Even before the news broke in 2009 that Trinidad and Tobago’s CL Financial was in difficulty there were calls for more regulation in the financial services sector, including the insurance industry.
A study completed by the International Monetary Fund (IMF) in 2008 raised serious questions about the supervision of Barbados’ insurance sector.
An IMF Financial System Stability Assessment (FSSA) said the “lack of adequate supervision of the insurance sector” exposed the sector to “material risks”.
The institution said profitability and capital adequacy in this sector were “difficult to assess due to incomplete and inadequate data” and noted that “single negative events may significantly damage the reputation of a jurisdiction in an increasingly regional and global market”.
“The sector remains largely self-regulated owing to continuing shortages of qualified staff, inadequate regulation and out-of-date financial reporting,” the IMF stated.
To address the situation, the IMF suggested that “greater cooperation and exchange of information, particularly with the authorities in Trinidad and Tobago, are necessary to facilitate effective assessment of financial soundness and the protection of Barbadian policyholders”.
In the June 8, 2009 BARBADOS BUSINESS AUTHORITY former Caribbean diplomat Sir Ronald Sanders said a regional regulator for insurance companies, non-bank institutions and banks throughout the Caribbean had become an absolute necessity.
He said it was “a travesty” for regional decision-makers to comply with Organisation for Economic Co-operation and Development (OECD) stipulations for regulating the offshore sector in the Caribbean while failing to establish the machinery to regulate regional insurance companies, non-bank institutions and commercial banks.
Sir Ronald said: “If Caribbean countries are so anxious to preserve their offshore financial sector that they can subject themselves to the OECD, I would find it difficult to understand why they could not set up a Caribbean regulator to look after their own business.”
He noted that while the global financial crisis had adversely impacted the Caribbean, the region was also hurt by the CL Financial troubles that resided in inadequate enforcement of regulation in Trinidad and Tobago and regulation that was either non-existent or very ineffective in other countries where subsidiaries operated.
In addition, former supervisor of insurance Wismar Greaves said regulators in the Caribbean must do their job to bring confidence back to the region’s financial industries in light of the global financial crisis.
According to the March 30, 2009 BARBADOS BUSINESS AUTHORITY, Greaves, managing director of Insurance Corporation of Barbados Limited, observed that calls had been made for amendments to the relevant laws that some in the industry felt “did not have enough teeth”.
However, his view was that the crisis to which regulators were responding was “not a crisis that required any new amendments to either the insurance legislation inTrinidad or Barbados. It is simply a matter of having the policemen do their job”.
“The insurance acts are like any other acts on the statute books in Barbados and Trinidad, and the rule of law must be applied to all so regional regulation is not the issue,” he said.
Meanwhile Roger Smith, a manager at Sagicor Life Insurance, called for the insurance industry to return to its tried and proven core principle of protection against risks.
In the June 16, 2010 DAILY NATION Smith argued that insurance companies should not see their operations as a source of massive financial returns.
“Historically, life insurance serves to mitigate the risks of the death of a family member, usually the breadwinner, by relieving the financial burden of those left behind. Also it was used to supplement your income at retirement, as your pension would only be a fraction of your working income,” he said.
Smith charged that some insurance companies had gone too far in seeking to compete with banks and investment houses by selling products with unrealistic returns that could not be sustained.
He argued that the key issue in any financial services sector was adequate regulation.
However, he maintained that Barbados’ financial sector was well regulated even though over the years there had been blemishes such as Trade Confirmers and Narsham Insurance.
In the November 30, 2008 SUNDAY SUN, then Minister of State in the Ministry of Finance and Energy Senator Darcy Boyce said there was a need for prudence, transparency, integrity and the practice of good corporate governance if the region was to maintain a stable business climate.
Boyce said an increasingly competitive business environment called for aggression in our business strategies. He warned, however, that “corporate greed and unrealistic expectations of investors in the market can and will almost always lead to corporate collapse and the destabilisation of an economy”.
“These are conditions that we surely have to avoid if we are to maintain economic stability in the region,” he said.
Boyce noted that it was necessary for governments and corporate managers in the region to work together in identifying, analysing and measuring risks.
“All of us who are financial market operatives and economic actors must look for leading indicators that alert us to the signals being sent by the marketplace of pending conditions.
“There must be precursor signals that indicate pending upturns as well as those that indicate pending downturns. Our managers have to be equipped enough to make them able to adequately read and monitor these signals and to respond readily and appropriately when necessary,” the minister suggested.
Senator Boyce also pointed out that while a regime of excessive regulations might not be favourable to the development of a market, there was a need to maintain certain monitoring and regulatory mechanisms to guide market activity.
“These regulatory mechanisms, although not to be of a nature to restrict market development, must be such that they set standards for corporate behaviour that complies with international best practices, promote integrity in leaders, protect investors and so protect the economy against threats of destabilisation.
“At the same time, we must all seek to ensure that the monitoring and regulatory mechanisms are as efficient as possible and do not stifle true innovation and growth,” the minister said.
