Making the Caribbean Insurance Sector Fit for Purpose

Eric Hosin- President1(2)

By Eric Hosin, President of the Insurance Association of the Caribbean (IAC).

The Caribbean Insurance Sector is one of the key leaders of the financial services sector and is a main driver of economic trade and development in the region. It is necessary to have a well-functioning insurance sector to ensure economic development, not only at a macroeconomic level, also at business and individual levels.

The last seven years have been a challenging period for our industry with the judicial management of CLICO International and British American insurance Company (BAICO), two major life insurers, threatening the stability of our industry. The collapse of these two major companies put at risk the savings of a large number of policyholders and pensioners, and threatened to disrupt an important source of long term investment financing, while simultaneously changing the landscape of the Life and Health Insurance industry. Although low and stable claims ratios have helped ensure profitability, Net Premiums of life insurers have declined in recent years due to an overall weak regional economy and lack of public confidence.

Due to our geographic location, our region is also known for its vulnerability and its constant threat from natural disasters. The high occurrence of natural and man-made catastrophes around the world over the last few years has implications for the cost and availability of reinsurance in our region in future years.

Insurance companies are now competing with other financial institutions, such as banks.

A number of structural changes in the global insurance market are also impacting the industry. There are now many non-traditional practices that are shaping the financial services market, with technology and the changing regulatory structure affecting product delivery. Insurance companies are now competing with other financial institutions, such as banks, that have the capability and the capital to sell insurance products along with their traditional bank products.

The Industry is also facing threats from other non-traditional competitors, such as retailers, finance companies and Internet providers, who are using innovative technological platforms to side-step traditional marketing and distribution channels, such as insurance agents. This has all led to consolidation in the insurance industry. Merger and acquisition activity among companies is at its highest, with companies being forced to adapt or be left behind.

These developments also have implications for the regulatory framework governing the financial sector. As agents, providers, and consumers begin to complete more of their insurance-related transactions online, new regulatory issues will have to be determined. Due to insurers collecting more online information on customers, privacy is a greater concern and will become one of the more important issues, especially as it relates to the transfer of medical information.

Cooperation among insurance supervisors is a key element. Following the downfall of CLICO and British American, it is widely agreed that increased regulatory oversight is necessary to maintain better management and governance of risk. Increased detailed reporting to regulators, however, remains a challenge, and is a costly process with no real value to insurance companies. It is therefore necessary for companies to adopt more effective and efficient practices for delivery of reports.

Revamping must come from the top down to be efficient and impactful.

Revamping must come from the top down to be efficient and impactful. Implementing such policies focused on transparency and accountability affects the bottom dollar of companies, and in turn the top line growth of the organisation. These make for a more reliable and secure investment for customers, be they corporate or laymen.

Building a good corporate image positively affects all aspect of the company, and consequently it is advisable to implement strategies, such as:

  • Separating the roles of CEO and Chairperson on the Board of Directors;
  • Nominating and not appointing directors. This eliminates favouritism and reduces the risk of a personal wealth goal attainment that could negatively impact the bottom dollar of the company, since the decisions made benefit the individual and not the company;
  • Ensuring the independence of Directors on the Board. A proportion of directors from outside the company brings fresh views to decision making, and creates an unbiased method of decision making;
  • Forming audit committees and independent auditors to critically analyse the accounts of an organisation and adhere to international standards.

In addition, creating a comfortable and secure organisational climate for employees, centred on implementing health and wellness programs, training and further educational opportunities, and creation of corporate advancement based on merit, rather than time spent in the organisation, increases the output of the company and favourably impacts the bottom dollar of the company.

That said, investing in the future of the company by creating training opportunities for employees using stalwarts of the company to pass on knowledge gained from years of experience to new entrants in the organisation, prolongs the longevity of the region’s insurance industry, while developing a succession management plan that focuses on leadership development, not only improves retention, but ultimately reduces recruiting costs too.

It’s fair to say that the support of regional insurance associations’ training programmes geared towards the specific nature of the region’s insurance atmosphere builds confidence in the industry both from consumer markets and employees. The Insurance Association of the Caribbean Inc. (IAC) understands an organisation’s need for increased value for money and accountability to demonstrate return on investment for all areas of the business, and so over the past five years, the IAC has made every effort to design training programmes based on those needs expressed by insurance personnel in the region.

Educational training and development of our human resources is an integral function of any organisation, and an essential investment in its future. Increasing demands for efficiency and improvement in service delivery, global competition, challenging markets and the fast pace of technology evolution cumulatively highlight the need to develop a skilled and motivated workforce prepared to meet these challenges.

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