Insurance minefield looms

LAST WEEK, the USA and for that matter the entire world remembered that fateful day two years ago when a simple unsophisticated plan by terrorists to commandeer jumbo jets and crash them into the World Trade Centre buildings accounted for untold loss of life and property. That single occurrence has changed the world forever and it would appear that the USA is determined to ensure no such act of terrorism ever takes place on its soil again. In the intervening period the USA has taken unprecedented action in terms of homeland security which has affected the individual rights of its citizens, which they have not objected to giving up if it improves the chances of preventing terrorists’ attacks. This is in itself a lesson for all of us in Trinidad and Tobago where we still continue to bury our heads in the sand and to do little or nothing to deal with the violent crimes involving the use of firearms and weapons and the increased incidences of kidnapping when the situation cries out for tougher action. We have a love for “things American,” but why don’t we now take a leaf from the Americans and adopt some of the same approaches to deal with our domestic crime situation?

We, as outsiders looking in, may even view that the USA has become obsessed with issues of security and have gone overboard to the point of paranoia, but Americans will not allow their leaders the luxury of a repeat of what happened on September 11 without serious political fallout. That is the American way! We in Trinidad and Tobago never take anything seriously. We have had our own experience of July 27, 1990 and the insurance issues have only just been settled in favour of the insurance industry as was expected, but the wider community may not agree that we feel any safer today. The effects of 9/11 are still reverberating throughout the world insurance industry and it will be some years before some certainty and a degree of normalcy return. The insurance business is like no other business since there is interaction among insurers and re-insurers around the world and, in fact, there are no borders. Insurers cannot operate without the support of international re-insurers since risks must be spread and expertise sourced and this holds true for all countries, and Trinidad and Tobago cannot be an exception to this rule.

Following our own events of July 27, 1990, our insurers developed a product with the support of the international re-insurance community to provide some coverage in the event such an event happened here again. Now all bets are off! This re-insurance support has been withdrawn and this coverage is no longer generally available. Our best insurance coverage is to ensure that no such event ever takes place again and our insurance policy is the security forces — so please note! Trinidad and Tobago is not alone. Most countries are in a similar position and the coverage is now a general exclusion. In the USA, the situation is somewhat different. Terrorism cover is available and where capacity is exhausted, it is the Federal government that is now a re-insurer of last resort. The government has taken action in quick time to fill the breach, but that is also the USA’s way of doing things and is an immediate response to a market failure. Our way is not the USA’s way and we do nothing quickly, but rather expend energies in talk and only in deliberate action.

The immediate reaction was the increase of re-insurance costs as the re-insurers that provide support to our insurance companies were affected. The result was an increase in insurance premiums to the ordinary policyholder and businesses and a further tightening of the policy terms and conditions, and the situation continues although in a less dramatic form. The world’s major insurance and re-insurance companies have been under immense scrutiny by the rating agencies — Standard and Poor’s and AMBest and in fact there has been a downgrading of the leading players as these agencies believe that the sector is still under-performing. In addition, these major players have seen a significant reduction in their stock market valuation which in itself raises questions in their ability to take advantage of the high premiums as they themselves might have to seek increased capitalisation. Coupled with this state is the continuing volatility in the world stock markets as all these major players are active participants and therefore they would all have suffered losses following the collapse of Enron, WorldCom and the other corporate scandals. However, insurance business must look towards the future and all these road humps only serve to prove the industry’s resilience and its ability to ride out short-term difficulties.

The 9/11 event is only now having its sequel in the Courts. The World Trade Centre losses are in dispute as the judge in the first instance has ruled that there were two losses. The insurance companies hold that the policy covered an event and that there was only one loss. It could mean the difference of some US$3.5 billion when the final ruling is handed down sometime in the future. The US companies have reported that their net claims were US$9.3 billion at the end of 2002. The company (GMAC) that financed Larry Silverstein’s lease on the WTC is suing him allegedly for not putting enough insurance money aside to secure his debt to the bondholders and this was reported in Insurance Day.

On the heels of all of these law suits, a USA federal judge has ruled that lawsuits blaming the airlines, the Port Authority and Boeing for deaths and injuries can proceed. They (the defendants) argued that they had no duty to anticipate or guard against suicidal attacks and that no negligence could be placed at their doorstep. The plaintiffs argued that Boeing should have designed a cockpit door to prevent hijackers from invading the cockpit. They also claimed that the airlines and the Port Authority did not take sufficient preventative measures on the ground to protect passengers and in the circumstances failed the travelling public. While there will be appeals of the judge’s decision it will be some considerable time before there is closure.

E-mail: daquing@cablenett.net