Time for insurance bosses to talk

As the late Lord Kitchener in his classic tune bemoans that the Carnival is over, it signals a return to sobriety and a degree of some normalcy for the insurance industry after a season when all men lose their reason.

That is not to say that Carnival does not have a place in the lives of the people of Trinidad and Tobago but there is a need to put a brake on the excesses that pass for “freeing-up” and having a good time. For the insurance industry there is no doubt that the accident rate would have spiked largely due to a combination of factors including the over indulgence in alcohol and tiredness when returning home in the early hours in the morning. This past Carnival season saw a number of incidents some of which might be attributable to inadequate crowd control and the failure to pay attention to safety in public places. Such incidences might yet have their sequel in the Courts and could ultimately involve some players in the insurance business.

In this post Carnival period the leaders in the insurance industry have agreed to do some soul searching in a retreat with a view to addressing the challenges resulting from the changed business environment resulting from 9/11 and to prepare a response to the new trading rules of the CSME, GATS and FTAA. What is clear is that the good old days have gone forever and the insurance industry must be prepared for a liberalised market. It does not mean that the local market will disappear but it will put in doubt those players that cannot compete on the basis of economy of scale and scope. It may even mean some companies having to seek out joint venture or strategic partners and/or to identify and carve out niches in order for them to remain relevant.

It is therefore of paramount importance that the insurance industry leaders continue to take an interest and to play an influential role in the deliberations that are ongoing in these trade negotiations. In effect the direction of these negotiations will shape the survival and growth strategies for the industry and it is for this reason that the decision makers must track what is taking place at these bodies. The insurance industry must have a sense of history and a deep understanding for and appreciation of the past — in particular the developmental initiatives of the 1970’s and the first half of the 1980’s. That was a period of nationalistic fervour and policies that sought to displace foreign nationals and expatriates in favour of locals in the localisation process. In fact both the banking and insurance industries heeded the call and that led to the creation of a cadre of local professionals. The decade of the 1990s saw the introduction of new policies and a relaxation of the localisation model and once more  majority foreign ownership was welcome.

The dismantling of the foreign exchange regime aided the new policy direction but this led to a rolling back of some of the gains for the local insurance market of the earlier period. One of the key pillars in the localisation process was the maximum utilisation of domestic capital and resources that were available for risk-taking and the immediate gain was the growth of local insurance companies and the management of the outflow of foreign exchange. Certainly in the past five years, foreign exchange conservation was no longer a consideration for the insurance industry and in fact companies have been falling over themselves to be used as conduits for sending business into the international market. In this way domestic risk taking becomes inefficient and inadequate use is made of the domestic risk capital thereby contributing to the haemorrhage of foreign exchange.
The world insurance markets have changed and many key players have been severely affected by the stubborn downward cycle of the stock market and their own equity bases have been eroded. They now have to do a repair job and it is for this reason that insurance rates have continued to rise and coverage restricted. If anything, the insurance rates and terms and conditions in the local market have not moved as steeply as in other markets and in many instances where local risk taking capacity exists, the premiums rates might be lower than might be charged in the international markets.

This is a new phenomenon as the opposite was the case for many years. The initiative for the industry leaders to start the dialogue about matters affecting the insurance business is a step in the right direction and is a welcome change where people mistrust one another and are not willing to share information for fear that it would be used against them in a competitive situation. The insurance industry must proceed to work together and co-operate in matters affecting the insurance business including sharing information on claims, fraud, malpractice and other related issues without acting in a cartel manner with regard to price setting. In the absence of unity and co-operation, a deterioration of underwriting results and standards will continue and leave a vacuum where certain elements in the society are able to take advantage of the situation.No one insurance company in spite of its size and influence on its own can bring about significant change in a competitive environment that is the insurance business but collectively the industry can ensure some much needed change takes place that will restore order and standards. It is in everybody’s interest that the insurance industry remains competitive and healthy so that the obligations to policyholders can be met sometime in the future since in the final analysis it is only if the loss experience is favourable that premiums will be contained.

E-mail: daquing@cablenett.net