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How will the local insurance industry change over the next 10 years? It promises to be a demanding decade as the most important development now unfolding is greater safeguarding of policyholders’ funds.

“Over the next decade we will definitely have a more stringent regulatory environment,” said the new President of the Association of Trinidad and Tobago Insurance Companies (ATTIC), Rani Lakhan-Narace. Following an amendment to the Insurance Act in October 2006, which allows the Central Bank powers to be an active regulator, she stated that this change had already begun – a change she noted the industry has been seeking for the past 20 years.

Immediate Past President of ATTIC and Chief Operating Officer and Executive Director of Guardian Holdings Ltd (GHL), Douglas Camacho described it as a major change and an improvement in the regulatory process. Prior to the amendment, if the regulator sought to intervene and a company challenged the move, the regulator could do nothing and the company continued to operate until the matter was settled in court. The Act has now made it easier for the regulator to intervene. The regulator can now go in and have jurisdiction until the appeal is heard.

Camacho also said the Central Bank was pursuing new international standards being adopted in developed countries, which were introduced in the wake of various high profile corporate cases of negative behaviour abroad.

Central Bank Governor Ewart Williams, in a statement in ATTIC’s 40th anniversary publication, spoke of the creation over time of a protection scheme to protect policyholders from adverse consequences in the event of insolvency of insurance companies when all supervisory and regulatory measures have failed.

He also called for a major upgrade in the skills of the practitioners operating in the sector.

“The most critical issue facing the local insurance industry is economies of scale,” Camacho said. Companies are definitely too small, he stressed, noting that there was a significant difference in unit costs if you are writing one million policies as compared to 20,000 policies. The issue of size has become even more critical because of the cost of compliance to meet the new regulations, rules and governance standards.

“Size is a major element because small or large, you have to meet the new minimum basic requirements of regulators and that becomes very expensive,” he opined. For some companies, it might mean introducing entirely new functions into the administrative system such as a compliance division or auditing department.

“We have had some contraction, particularly on the life side... I think that is a positive because we are starting to get some critical mass,” he said. “We need further contraction for the size of market,” he added.

The Property and Casualty sector needs more contraction, Camacho continued. While conceding that the negative consequence of this would be less choice for consumers, he pointed out, “The Property and Casualty market is over-served. They struggle. You are only tested when you have a catastrophe, so people can be limping along because they haven’t had a catastrophe, as happened with Ivan.

“The room for consolidation is really on the general side,” he said, but believes it is more likely to see people exiting the business.

Agreeing that with a more stringent regulatory environment more consolidation will be seen, Lakhan-Narace noted that the positive aspect of this is stronger institutions. These will then play a bigger role in the pan-Caribbean sector, she said.

Two significant developments she expects to see this year are a new Financial Institutions Act and new Insurance Act. With them will come new capital requirements and some players may then “opt to leave the industry,” she said.

On the general side, the cost of reinsurance continues to be a critical issue facing the sector, Camacho said. “A catastrophe in New Orleans does not physically do damage to Trinidad and Tobago but because we are captured in the same hurricane zone, when reinsurers price their product, we are affected by the higher quotes.”

A significant development taking place on the life side is a shift to living assurance products because of a change in demographics. Camacho said that since people are living longer, they are putting aside for living rather than dying. They want products to enhance their lifestyle, particularly in retirement or in case of critical illness. He noted that this had brought additional players into the market offering products such as mutual funds and savings type vehicles.

With the wider market space created by the Caribbean Single Market and Economy (CSME), the requirement of greater capital and a different approach to the business of insurance and its role in financial services, the insurance sector will continue to create opportunities for strategic partnerships, mergers and acquisitions, according to Lakhan-Narace.

Camacho agreed, stating that the CSME provides some interesting challenges and opportunities as it will create a bigger single market. He opined that Trinidad companies were already operating in the wider region but were definitely not operating in the most efficient manner. In his view, regulation across jurisdictions could become a big issue. Since harmonisation of legislation is a long process, he said the Insurance Association of the Caribbean (IAC) is trying to work with the Caribbean Association of Insurance Regulators to determine the best system of regulation in the absence of harmonisation.

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