Challenges facing the Trinidad & Tobago insurance industry

The insurance business by its very nature is always facing new challenges as the world makes technological advances. Change and that ability to adapt have been the hallmark of the insurance industry worldwide. Satellite launches, coverage for the jumbo and wide body aircraft challenged the world insurance industry during the decade of the 1970’s and the market responded when there was immense doubt whether insurance practitioners could rise to the occasion. Small economies have been expressing concerns over the effects of impending trade agreements like FTAA which is due to come into force in January, 2005 but the domestic insurance industry has been faced with foreign competition in large measure since liberalization of the foreign exchange regime in the early 1990’s. More and more risks leave the domestic market annually thereby depriving local insurers of these premiums. While this trend continues and these insurers are not licensed in the Trinidad & Tobago market it is possible that new trading rules with the coming into being of these trade agreements might serve to worsen the position. That is the future. What about the present?

The events of September 11 last year in the United States have possibly changed the world for all time. No one anticipated a catastrophe of such immense proportions. The insurance community had envisaged a worse case scenario where a passenger jet could accidentally plough into a New York skyscraper. The WTC losses affected every class of insurance business and the estimated loss is in the range of US$40 billion. Insurance and reinsurance companies are still tallying the claims and the end is not yet in sight. There will certainly be disputes as insurers and their clients wrangle over claims settlements while insurers and their reinsures unravel their complex contractual arrangements. The outcome is likely to change some current practice and interpretation of coverage but it will be some time in the future before all the issues are finally settled.

The immediate aftermath of 9/11 is the general slowdown of decision- making in the world’s insurance markets where the focus of everyone was the determination of their financial exposure. The human resources have been taxed to their limit and markets are simply not responding at all or much too slowly especially with regard to claims collection. This slow service has started to impact on local insurers since agreements on claims and risk acceptance are critical to the smooth functioning of the local market. Clients will form the view that local insurers are providing a sloppy service but in reality it is the chain reaction from the current inefficiencies in the international market caused by events from which we are far removed.

The international market has reacted swiftly. Prices have increased significantly some two-three times what clients have been accustomed to pay but the average rise is in the range of 30%-50%. The net result is that domestic consumers are now called upon to pay higher insurance premiums and some of the concessions that they gained in a competitive environment of the recent past had to be foregone in order to entice insurers to continue to provide coverage.

Terms and conditions of insurance coverage have become more restrictive and risks like terrorism have been excluded altogether.

The earnings that insurance companies would derive from laying off some of their risk exposures on the international market have been reduced and they now find themselves having to digest increased costs.

This changed business climate would more likely have a greater impact on the smaller companies than those with the resources to ride the current difficult environment. Like all situations no matter how bleak, there are opportunities for those companies that have low and manageable overheads coupled with sound reinsurers who are able to make capacity available to them when many of their competitors have to refuse business since they have over-reached their risk-taking capability.

ATTIC, the Association of Trinidad & Tobago Insurance Companies- the trade lobby body for the domestic insurance industry has only recently elected Ms. Inez Sinanan - a female - to the top post of President. This is a significant breakthrough in the history of ATTIC and it is clearly a major departure from the past for what so far has been a largely male dominated sector. The new lady President has the task of charting the Association through some turbulent waters as its membership dwindle through mergers and acquisitions which is leading to the general consolidation of the industry. This trend started about some four (4) years ago and it appears to have accelerated within the last year and for the foreseeable future it might move at a faster rate until there is no longer any natural fit. While it might make good business sense in terms of economies of scope and scale, these consolidations will leave consumers with fewer choices for their insurance needs.

The insurance industry worldwide, and in the case of Trinidad & Tobago it is no different, has faced many challenges in the past and the present trying conditions present yet another test of the industry’s resilience. The industry has survived in the past and there is every confidence that although it will suffer some bruises in this current environment it will nonetheless be triumphant and continue to respond to the ever- changing world and serving its many customers. The year 2002 will indeed be challenging but in the end the insurance industry will rebound and emerge stronger.

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25 April, 2002

Bernard K. Aquing

Consultant

Article prepared for ATTIC.