Safeguarding The Insurance Sector From Another Lethal Blow

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Guyana’s insurance industry took a serious blow when the infamous CLICO disaster came its way.

No sector or industry is ever bullet proof. As such, there will be times when even the strongest and most secure sector will receive a punch that throws it off balance for some time. This was the case of Guyana’s insurance industry which took a serious blow when the infamous CLICO disaster came its way.

It was on January 2, 1994, that CLICO International Life Insurance Limited opened its doors taking over the life insurance operations in Barbados and the Eastern Caribbean of Colonial Life Insurance Company (Trinidad) Limited. CLICO served the Caribbean for over 60 years. Its mission was to become the company of choice among life insurance buyers in Barbados and the Eastern Caribbean. At the helm was Leroy Parris, former Chairman of CLICO Holdings Barbados Ltd., which included services such as CLICO International Life Insurance Ltd. With 60 years of service under its belt, the company became one of the largest local conglomerates in the region, encompassing over 65 companies in 32 countries worldwide, with total assets exceeding US$100 billion. By the turn of the century, rumblings of fraud and money laundering at CLICO were felt. In 2005, there was talk of naive and greedy managers. There was even talk of failure of the government, regulators and auditors; of incompetence and failures at every level and at the highest levels within the company; and finally, fear and talk of CLICO needing taxpayers’ bailout. Understanding the situation from his bird’s-eye view within the company, the Chairman decided to protect his interest and before the mess hit the fan, CLICO was presumably being looted. By 2007 to 2008, there was no hiding the fact that CLICO was limping financially, as well as its branches in other Caribbean territories, including Guyana. CLICO Guyana had approximately $6.9B invested in the Regional Insurance Company. Junior Finance Minister, Jaipaul Sharma, said that many Guyanese who invested in CLICO are still to receive their monies. He noted that only a few were able to get compensation when the company flopped.

To prevent a recurrence of such financial whirlwinds, Guyana’s National Assembly earlier this year passed a refined and strengthened Insurance legislation that is geared to protect the sector and restore accountability and transparency. Taking the Bill before the House was Finance Minister, Winston Jordan. He acknowledged that the Bill was one which had its genesis with the former regime. He said that to his government’s credit, they had taken it to an advanced stage. He is proud that the new government was able to take up the mantle and bring it to its final stage. Jordan said that the Bill is crucial to the nation’s financial architecture as international consultants found that there were a number of gaps in the sector. These gaps included the lack of regulatory requirements relating to governance, lack of risk management guidelines, absence of minimum capital levels, weak supervision and the absence of information sharing. The Finance Minister related that this refined Bill ensures that all of these gaps or loopholes are closed. He noted, too, that the Bill seeks to align the industry with international best practices and is modified to take into account, the current developmental structure of Guyana’s insurance industry. Jordan said that the overall approach is to include risk based approaches consistent with sound business and financial practices. The Finance Minister said that based on assessments by the World Bank and other international consultants, it was found that Guyana’s systems for monitoring the insurance sector were in some regard, primitive. Jordan said that when the APNU+AFC took office, another round of consultations was held on the draft legislation in October 2015. After some amendments, the draft was then presented to stakeholders within the industry. He said that the final draft received the stakeholders’ blessings and it was subsequently sent to the Chambers of the Attorney General. He commented that the Bill is very comprehensive and it received the blessings of the House.

According to Finance Minister, Winston Jordan, the insurance sector was adequately capitalized in keeping with the requirements of the Insurance Act 1998, for the period ending March 31, 2015. He said that assets for both the long-term and general insurance sectors exceeded liabilities by 32.5 percent and 132.2 percent respectively. Jordan said that this was complemented by the sectors’ ability to meet their expenses from growth in net premiums. As a result of the industry’s performance, as at March 31, 2015, positive growth in assets, net premiums and capital is also projected for the remainder of the year. In his opinion, the Finance Minister said that the industry has rebounded somewhat since the calamitous collapse of CLICO in 2008. He said that notwithstanding the recovery, net premiums reported by the long term insurance sector were only 42.3 percent of the amount prior to the CLICO debacle. The economist said that this is an indication that many policyholders might have lost confidence in the long-term insurance sector. He said that the systemic failures by CLICO have reinforced the need for enhanced regulation in the insurance sector. In the meanwhile, he said that efforts have been made to build supervisory capacity in the insurance sector while a risk based supervisory framework will be developed to supervise and regulate the same. Additionally, Jordan said that Guyana’s National Insurance Scheme (NIS) has faced several challenges over the years, including lack of compliance by both employers and employees combined with unprofitable investments. Jordan also stated that the management of NIS will work diligently to ensure greater compliance through the enforcement of the laws. This year, according to the Minister of Finance, management will be targeting delinquent businesses and employers in order to recover the $1.3 billion in arrears owed to the Scheme. The NIS will also be examining an appropriate investment policy to guide its investments to ensure that future investments are profitable. The Minister Jordan reiterated that NIS plays an important role in enhancing the capacity of the poor and vulnerable to manage risks such as unemployment, disability, sickness and old age. Given this, as well as Government’s commitment to reduce poverty and inequality within the society, he promised that profitability is restored at NIS, over the longer term. Additionally, the Finance Minister said that the National Insurance Scheme improved its financial position, from a current deficit of $358.7 million at the end of the first half of 2015 to a deficit of $63.3 million for the same period in 2016. Through increased compliance efforts, he said that the NIS was able to collect $1.7 billion and $18.9 million in outstanding contributions from employers and self-employed persons, respectively, resulting in the growth of contributions by $800 million.

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