Challenges for the insurance business

It’s that time of year when the mood is festive and we indulge and perhaps over- indulge ourselves in food, drink and merriment. This column has appeared regularly since the very launch of the Business Newsday and from the feedback, it would appear that the information provided serves to remove some of the mystery surrounding the business of insurance. The Association of Trinidad and Tobago Insurance Companies (ATTIC) wishes to extend best wishes to all the many readers, their friends and families at this time and hopes that the New Year will bring happiness and prosperity. Motor insurers usually witness a spike in road accidents at Christmas and Carnival. Without an actual research and empirical evidence it is reasonable to assume that alcohol, tiredness and speed must play a major role in the upsurge in accidents at those festive seasons. The national population only hears of accidents when there are fatalities or serious injuries and there is little interest in the kind of economic waste associated with damage and destruction to property. In our merriment, there is also great sorrow and pain to the families affected by these tragic accidents.

While we must all take responsibility for our actions, it is clear that deterrents must be a key factor in reducing road traffic accidents. In the developed world — and we are aspiring to be a developed nation by 2020 — law enforcement plays a critical role and during festive occasions police are very visible which have the effect of ensuring that driving under the influence and speeding are minimised. Unfortunately, in Trinidad and Tobago it is the very times that police presence is required that they are nowhere to be found. It does not take rocket science to solve our problems but rather organisation, some common sense and the determination to stem the carnage that has become everyday occurrence. As we bring the year to a close and to welcome the new Year — a leap year — there are many challenges that the insurance industry must address. For motor insurers, is not only the unacceptable accident rate but it is the increased cost of repairs, the statutory interest rate of 12 percent when current earning levels are significantly lower, the severity of injuries and the corresponding high settlement payouts that don’t get reported in the media and the continuing high levels of car thefts and the low recovery rate. In the final analysis, it is the consumers who will eventually have to pay for the claims through a rise in premiums.

Only last week there was a fire in Port-of-Spain and the Fire Services faced difficulty with an inadequate water supply. Firstly, it was reported that the salt water mains could not be activated as they required maintenance or replacement. Secondly, WASA could not increase the pressure in the mains as this could have caused a rupture to these old lines and comically it was left to water contractors to provide a supply to bring the blaze under control. This scenario, provided that was a true representation of what transpired as no one has refuted the stories in the media, would only make the angels weep! It is well known truism in the international insurance market that it was insurers’ funds that have rebuilt the city of Port-of-Spain over the past three decades with the exception of the events of July 27 1990 in view of the numerous fires that plagued the city especially around Christmas time. It is disheartening to witness the congestion in the city of Port-of-Spain with traffic moving at snail’s pace with parking usually on both sides of the street and permitting only a single lane. This is a totally unacceptable situation for any risk manager especially as almost all properties are devoid of sprinkler system or a minimum of fire fighting equipment. It is high time that the authorities appreciate the risks and take appropriate steps to avoid a catastrophe. This is where developed countries are way ahead of us as they spend time planning for just those types of events — observe their strategies in homeland security in view of credible intelligence reports of terrorists attacks over the holidays.

Crime affects us all whether they are holdups, kidnap for ransom, car thefts or simply household or commercial burglaries. Insurance claims may arise in some of these cases so the industry as a whole must have concerns over the current state of affairs in the country. However, one of the major challenges for the insurance industry must be the FTAA and the various trade negotiations. It was only last week that the office of the United States Trade Representative issued a summary of the US-Central America Free Trade Agreement. The USA will begin work early next year to integrate the Dominican Republic into the CAFTA. It would appear that the CAFTA will allow USA companies in financial services to not only enter the Central American markets with full rights to establish subsidiaries, joint ventures or branches but also to supply insurance on a cross border basis – i.e. remain in the USA and “cherry pick” their risks competing with local companies without having a physical presence in Trinidad and Tobago.

This is significant as in all the Free Trade text the USA wants cross border trade and this is resisted but here in the CAFTA it would appear that the USA has already got its way. Naturally, the USA will feel emboldened to pursue their drive for cross border trade in services and the domestic insurance industry must be extremely vigilant during the negotiations that will take place during the New Year. The domestic insurance companies have no difficulty with competition but these companies must establish a local presence and conform to local laws. The insurance business is in itself challenging but it will have to face head on trade issues as well as the deleterious effects of man made risks and those of nature in the New Year. Again Happy holiday to all! Article prepared by Bernard K Aquing, Chartered Insurer and Consultant to Association of Trinidad and Tobago Insurance Companies (ATTIC)
E-mail: daquing@cablenett.net