Changing insurance rules

Last week, there were two events in Trinidad and Tobago which commanded the attention of the entire country namely the ‘bombing’ incident in the heart of the city on Monday and the passage of tropical storm Emily on Wednesday evening. These two events have a profound bearing on matters of insurance and implications for all of us and there are lessons to be learnt. The question is whether we have the capacity to learn or merely continue to live our lives destined to repeat the errors of our past. Following 9/11 the entire world has changed with respect to terrorism.

Worldwide, the issue of terrorism was re-defined to take into account the new phenomenon and reinsurance treaties covering property risks excluded terrorism absolutely. In the United States, domestic insurers still granted coverage but there was limited capacity and it required a Congress approved federal insurance program to provide reinsurance coverage to US domestic insurers. Third world countries simply do not have the financial resources to provide such solutions and matters of insurance must be dealt with in the international market place and be subject to prevailing market conditions.

Terrorist Attack
While the PoS bombing event was horrific and resulted in injuries to innocent persons who happened to be in the wrong place at the wrong time we must also be thankful that there were no fatalities or any significant damage to property. The authorities have not declared that the incident was a ‘terrorist’ act although the ordinary man in the street has no doubt that the incident was a ‘terrorist’ attack using the same logic of incidents occurring in other parts of the world eg the recent London bombings.

For insurance companies, there is a dilemma where the possibility exists that any property damage claims arising out of the event may not be entertained as losses falling under insurance policies. With the further tightening of the definition of terrorism under both insurance and reinsurance contracts after the 9/11 events in the USA, insurance companies will have to think long and hard about paying any such claims as they will in all probability be excluded under their reinsurance contracts. Moreover, reinsurance contracts while still observing the principle of ‘follow the fortunes’ of their ceding companies, are less tolerant of paying any claims for which they are not legally liable to pay and in fact they generally now require that they are consulted if such claims- ‘ex gratia’ settlements are considered.

No longer business as usual
It is no longer business as usual as times have changed. In presenting a claim, insurance companies place what is known as the ‘reverse burden of proof’ on the policyholder who is required to prove that the event was not caused by an act of terrorism and that will be difficult to discharge by merely using common sense. We have to be grateful that any property damage was minimal but consider the difficulty if there was extensive destruction and the claims not settled by insurance companies! We as citizens must be fully aware of the consequences of our actions and inactions and we certainly do not want a situation like 1990 where the population suffered and claims were not paid as that event was not covered.

Now turning to the next significant event of the week — the passage of tropical storm Emily which only developed into a Category 1 Hurricane after the eye was approaching Grenada. The insurance industry has always made out a case to the international market that Trinidad and Tobago were too far south to be affected by hurricanes and therefore special consideration should be given when compared with the rest of the Caribbean in terms of the costs of catastrophe coverage. This was a close shave following the near miss last year when Hurricane Ivan veered off Tobago at the last minute and slammed into Grenada.

We are likely to be less successful in our argument with the international market as it was too close for comfort with the near misses and the expectation is that reinsurance costs will rise leading to an upward pricing for consumers. Moreover, the forecast for an increased number of storms and hurricanes in the immediate future suggests that climate change is upon us and the historical records may not prove  a reliable guide in determining what may lie ahead. These are the unknowns that the insurance industry must deal with and as long as we have to rely heavily on the international reinsurance market to be able to provide insurance coverage to consumers, premiums will depend on market conditions and the prognosis is clearly for volatile pricing.

The passage of Emily has confirmed the country’s inability to handle disasters. We had a traffic gridlock which was countrywide and that was a bad omen in the event that there was a fire or some other emergency. Floods occurred in the usual places leading to the belief that we are simply unable to solve our problems and surely we must find solutions as they do not require ‘rocket science’. What’s missing is the will and a little commonsense but rather we indulge in excuses and avoid taking responsibility. It will not be surprising that in the current climate there will be areas that will find it difficult to obtain insurance coverage leaving some consumers totally uninsured. It is time that the authorities face up to their responsibilities and find solutions as the public will soon run out of patience and seek redress.

The flooding was extensive and widespread and Emily was only a tropical storm so imagine if Trinidad and Tobago faced a Hurricane and the attendant heavy rainfall. We must accept that we cannot cope with disasters and therefore we must really prepare for an eventuality as we cannot continue to avoid the effects of climate change forever. What we can and must do is to minimise the effect of disasters and that requires serious planning and preparedness. It requires management from continuous clearing of river courses to the proper treatment of the environment and too many citizens have no such concerns. The consequences will surely follow sooner rather than later!

E-mail: bkaquing@hotmail.com