New legislation to tighten regulatory oversight and reinforce fiscal buffers should better insulate Trinidad and Tobago’s insurance sector against external shocks, while also bolstering clients’ rights through stronger accountability requirements.
The Insurance Bill 2016, which was approved by the House of Representatives in February and will go before the Senate shortly, contains a number of reforms likely to reshape the domestic insurance sector.
One of the key elements of the new legislation is enhanced regulation and intervention powers granted to the central bank. “The new insurance act will allow the central bank to intervene if an insurance company is not acting in the best interest of the policyholders, or is using policyholder funds for unauthorised purposes,” Colm Imbert, the minister of finance, said in February.
The newly empowered regulator will be able to revoke an underwriter’s licence if it finds instances of unfair practices, unreasonable delays in settling claims or if its reinsurance arrangements are deemed inadequate.
Another central piece of the reforms is higher capital requirements. Under the new legislation, the minimum amount of issued share capital has been lifted from as little as TT$1m ($150,000) for general insurers to TT$15m ($2.3m). All insurers will also be required to maintain a capital ratio of 150% to cover potential risks.
The new reforms will likely trigger consolidation in the local insurance market, as the need to boost capital adequacy levels will lead smaller firms to merge with a partner. This is regarded as a positive step in T&T’s congested insurance industry: there are around 30 firms for the relatively small population of 1.36m.
“Capital requirements will be increased and smaller players that cannot adapt will be taken over by bigger ones,” Sharon Melville, general manager of NAGICO Insurances, told OBG.
While higher capital requirements and tighter regulatory controls could put pressure on smaller operators in the marketplace, mergers and acquisitions will likely take time to materialise, especially given that the Insurance Bill stipulates a five-year transition period for existing insurance companies to meet the new guidelines.
Although the Insurance Bill, which is set to come into force later this year, is an important step, the broader regulatory reform process is not yet complete. Officials also aim to publish guidelines for quicker and fairer claims settlement.
There is optimism surrounding the rest of the process, as the legislation received wide bipartisan support when passed by the House of Representatives. In February Ganga Singh, MP of the opposition United National Congress, voiced his agreement by stating that the new law would ensure stronger regulatory oversight and compliance.
“Authorities will move from merely passing regulations for the sector to being interventionists, with the central bank also being given powers of enforcement and compliance,” he said.
Prospects for the insurance market this year and beyond are positive, following a difficult period of economic contraction that began in the fourth quarter of 2015.
Even with the recent recession, Ravi Tewari, CEO of Caribbean-wide insurer and financial management firm Guardian Group, sees the local market as among the strongest in the region. “The T&T market is deeper, richer and still growing. It is a top market in the region, and is currently undersold,” he told OBG.
Total premiums represent an estimated 2.6% of GDP, of which 1% is from life and 1.6% is from non-life. While this is on par with or above some other regional countries, such as Colombia, at 2.8%, and Mexico, at 2.2% of GDP in 2016, it is far behind others such as Chile, at 5%, according to the OECD.
Low penetration leaves the sector with significant room for growth in all coverage lines. At present, motor vehicle coverage is the leading segment in terms of the number of policies granted, while property insurance leads in premium income, according to regional provider NAGICO Insurances.
The reforms could help increase penetration through stronger policies and procedures, and that will contribute to an already strong asset base.
The insurance and pension sector already serves as an important source of financing for the broader economy, with total assets under management worth more than TT$100bn ($15bn) in late 2017, more than one-third of this is invested in state-backed securities, according to Imbert.
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