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Address to LICA
Speaker: Patrick Hylton, Managing Director
Hilton New Kingston, 26/3/99

There has been much said on the issue of the crisis which has affected the life insurance industry.  The majority of these statements have focused on the causes of the crisis, the cost of the bailout and its fiscal implications.

Clearly there is much justification for the focus being given to these issues as a synthesis of the cause and effects is important not only for posterity but also to guard against future occurrences. There is also the need for our country to understand the implications and the benefits of our intervention. As the old saying goes, ‘Those who forget the lessons of history will repeat them’.

It is equally important however certainly in my view having learnt our lessons and having taken the necessary remedial action to move on. Indeed as another quotation goes ‘you must let the past go if you must grow’.

It is against this background ladies and gentlemen that I would like today to share with you a perspective on the future of the Life Insurance Industry in Jamaica.

There has been much talk recently on the possible negative/deleterious Impact of some of our recent initiatives on confidence in the sector.

While acknowledging that change can cause uncertainty I believe that there is now sufficient understanding for the basis of our actions to justify the approach used. In any case I would suggest that without government/Finsac intervention greater confidence would not be sufficient to sustain the troubled companies in the sector so admittedly there are trade offs I could also argue with considerable merit that governments intervention and guarantee were essential requirements for maintaining the levels of confidence currently being experienced in that thousands of policyholders and billions of dollars of their investments have been protected. With the active support of all the players in the industry, however, I also believe that full confidence can be quickly restored by the quick return of the industry to vibrancy and all its members to profitability. In Mexico following on the Tequila crises in 1994 there was a sharp decrease in the premium written ratio to –15.6% in 1995. This quickly recovered to +0.3% in 1996.

It is my considered view therefore that the recent crisis and the response developed can augur well for the future of the insurance sector in Jamaica.

The crisis itself has caused in some cases appropriate introspection and a very detailed and focused re-examination of the way in which many companies operated.

The strategy of intervention, (taking control), consolidation and divestment will create new paradigms for the growth and development of existing players, surviving players or new entrants.

Companies have during this period carefully evaluated existing contractual and other arrangements and have been able to make the necessary separation or restructuring. I believe too that companies have begun to appreciate the importance of an appropriate Corporate Governance regime which cannot be understand and will be an important agenda item going forward. Additionally, the need to be responsive to issues in the operational environment that present opportunities or threats particularly as these relate to credit risk, operational risk and liquidity risk is a lesson that this experience has effectively thought us.

It should therefore be reasonable to assume that the life insurance industry as a whole is once again on a path towards sustainable rehabilitation and profitability. There are of course some companies that have done consistently well even during this period of challenges and I salute them.

The good news is that recent development particularly as these relate to the current performance of many of the players in the industry and our announced intention of selling the portfolios of three failed companies favour the quick and sustainable rehabilitation of the industry as a whole. This can only be for the benefit of all the players and the Jamaican economy.

Ladies and Gentlemen the Life Insurance Industry has been very creative in the past and can be appropriately creative in the future.

To be successful at this, however, the industry and major players will need to undertake on a fairly regular basis a situation analysis on the state of the market, assess the needs and the issues and from there make conservative forecasts about the future.

The purpose of this exercise (process) is not to forecast the exact picture in the future but rather to understand the ranges of possible outcomes and the drivers behind market development for the life insurance industry.

At a high level such a process would examine among other things the following issues to develop a reasoned perspective:

  1. Macro Economic environment – Issues to be considered here would include government policy on tax privileges. The industry may have the opportunity here to bridge or extend investor time horizons.
  2. Regulatory Environment – In a previous address to the Insurance Institute of Jamaica I had outlined some of the initiatives on regulatory reform on which we were working in conjunction with the Ministry of Finance and the Office of the Superintendent of Insurance. Because this work is quite advanced and all of you have copies of the draft documentation I would encourage firms to begin to prepare themselves for the new regime particularly where prudence dictates that this would be in your best interest.
  3. Competitive Environment – Issues to be considered here include the need for active customer education and promotion, product innovation and good customer service. All of these need to be considered in the context that you will be competing with a range of financial services providers as the lines of demarcation become increasingly blurred. Globalization and the consequent increase in the range of choices available to consumes will also provide its fair share of challenges.

The need to control operating expenses and build product differentiation will be a key consideration. Technology will play an important role in this area.

Having regard to the foregoing LICA and its membership will be well advised to assess the potential impact of these and other issues on premiums written, industry profitability, and market share.

Ladies and Gentlemen in closing I am reminded of the quotation which goes thus

‘Every adversity, every failure and every heartache carries with it the seed of an equivalent or greater benefit’.

The recent distress and problems experienced by our financial sector is no different. Several countries and several institutions have had a similar experience and would today serve as models of an efficient financial sector. It is therefore up to us to make a resounding success out of our experience.

Please always remember in the final analysis ‘Success requires no explanations, failure on the other hand permits no alibis’.



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