Mon | Mar 8, 2021

Cedric Stephens | Unresolved business exposure

Published:Sunday | January 24, 2021 | 12:09 AM
Fire in the heart of the Kingston capital on December 23, 2020. Insurance penetration is low among businesses for fire and other damage.
Fire in the heart of the Kingston capital on December 23, 2020. Insurance penetration is low among businesses for fire and other damage.

Confidence up for the first time in four quarters. This was one headline in this newspaper last Wednesday. The first paragraph of the article it accompanied said “consumer and business confidence inched up … driven by expectations for jobs and future profits”, a survey conducted during December found.

Deputy central bank governor Robert Stennett was quoted as saying that the survey results “correlate with another view that things are getting better”.

Really? What about COVID-19?

Three Mile Gully business owners, who operated a funeral parlour, two bars, and a cement store lost “approximately $10 million” in a fire that razed their premises on Tuesday. Are they part of the formal or informal economy? I suspect that they fall in the latter group, and Mr Stennett’s comments applied to the former.

The business operators are unlikely to agree with the BOJ official’s rosy economic forecast. They have lost assets and livelihoods. If they are like most small businesses across the island, the words ‘fire insurance’ would be absent from their vocabulary.

Two decades ago, only eight out of 37 businesses (21.6 per cent) that rented shops in the Portmore Mall insured their inventory and other assets. The majority (78.4 per cent) sought a government bail out to recoup their losses when the mall burned down. I described the fire services then as being ‘in shambles” in an article I wrote about the event. I sought to find out why the insurance penetration rate was so low.

Fast-forward to 2021. Nothing has changed. Last Wednesday’s Gleaner described the Lucea Fire Station as ‘rot- plagued’. The article was placed beside the Mile Gully fire item. It also cited data from the Jamaica Fire Brigade that revealed that about 100 fires occur across the island each month. Most of the property that is lost is not protected by insurance.

Fires are one of the many risks that threaten households and businesses. Simon Mitchell, professor of sedimentary geology in the Department of Geography & Geology and Director of Research of the Earthquake Unit at The University of the West Indies, offered granular information about earthquakes in The Gleaner recently. January is Earthquake Awareness Month. I have not seen anything in traditional media to suggest that insurers are aware of this fact and have done anything to educate the public about the risk and promote awareness about earthquake insurance.

I would wager that even though very few persons on our streets understand what causes earthquakes - plate tectonics - most of those individuals who sit on the boards of non-life insurance companies or intermediaries, the senior management of these companies, staff in the Financial Services Commission’s Insurance Division, and rank and file insurance company employees workers did not read Professor Mitchell’s article even though they are involved in providing coverage against earthquakes. I am also quite sure that same would not be said about the research divisions of the major international reinsurers in North America and Europe.

By the way, do expectations of future profits take into consideration the likelihood of future earthquakes, hurricanes, and pandemics, and whether those earnings will be recoverable from insurance companies in the event of untoward events?

Thousands of business owners in the United Kingdom who suffered financial losses caused by COVID-19 and the lockdown and who bought business interruption insurance are now finding out the importance of such protection in the wake of a recent Supreme Court judgment.

This analysis would be incomplete if it did not mention hurricanes. The 2020 season was the most active and costliest. One source called it “the fifth consecutive above- average Atlantic hurricane season,which featured 31 (sub)tropical cyclones, all but one of which became a named storm”. And in the meantime, according to my information, the local insurance penetration rate remains low, and most insurers seem to be conducting business as usual. Are they immune from disruption?

n Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: