Some in­sur­ance lessons from Hur­ri­cane Matthew

Jamaica Gleaner - - BUSINESS - Cedric Stephens 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

THIS NEWS­PA­PER’S ed­i­to­rial said last Wed­nes­day that “de­spite the nearly 900 deaths in Haiti, the emerg­ing story of Hur­ri­cane Matthew ... is per­haps North Car­olina in the United States. It is one to which Ja­maica should pay at­ten­tion and learn from”.

I to­tally dis­agree. There is much to be learnt from what Haiti did and did not do.

The hu­man cost of the deaths and de­struc­tion caused by the hur­ri­cane in the US would have been much worse were it not for the warn­ing sys­tems that were put in place. The ed­i­to­rial con­cluded that: “Ja­maica has had a prob­lem of peo­ple in flood­prone ar­eas not heed­ing storm warn­ings and re­spond­ing to dis­as­ter-pre­pared­ness mes­sages (and) that cul­ture can be changed by con­tin­u­ing ed­u­ca­tion and re­in­forc­ing in­for­ma­tion ... from build­ing and ad­her­ing to sys­tems, rather than de­pend­ing on per­son­al­i­ties.”

Ja­maica’s prob­lem — like Haiti’s — is far more com­plex than sim­ply lis­ten­ing to storm warn­ings and re­spond­ing to dis­as­ter-pre­pared­ness mes­sages. Mak­ing struc­tures more haz­ardresis­tant, de­vel­op­ing and en­forc­ing proper build­ing reg­u­la­tions and land-use re­stric­tions are among “some of the cost­ef­fec­tive means of re­duc­ing the toll on life and property.”

To­day’s ar­ti­cle will share in­for­ma­tion from an­other neigh­bour. This one is also to the north — The Ba­hamas. That group of is­lands was also se­ri­ously af­fected by Hur­ri­cane Matthew, al­though there was no loss of lives. It will also look at some of the things Ja­maica should be do­ing to min­imise the ef­fects of fu­ture dis­as­ters that will re­sult in loss of lives and cause dis­rup­tion in our very frag­ile econ­omy.

SEVEN BA­SIC FACTS

1. Hur­ri­canes, earth­quakes and floods ac­count for the most deaths and fi­nan­cial dam­age in the Car­ib­bean re­gion. The fre­quency of these events has, ac­cord­ing to one re­port “Catas­tro­phe In­sur­ance Mar­ket in the Car­ib­bean Re­gion: Mar­ket Fail­ures and Rec­om­men­da­tions for Pub­lic Sec­tor In­ter­ven­tions”, in­creased dur­ing the last cen­tury. It has ac­cel­er­ated more re­cently. Dur­ing 1970-99, the re­gion av­er­aged 11.9 cat­a­strophic events each year. The 2002 re­port did not dis­cuss what ef­fects global warm­ing would have on the fre­quency and sever­ity of fu­ture hur­ri­canes.

2. Ja­maica suf­fered a di­rect hit from Hur­ri­cane Gilbert in 1988. The eco­nomic losses from that event were es­ti­mated at US$1 bil­lion. In­ter­na­tional as­sis­tance from donors amounted to 10 per cent of that amount or US$102.4 mil­lion, re­ports the “Primer on Nat­u­ral Haz­ard Man­age­ment in In­te­grated Re­gional De­vel­op­ment Plan­ning.”

3. The primer also said pre­ven­tive mea­sures “can re­duce the hu­man tragedy and in­cal­cu­la­ble costs of lost jobs and pro­duc­tion as­so­ci­ated with nat­u­ral dis­as­ters.”

4. Six years af­ter a dev­as­tat­ing Ja­maicans watch and take pho­tos of mas­sive waves off the Kingston shore­line caused by Hur­ri­cane Matthew on Oc­to­ber 3, 2016.

earth­quake, Haiti has still not re­cov­ered.

5. The eco­nomic gains that have been achieved from the ex­tended fund fa­cil­ity with the In­ter­na­tional Mon­e­tary Fund — macroe­co­nomic sta­bil­ity — were de­scribed in an­other of this news­pa­per’s ed­i­to­ri­als as “frag­ile”. This is per­haps one of the rea­sons why the Gov­ern­ment is, ac­cord­ing to the Ja­maica Ob­server, propos­ing to con­tinue “with in­sur­ance con­tracts to hedge against any sharp in­creases in oil prices that could im­pact its eco­nomic re­form agenda”.

6. “Only 3.8 per cent of the dam­age from nat­u­ral catas­tro­phes between 1985 and 1999 in Latin Amer­ica and the Car­ib­bean were in­sured, rank­ing it the last among the world,” ac­cord­ing to the 2002 re­port.

7. The IMF’s re­cent ad­vice to 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 to af­ford­able fi­nan­cial ser­vices to credit, in­sur­ance and sav­ings, par­tic­u­larly for dis­ad­van­taged and low-in­come seg­ments of the so­ci­ety” should be viewed in the con­text of item 6.

IM­PACT ON BA­HAMAS

Dam­age to homes, other property and in­fra­struc­ture in the is­lands of An­dros, Grand Ba­hamas and New Prov­i­dence was es­ti­mated by Ba­hamian Prime Min­is­ter Perry Christie, ac­cord­ing to the Nas­sau Guardian, at US$400 mil­lion.

IHur­ri­cane Matthew moves through Par­adise Is­land in Nas­sau, Ba­hamas in this Oc­to­ber 6, photo.

The coun­try was still in the process of re­cov­er­ing from Hur­ri­cane Joaquin in 2015 when Matthew oc­curred.

The gov­ern­ment is ex­plor­ing two op­tions to fund the re­cov­ery ef­forts. One in­volves float­ing a US$150 mil­lion bond. The other is to raise taxes. The op­po­si­tion party does not sup­port this op­tion. The gov­ern­ment, on the other hand, is wor­ried about the high cost of bor­row­ing. The PM said that “many per­sons see the Ba­hamas as a rich coun­try which should be able to bounce back largely on its own.”

IILESSONS FOR JA­MAICA

There are no fairy-god­moth­ers who will pro­vide fi­nan­cial re­sources to fund the is­land’s re­cov­ery ef­forts in the face of ma­jor catas­tro­phes;

Plan­ning for and man­ag­ing the risks of nat­u­ral dis­as­ters in­volves many dis­ci­plines and should form part of the coun­try’s long-term plan — much in

IIthe same way that re­cov­ery from past eco­nomic dis­as­ters are be­ing tack­led by means of how the gov­ern­ment and its in­sti­tu­tions op­er­ate;

Strate­gies should be de­vel­oped and im­ple­mented by the gov­ern­ment in co-op­er­a­tion with the pri­vate sec­tor to make com­mer­cial in­sur­ance more af­ford­able and avail­able to a wider cross sec­tion of the so­ci­ety; and

Gov­ern­ment should swiftly move to en­act the new build­ing reg­u­la­tions.

There are many things that this coun­try can learn from study­ing the 2010 and 2011 New Zealand earth­quakes where the pri­vate in­sur­ance mar­ket pro­vided 80 per cent of the fi­nan­cial re­sources to fund re­cov­ery ef­forts.

III

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