur­ers and colum­nist for this news­pa­per — wrote a very provoca­tive piece. In­surance com­pa­nies, he said, were “heart­less, in­hu­man par­a­sites (who) went to great lengths to avoid set­tling le­git­i­mate claims”.

MELT­DOWN

IMF’s advice, the EGC re­port, Hur­ri­cane Matthew and Gordon Robin­son’s ar­ti­cle had me re­view­ing a mag­a­zine ar­ti­cle that I wrote in 2001 ti­tled ‘Are in­sur­ers play­ing an ef­fec­tive role in so­cial and eco­nomic de­vel­op­ment?’

That piece was writ­ten against the back­drop of the near-melt­down of Ja­maica’s bank­ing and in­surance sec­tors and the July 3 Port­more Mall fire which, at the time, was re­ported as one the is­land’s largest fires. After the con­fla­gra­tion, it was found that the con­tents of 29 of the 37 pri­vately owned shops in the Girls hold hands as they help each other wade through a flooded street after the pass­ing of Hur­ri­cane Matthew in Les Cayes, Haiti, Thurs­day, Oc­to­ber 6, 2016. CRIFF has an­nounced a US$20m in­surance pay­ment for Haiti un­der that coun­try’s cy­clone in­surance pol­icy.

mall — 78 per cent — were unin­sured.

Th­ese unin­sured busi­ness op­er­a­tors sought bailouts from the Govern­ment to re­coup their losses. The ar­ti­cle posed a num­ber of ques­tions to the min­is­ter of finance since that min­istry had port­fo­lio re­spon­si­bil­ity for the in­surance in­dus­try.

Be­low is a sample of the ques­tions that were asked: 1. Why should the own­ers of the unin­sured busi­nesses get bailouts from the pub­lic purse? 2. Was in­surance cov­er­age avail­able from the mar­ket for the losses that th­ese busi­nesses had suf­fered? 3. Were the own­ers of th­ese busi­nesses un­aware of the many risks that their busi­nesses faced? 4. Did the busi­ness own­ers con­sciously de­cide to self-in­sure the risks of loss or dam­age by fire and other per­ils? 5. Was the fact that nearly JDF sol­diers use a bull­dozer to re­move a pile-up of sand and silt from the Pal­isa­does main road in Kingston, dumped by surges linked to Hur­ri­cane Matthew on Tues­day, Oc­to­ber 4.

eighty per cent of the busi­nesses did not have in­surance ev­i­dence of in­surance mar­ket fail­ure? 6. If cov­er­age was avail­able, was the price of in­surance af­ford­able?

7. Was pre­mium fi­nanc­ing

avail­able? 8. Was the high rate of non­in­sur­ance in Port­more typ­i­cal of small-busi­ness estab­lish­ments across Ja­maica? 9. What would be the sit­u­a­tion

in the con­text of a ma­jor dis­as­ter like a hur­ri­cane or an earth­quake? 10. Was sus­tain­able eco­nomic de­vel­op­ment pos­si­ble if the Govern­ment acted as in­surer of choice for pri­vately owned busi­nesses and dis­ad­van­taged groups in the so­ci­ety?

For­mer head of the na­tional dis­as­ter man­age­ment agency ODPEM and now di­rec­tor of the Dis­as­ter Risk Re­duc­tion Cen­tre at the Univer­sity of The West Indies, Mona, Bar­bara Carby, said re­cently that politi­cians com­pletely hogged the show (my choice of words) dur­ing a press con­fer­ence that was called the day be­fore Hur­ri­cane Matthew was pre­dicted to hit the is­land.

Fifteen years ear­lier and after­wards, not a sin­gle mem­ber of that group has at­tempted to ob­tain an­swers to the ques­tions that I posed.

TOOL FOR DE­VEL­OP­MENT

Charles van Op­pen, writ­ing in In­surance Re­search & Prac­tice (Vol­ume 16) in Jan­uary 2001 ar­gued that: “In­surance is a tool (for) de­vel­op­ment ... the skills and knowl­edge of how to use it ben­e­fi­cially need un­leash­ing from the minds of (pol­i­cy­mak­ers and) prac­ti­tion­ers in the in­dus­try.” The tech­nocrats at the IMF have recog­nised this. The set­ting up of a fi­nan­cial-in­clu­sion coun­cil to im­prove ac­cess to af­ford­able fi­nan­cial ser­vices in­clud­ing in­surance is, in my opin­ion, long over­due.

This col­umn is not a mouth­piece for the in­surance in­dus­try. It will, there­fore, re­frain from ad­dress­ing Mr Robin­son’s neg­a­tive per­cep­tions — which are shared by many other per­sons in the so­ci­ety.

Th­ese views about the in­dus­try can be changed over time by proac­tive pro-con­sumer reg­u­la­tions. The Fi­nan­cial Ser­vices Com­mis­sion (FSC) after 15 years of ex­is­tence ap­pears to be slowly com­ing to that con­clu­sion — es­pe­cially with re­spect to the cre­ation of a cli­mate for the in­tro­duc­tion of mi­cro-in­surance. If the EGC’s ‘5 in 4’ goal is to be achieved, the FSC will have to move at a much faster pace.

Per­haps Mr Robin­son’s many skills and ex­pe­ri­ence as a se­nior coun­sel might prove to be in­valu­able as a mem­ber of the fi­nan­cial in­clu­sion coun­cil with re­spon­si­bil­ity for get­ting the in­surance in­dus­try in shape?

PHOTO BY RUDOLPH BROWN

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