All losses have to be met

The blackouts last week affecting the east coast of the United States and Canada stretching as far as Ottawa must be a signal lesson for all of us. It can happen here in Trinidad and Tobago where we are dependant on one source of supply. In the USA, there is inter-connectivity where power can be sourced from alternative suppliers and should allow for a more reliable service.

The cause of the problem will be the subject of an investigation but whatever is finally determined as the root cause of the system ought not to have suffered from a cascading effect where some 21 power plants simply shut down from overload. One would have thought that such a technological advanced country would be immune from problems more associated with the Third World. Early indications are that they would have to undertake serious investment in the upgrading of their generation and distribution systems, if they are to avoid a recurrence. What is the lesson that can be learnt from the USA/Canada blackouts? Living is a lifelong experience and there are such things as human and equipment failure that lead to accidents or incidences which may in all probability have some financial consequences. This is where the concept of insurance seeks to fill this void and therefore anything that has a financial exposure can be the subject of insurance- risk versus reward or hedging.

The buying of insurance cover and paying a premium to an insurance company is only one mechanism and it is supposed to be a deliberate and conscious decision on the buyer’s part to transfer the risk — ie laying off the risk to an insurer in exchange for the payment of a premium. A deliberate decision not to buy an insurance policy is to say that you will retain the risk yourself — it is recognition that you are prepared to carry the risk and save the premium since the financial consequences do not pose a real threat to your financial position. Big corporations take these decisions all the time since they manage their risk exposures and they have the financial strength to absorb any losses at least up to an agreed limit. The principle that is involved here is that you must always behave as if you had no insurance policy. If this principle guides everything that we do then only the real unforeseen circumstance will not be factored in our action. This is a profound theory but it is simply not practised sufficiently in Trinidad and Tobago. Maybe that is how developed societies generally behave but we cannot claim to be anywhere near achieving developed country status since we do not take responsibility for our actions. Insurance is not seen as a tool in our decision-making process but rather an unnecessary imposition that translates into spending and the only return is in the event of a claim and there is where the “fine-print” kicks in.

Trinidad and Tobago like most Third World countries simply pay little or no attention to safety and therefore risk in everything that we do is higher. This is reflected in the way we cross the street, in the way we recklessly drive on the roads with total disregard for other users and the traffic laws and regulations. Thinking about safety is a culture that we do not appear to have within us — it is not second nature and therefore we have to inculcate this habit by constantly working at it right from birth. It was reported that the financial loss in the blackout was estimated at over US$750 million and counting after two days and power had still not been fully restored to several parts of Canada and worse it could take several days for normalcy to return. All of this might have implications for the insurance industry. Think about what took place. Millions of consumers had blackouts (T & TEC has less than 400,000 customers), some with no power for more than 24 hours, some 48 hours or more. Some policies may carry coverage for deterioration of your stock/contents caused by the failure of the electricity supply but the blackout must affect you for a minimum of 24 or in some cases 48 hours before coverage is activated. It would appear that there must be some insurance claims and that will involve work for loss adjusters, claims personnel and will entail substantiation of the losses from the claimants. Think about the losses suffered by business — some will receive compensation from their insurers once they had the appropriate insurance coverage especially those who have been without power for days. Then there will be the issue of liability in terms of contractual arrangements and again insurance will be in some way involved and this might well end up in the courts for determination.

We in Trinidad and Tobago have been fortunate to have so far escaped from any major event caused by hurricane, flood or earthquake which our neighbours in the Northern Caribbean have experienced. In the aftermath of Hurricane Gilbert in Jamaica some 15 years ago, it took months for some homes to have their power supply restored. Think about the hardship and the financial cost should we suffer an event from any peril of nature! It is only then we would have a better appreciation for insurance and how it works since we take it for granted believing that insurance is an unnecessary evil that we have to put up with! The international insurance and reinsurance communities are accustomed to dealing with all kinds of catastrophes around the world and therefore they supply protection in the unlikely event that we should be hit by a catastrophic event and their costs are rising because of all the catastrophes that are taking place elsewhere — the USA blackout, the unprecedented heat wave in Europe — all having losses to be met. This is also happening at a time when the Stock market is still under-performing and the return on investments is at a low. The USA/Canada blackout has only added to the problem and may reinforce the view that insurance premiums are still too low given all the challenges facing risk-takers worldwide.

E-mail: daquing@cablenett.net