In previous columns, I argued for creativity and innovation in all sectors of the economies of Caribbean Small Island Developing States (SIDS) and our St. Maarten Economy, in particular.
Toward this end, many topics were explored, namely a multi-variate model for creativity and innovation that can contribute to gross domestic product (GDP); intangibles; competitiveness; dark creativity and moral flexibility; sense-making; action research; wealth of our nation; a national innovation system; the fifth industrial revolution; wicked problems; sustainable energy; and FinTech.
This final article in the Qualitative Approach to Economic Development series presupposes we had a Merry Christmas – thanks to the insurance industry. Beforehand, I ought to discuss some issues that may be peripheral to an expert, but educational for others as it forms a foundation for the discourse.
Are you insured?
Be sure. This sounds familiar right? Where did I hear this before? The fact is that we all need insurance of some kind, be it vehicle, business interruptions, bonds, commercial, engineering, liabilities, life, medical, marine, motor, risks, perils, or last-but-not least, property and home.
As we insure, we reduce the exposure to certain risk, and are then able to maintain current standard of living in the event of a loss of income, health, asset, etc. I would use this forum to recommend that you know what is covered in your policy, especially as a homeowner.
Do this by requesting the information, or actually reading the policy. Look for what is not covered, based on the increased ecological and weather threats in the Caribbean in the last 90 days, i.e., increased earthquakes and the resulting possibility of flooding.
Some districts are prone to smoke, others to high winds. Also, find out about temporary relocation expense while your property is under reconstruction. Know what a deductible is, how a no-claim bonus works, what products are offered by other firms in the industry, and the possibly of combining them with separate policies.
Innovation in the insurance industry
In the future, we may expect bots instead of brokers in the back office, drones doing damage assessment, and pings for policy updates. However, the need for human resource is critical in the insurance industry to meet the needs of the customer.
If the client is not sure, the robotic intermediator may not be sure either. The innovation will not be disruptive or rapid, because it must be hybrid – automation and human services.
The future may include apps, online platforms for payment and other transactions for the clients. One of the firms in the industry leads by adopting a combined approach by being pro-technology, pro-innovation, pro-efficiency, user friendly, a mantra for being fast and fair.
Though firms in the industry are opening online portals to file claims, request quotes, and send notifications, there is one limitation: The matter of compliance with Anti-Money Laundering (AML) laws and the Know Your Customer (KYC) procedures.
SIDS has a post‐catastrophe recovery and financial liquidity challenge that increases the vulnerability and insecurity of the population, resulting in socioeconomic dislocation – the kind that we have experienced with heavy losses in all sectors of our economy and government.
Historically, losses have been estimated higher that the countries’ GDP. For example, Hurricane Ivan of September 2004 resulted in estimated losses upwards of 200% of GDP.
After this, regional governments and the World Bank and international donors brought innovation to the industry through the creation of a regional catastrophe insurance scheme based on parametric products.
This parametric mechanism is underpinned by derivatives‐based catastrophe modelling – which means that the pay-out after a disaster is 100% sure and is set depending on the category of the storm. An example of a parametric product is the Hurricane Extra, offered at Nagico Insurances.
Insurance for Caribbean Governments - CCRIF
Information from its website www.ccrif.org outlines that CCRIF [Caribbean Catastrophe Risk Insurance Facility] is the world’s first regional fund utilising parametric insurance, giving member governments the unique opportunity to purchase earthquake, hurricane and excess rainfall catastrophe coverage with lowest-possible pricing.
This obviously limits the financial impact of catastrophic hurricanes, earthquakes and excess rainfall events to Caribbean countries by providing short-term liquidity when a parametric insurance policy is triggered.
CCRIF’s website states that 19 Caribbean governments are currently members of the facility: Anguilla, Antigua & Barbuda, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Grenada, Haiti, Jamaica, Montserrat, St. Kitts & Nevis, Saint Lucia, St. Maarten, St. Vincent & the Grenadines, Trinidad & Tobago and Turks & Caicos Islands. Nicaragua is the first Central American government to become a CCRIF member.
Did the Insurance Industry save Christmas 2018 from grinches Irma & Maria?
I noted two phenomena in 2018. One was the increase in prices in goods generally, where most firms preferred cash over cheque. The second was the scarcity of skilled and unskilled workers in the construction field, which also resulted in higher wages demanded.
I was contented to retrieve the report of the Centrale Bank Van Curaçao en St. Maarten entitled, Economische ontwikkelingen in 2018 en vooruitzichten voor 2019. Alas! This theory of the chivalry of the construction sector can be tested.
The data from pages 6 and 7 of the Economic Developments in 2018 And Outlook for 2019 in its analysis of St. Maarten’s GDP shows for expenditures, the estimated economic contraction in 2018 was due to a, “sharp decline in net foreign demand moderated by an increase in domestic demand.”; “lower foreign exchange earnings from diminished tourism activities” – while there was increase in imports of construction materials and services.
Permit me to quote this whole paragraph to support my argument: “By contrast, imports rose related to construction material and services for the reconstruction of St. Maarten. However, the imports by the wholesale & retail trade sector dropped due to lower tourism spending and a decline in private consumption.
“Domestic demand went up driven mainly by increased investments by the private and public sectors. In addition, public consumption increased because of higher disbursements on goods & services.
“Meanwhile, private consumption dropped due to increased unemployment, particularly in the tourism sector, and reduced wealth. However, more purchases of construction material and durable goods by those who were covered by insurance moderated the decline in private consumption.”
What’s next?
This sectoral analysis reveals that only the construction sector experienced growth. All other sectors – manufacturing, utilities, wholesale & retail trade, restaurants & hotels, transportation, storage & communication, financial intermediation, and real estate, renting & business – contracted.
We are positive that reconstruction is moving apace. All other sectors should play catch up by the medium term.
The outlook for 2019 according to the Economische ontwikkelingen in 2018 en vooruitzichten voor 2019 - page 9, is that Real GDP in St. Maarten is projected to grow by 2.3% in 2019, and inflationary pressures are projected to ease slightly during 2019 due to international oil prices.
I believe that we on St. Maarten may take a little longer to feel the ease. This may be due to the higher per mil values for insurance due to their particular increases in reinsurance costs. Note that those values are ever shifting upwards from 5-7 per mil pre-Hurricane Luis to 11-13 per mil post Irma and Maria.
Policies will have to be put in place to manage the influx of “construction” workers, especially in preparation for when the construction bubble bursts, eventually.
I may continue writing on other subjects, depending on the theme of the publication. Thank you for your encouragement and feedback.
Eion Maison has a bachelor’s in Economics, and an MBA. He is a social and behavioural research investigator, and a Ph. D. candidate of the University of the Virgin Islands. Contact info: This email address is being protected from spambots. You need JavaScript enabled to view it.
