Consolidation and innovation create new product lines in Trinidad and Tobago

While overall economic growth was flat in 2019, the financial sector experienced 1.4% expansion, to which insurance was a strong contributor. From January to March 2019 finance and insurance activities grew by 1.7%, according to the Ministry of Finance. Together with real estate and business services, the sector added 400 new employees in 2019. Financial and insurance activities contributed 7.4% of real GDP in the first quarter of 2019.

The industry has persevered through recent economic struggles and recession. With GDP forecast to expand in 2020 and 2021, a relatively wealthy population and rising demand for health and life products, T&T’s insurance sector exhibits strong potential and its performance expected to improve further. The sector does face a handful of challenges, including a shortage of foreign exchange, a lack of reliable data and wider macroeconomic pressures. However, consolidation, innovation, the rise of insurance technology (insurtech) and digitalisation are expected to strengthen the sector.

Structure

Life, general and composite firms operate in T&T’s insurance sphere. General mostly consists of property and casualty (P&C) coverage, and composite companies provide both life and general products and services. Other entities operating in the sector include agents, sales staff and brokers.

As of January 2020 there were seven active life providers, 17 general firms and seven composites. The largest providers are Guardian Group, with general and composite arms; Beacon Insurance, a composite; Sagicor, with life and general arms; and Colonial Fire and General Insurance. Guardian, Sagicor and Beacon together control over 50% of premium income, highlighting the concentrated nature of the market.

Insurance Act

The industry is regulated by the Central Bank of T&T (CBTT) under the Insurance Act of 2018, which was approved by both houses of Parliament in early 2018 and signed into law in June of that year, although it has yet to be implemented in full. It aims to promote good governance and risk management among insurance firms by setting limits on risk taking, strengthening financial oversight and introducing additional capital adequacy requirements. The 2018 legislation is an update of the Insurance Act passed in May 2004. Modelled on Europe’s Solvency II standards, the Insurance Act of 2018 is considered by many stakeholders within the industry to be beneficial and necessary update to the regulatory framework. “The Insurance Act of 2018 will bring new auditing standards to the sector, as well as bring relief to brokers in the terms of solutions to late payments,” Robert Lazzari, managing director of Agostini Insurance Brokers, told OBG.

In order to ensure compliance with the act, surveys were developed and issued to insurance companies to assess their preparedness for the standards. The CBTT is also working to develop new reporting forms, guidelines, policies, procedures and systems.

Life

The life segment has registered steady growth since 2015. That year, the segment’s gross written premium (GWP) totalled TT$4.1bn ($605.7m), which rose to TT$4.6bn ($679.6m) by 2018. The expansion continued into 2019, with GWP hitting TT$3.7bn ($546.6m) in the first three quarters of the year. In recent years the value of total life assets also performed well, increasing from TT$21.6bn ($3.2bn) in 2015 to TT$26.8bn ($4bn) in 2018 and TT$28.6bn ($4.2bn) by the third quarter of 2019. Nonetheless, return on equity (RoE) has slowly decreased since 2016, from 15.4% that year to 13.1% in 2018. That figure did show a recovery in 2019 however, reaching 15.6% in the third quarter. Total gross claims in the life segment stood at TT$2.8bn ($413.7m) in 2018, up from TT$2.6bn ($384.1m) in 2017.

Non-life

After a decline in non-life GWP from 2016 to 2017, the segment has been showing promise. GWP increased from TT$3.5bn ($517.1m) in 2017 to TT$3.6bn ($531.9m) in 2018. The asset base, meanwhile, reached TT$6.1bn ($901.2m) in the third quarter of 2019, up from TT$5.8bn ($856.9m) at the end of 2018. Return on assets rose, from 2% in 2017 to 2.7% in 2018, and continued its upward trajectory into 2019, when it averaged 3.7% over the first three quarters of the year. As T&T did not experience storms as large as those seen in 2017, when RoE hit 1.8% mid-year, the figure ticked up, from 4.5% at the end of 2017 to 6.3% in 2018 and 8.8% in the third quarter of 2019.

The absence of severe storms or hurricanes is also reflected in a decrease in total gross claims for the non-life segment, from TT$3.6bn ($531.9m) in 2017 to TT$1.4bn ($206.8m) in 2018. However, total gross claims jumped from TT$247m ($36.5m) in June 2019 to TT$630m ($93.1m) in September 2019, largely due to the severe flooding that occurred at the beginning of the dry season. Non-life continued to record low levels of risk retention, from 45.2% in 2017 to 46% in the third quarter of 2019.

Mergers & Acquisitions

There has been considerable merger and acquisition (M&A) activity in recent years, starting in 2018 with the announcement that Scotiabank T&T would enter into a 20-year distribution agreement with Sagicor Financial Corporation to expand the insurance products on offer, subject to regulatory approval. As part of the agreement, Scotiabank T&T would sell its insurance operations to Sagicor, and Sagicor would acquire all outstanding shares of ScotiaLife T&T.

