TT Insurance Act needs fast tracking

TT Insurance Act needs fast tracking now.

The Insurance Sector is one of the country’s primary sector. If this sector goes, or is adversely affected it can have a tremendous negative social and economic impact on the entire country. TT is currently operating under an Insurance Act, which is over 22 years old.

As a Trinidadian, who has had the experience of working in the Insurance and Finance Sector in Jamaica over the last nine years, one has seen and had to work through the end result of the virtual collapse of the sector there.

The main point is that some of the factors which caused the collapse of the Jamaica insurance sector is already very much a part of the TT landscape. Prime Minister Manning, unlike the Jamaican Government, is not in the “bailout business” and therefore, if the sector should find themselves in problems a rescue plan may not be that simple for Trinidadians.

The government must implement the proper framework and ensure that the necessary adequate regulations are in place  to protect policyholders and the public at large. At the moment there is said to be a draft of a New Insurance Act in circulation, however, as one sector leader indicated, this draft has been going around for almost five years now and no one knows where it is.

Margaret Yearwood, Supervisor of Insurance, is of the  view, that the longer the process takes the greater the risk not only to the insurance sector but most of all the public at large. The reality is that the Jamaican government had to intervene to the tune of JA$120B  (US$3B), to avert a total collapse of the insurance and banking sector. I am very concerned about some basic signs, which have been in existence in the local insurance sector for some time, the red flags have been waving for some time now.

Some of the issues and warning signs are as follows: -
• The sector as a whole is poorly capitalised, with over 80 cents (80 percent) of every premium dollar (general insurance) being remitted overseas for reinsurance cover). Many players display very weak Balance Sheets.
• Many local insurance companies depend heavily on investment income in order to realise a profit, which speaks to concerns regarding to the viability of their operations.
• A culture of tardiness, by players (companies operating in the insurance sector), in reporting their financials etc, to the Office of the Supervisor of Insurance. The most current report on the market for public scrutiny is dated 1998.
• A culture of having a weak regulatory framework, which although is normal in most developing countries, is not a luxury TT can afford.
• Functioning with an obsolete Act means that most, if not all the major guidelines for efficient and effective operating companies in today’s global environment are currently out of sync.
It means that there will continue to be flaws in the system: inefficient investment guidelines, solvency margins, corporate governance, claims settlement and management guidelines, incestuous relationships, conflict of interest issues etc.
• The number of existing players in the market, as compared to the actual market size (too many players chasing too few policies). At the moment there are over 30 registered insurers operating in the market.
• It is clear that a number of players in the sector are undercapitalised, and may not be able to pass a required solvency test based on international standards and this in a nutshell means that they continue to put themselves, policyholders, the sector and the public at risk.

As a result,  players in the insurance sector may not be prepared for the global competition that is now on our doorsteps. We are already seeing the presence of the Internet players and the briefcase players biting away at the local marketshare. I would hope that we never reach that stage, like in Jamaica, where when “the horse has already bolted” they began a “fast track” programme for their new Insurance Regulations.

Let hope that we would have learnt something from our neighbours. St Bernard is a Regional Insurance and Business Consultant. He is also the Co-host of Risky Business, a TT radio programme which deals with risks and insurance matters. 
Email: pri@kasnet.com 

Bernard Aquing’s column will return next week.