The trend continued into 2019. In June of that year the CBTT approved the acquisition of a minority interest in Beacon Insurance by Colonial Group International, extending Colonial’s presence to 12 jurisdictions in the Caribbean. Meanwhile, in September Jamaica’s General Accident Insurance acquired a majority stake in domestic provider Motor One Insurance. That same month, Sagicor announced it would acquire the traditional insurance portfolios of Port of Spain-based Colonial Life Insurance and British American Insurance Company Trinidad.

Top Companies

Guardian Group’s profit for the first nine months of 2019 reached TT$343m ($50.7m), a 17% increase over the TT$317m ($46.8m) recorded in the same period the previous year. Hurricane Dorian – the cyclone that affected the Bahamas in August and September 2019 – brought about losses of TT$86m ($12.7m) to the regional player. Even so, the group performed well. Guardian Group’s P&C, life, health and pension businesses recorded growth of 8% in 2018, with the firm noting it was primarily driven by the T&T market. However, operating expenses increased from TT$749m ($110.7m) to TT$792m ($117m), which the firm attributed to product innovation and technological advancement.

Sagicor, a leading Caribbean-focused provider, listed on the T&T, Barbados and London stock exchanges, offers a variety of products in T&T. Overall, the country’s largest insurer recorded a net income of $79.5m in the first nine months of 2019, up from $59m in 2018. Net income attributable to shareholders from continuing operations was up, from $28.5m to $32.5m. Revenue for T&T operations hit $151m in the first three quarters of 2019, up from $123m over the same period in 2018.

Trinidad & Tobago Insurance (Tatil) also performed well in 2018, with AM Best affirming the firm’s financial strength rating of “A-” and long-term issuer credit rating of “A-” in August 2019. Tatil merged with ANSA Merchant Bank in 2004 and has been diversifying operations across the Caribbean since.

Promising Segments

The creation of online and mobile options for purchasing travel insurance has been generating momentum. Cyberinsurance also has significant potential as companies digitise services at an increasing rate. In OBG’s 2019 T&T CEO Survey, the impact of crime on business operations was cited as an ongoing concern by 62.3% of CEOs surveyed, with many also worried about the rise in cybercrime. While the government has not published statistics regarding cybercrime, companies operating in the country have reported security breaches. It is expected that more companies will purchase cyberinsurance as updated data protection policies are implemented (see Global Perspective).

Another growing segment is health. In the past, medical coverage was largely seen as a luxury, but today it is slowly becoming more popular as the burgeoning middle class demands more – and more specialised – care. T&T has a two-tiered health care system, with a decentralised and free public system augmented by private offerings (see Health chapter).

Reinsurance

An important way to mitigate insurance firms’ exposure to risk and severe losses is reinsurance. However, T&T’s risk-absorption network has been affected by foreign currency shortages. In particular, scarcity has limited some companies’ ability to purchase reinsurance products, as the vast majority are reinsured abroad. There has also been an increasing number of reported instances of reinsurance premium going unpaid.

More broadly, however, the reinsurance segment retains its structural resilience. The most recent major test was insured losses of TT$35bn ($5.2bn) incurred during and in the aftermath of Tropical Storm Bret, which hit the Caribbean in June 2017 and caused significant damage. Although the non-life segment recorded a net ratio loss of 55%, reinsurance reacted well to the resulting costs and protected non-life underwriters from further losses.

Technology Drive

The adoption of new technologies, business models and lines has been essential in enabling insurance companies in T&T and the wider region to gain and maintain an edge over the competition. A diversification of distribution channels, including internet-based sales, is attracting particular attention as an online presence can alleviate a reliance on brokers and help companies expand their customer base. Indeed, the Caribbean as a whole is starting to adopt technology at a fast pace, driving companies to embrace innovation to remain competitive. “Digitalisation is changing the insurance space,” Lazzari told OBG. “The smartphone in particular has had a significant impact, and has, in effect, been the maker and breaker of the insurance arena.”

Collaboration with banks is crucial, as banks are often the first link between perspective customers and insurance products. In December 2019 Scotiabank and Guardian Life of the Caribbean announced it would be possible for customers to make insurance premium payments via mobile point-of-sale machines using debit or credit cards. The agreement also allowed Guardian customers to receive their transaction receipts through email.

Both businesses and regulators have a role in encouraging cashless transactions. “T&T will not go cashless without more action on the part of the regulators,” Ravi Tewari, CEO of Guardian Holdings, told OBG. “Our reliance on cash will become a greater problem, especially as Trinbagonian financial service companies expand their reach in the region and beyond,” he continued, highlighting Jamaica and the Cayman Islands as possible examples.

Insurtech

Companies that create technological innovation aimed at providing better coverage on digital channels, or insurtech, are slowly entering T&T. Given the competitiveness of the market and the underinsured and uninsured’s untapped potential, it is expected that insurtech will expand companies’ customer bases, improve service delivery and change the way firms in the sector do business. Indeed, better customer care is in high demand. According to the same 2019 OBG T&T CEO Survey, customer service is the second-most-needed skill in the country, after leadership. Respondents have consistently cited a need for improved customer service since 2015.

While insurtech is still in its infancy, there have already been companies moving towards insurtech as more local firms focus on creating alternative and consumer-focused services. Shyft.tt, a digital insurance quote and bind brokerage, is the first comparison website for quotes in the Caribbean. The local start-up was launched in 2017 focusing solely on motor insurance, and now features a wide variety of insurance products with prices for different budgets. Its success to date underscores the importance of tailoring services and prices to fit the demands and needs of a cost-conscious market. “The digital shop front is the critical element that companies must build, sometimes from scratch,” Matthew Moses, director of Shyft.tt, told OBG. “Customers want simple backgrounds and clean websites.” It is important to balance technology with local preferences, however. Although the digital storefront is important, word of mouth remains paramount, especially in small island nations such as T&T, Moses explained.

Need for Data

Fundamental in the task of becoming more digital – which leads to higher levels of transparency and traceability – is the collection and aggregation of data. Insurers must take into consideration large amounts of data in order to remain competitive, but operators in the sector have been stymied by a lack of accurate and timely information. “One of the key challenges in improving the level of insurance penetration revolves around the collection and aggregation of data,” Amit Misra, managing director of New India Assurance, told OBG. “Most available data sources become unreliable due to passage of time and not being up to date. Often, by the time we can make a judgement based on a data point, the information is already obsolete or needs to be re-adjusted. As such, the decision becomes experience driven, rather than data driven.”

Companies, associations and chambers are working to encourage the better collection of data for insurance purposes, but this may not be enough as a more centralised and comprehensive gathering may be necessary. Furthermore, T&T may need to take stronger action to free up available data, sharing it with the private sector and ensuring a better understanding of the needs, trends and commercial touch points for individuals in the market.

Natural Disasters

Although it is located to the south of the Caribbean hurricane belt, T&T technically inhabits a disaster zone. The risk of this was highlighted by Tropical Storm Bret, which resulted in the non-life segment recording a net loss ratio of 55% in 2017, up from 47.2% the year before. As such, companies operating in the country must take into account the threat of natural disasters, as well as increasingly severe and frequent weather events brought on by climate change.

In countries without easy access to affordable, reliable climate insurance, governments, local communities and households bear a large portion of the losses stemming from natural disasters. To address this, in December 2019 the University of the West Indies in Jamaica – in collaboration with the UN University Institute for Environment and Human Security, the Munich Climate Insurance Initiative (MCII), the University of the South Pacific and the UN Pacific Financial Inclusion Programme – established the Climate Risk Insurance Research Collaboration (CRIRC). The partnership enables coordination and collaboration on research, development and the publication of research and policy papers on disaster risk finance, insurance and social payments.

One of the CRIRC’s priorities will be to focus on the informal economies in the Pacific islands that work outside formal legal protections and without access to formal financial and insurance systems. The aim of the CRIRC’s research will be to shine light on the specialised needs of these informal business actors. “While the field of climate risk insurance has made real advancements in the last decade, it is still considered as an innovation in the field of climate change, and as such, it can benefit greatly from more systematic approaches, enhanced knowledge sharing, and networking between regions and among different actors,” Soenke Kreft, director of the MCII, told local press when announcing the programme.

Climatologists have long been warning about the consequences of warmer ocean temperatures and higher sea levels in the Caribbean. The destructive potential was shown by floods in October 2018 that resulted in insured claims of TT$100m ($14.8m), 60% of which came from property flood claims and 40% from motor vehicle flood claims, according to the Association of T&T Insurance Companies. It will be imperative in the years to come that T&T not only builds infrastructure to mitigate flooding, but also facilitates greater up-take of climate risk insurance for when inevitable losses occur.

Foreign Exchange

The scarcity of foreign exchange is not only affecting reinsurance companies, but the sector as a whole. Companies that import goods for the domestic market have had difficulties securing foreign currency, and the resulting financial strain has affected their ability to pay for coverage. While larger, multinational firms are able to secure the necessary hard currency in exchanges outside the country, smaller, domestic companies have had significantly greater difficulty. Despite the problems caused by this shortage in recent years, insurance firms have remained profitable overall. However, a continued shortage leaves them vulnerable to sudden shocks, such as a spike in claims due to severe weather damage.

Outlook

T&T’s insurance industry has steadily expanded in recent years, outpacing overall GDP growth. Looking to the future, the proliferation of digital offerings will ensure that a larger customer base receives better service and personalised options. Local insurers report needing more information to make assessments, and as such it will be important to make more data available while respecting privacy concerns. The maturisation of products such as climate risk insurance is expected to create new avenues for growth, and the life segment is projected to continue outperforming non-life.