Cedric Stephens | A new conversation on insurance

Concerned citizen John Mahfood put his money where his mouth is. He sponsored a half-page advertorial in this newspaper last Sunday to pose and answer a thought-provoking question: Can the Jamaican people survive another five years of no growth?

He proposed “nine key measures the government should consider jump-starting growth and improve Jamaicans’ quality of life”. The comments that follow are my contribution to the conversation that Mr Mahfood, and possibly, others started before and after the general elections.

Prudential Plc, a British-domiciled multinational insurance provider and asset manager, with 18 million customers across 20 markets in Asia and Africa, in partnership with PricewaterhouseCoopers, a global professional services firm, released a landmark study, earlier this month.

It was titled Beyond Coverage – The Social and Economic Impact of Insurance in ASEAN. Its claim was dramatic: if six major ASEAN economies were to expand insurance coverage by 50 per cent, their combined gross domestic product could grow by more than four per cent per capita between now and 2050.

At first glance, this might sound like the day dreams of economists. Yet, the study makes a compelling case that insurance does not just create safety nets for individuals and businesses, but can also foster growth and build a foundation of resilience. That finding deserves attention in the Caribbean, where climate change has been eroding nearly 2.13 per cent of GDP annually over the past four decades, according to the OECD, and where insurance penetration remains stubbornly low.

The study contains valuable lessons for Jamaica and the rest of the Caribbean if we can adapt the findings to local conditions. It also broadens and deepens the debate that local executives began in July as responses to industry challenges. Their idea “was to launch a new public education campaign urging property owners to urgently reassess their insurance coverage before disaster strikes” – see my columns ‘Better Engagement Needed on Risks and Insurance’ published July 20, and ‘Jamaica Needs an Inclusive Insurance System’ on July 29.

Two terms were used in the ASEAN study that are vital for our region: inclusive development and resilience. These words unfortunately, are often absent from the vocabularies of some policymakers and, surprisingly, insurance professionals.

Inclusive development means that growth benefits are shared broadly, not captured by elites or restricted to those already well-off. Farmers in St Elizabeth, fisherfolk in Port Royal, and small shopkeepers in Clarendon should have access to tools that prevent a single hurricane or flood, or a hospital bill from wiping out a lifetime of sweat.

Resilience, meanwhile, is the ability of individuals, communities, and states to absorb shocks and bounce back stronger. Insurance, properly designed and widely accessible, is one of the most practical resilience tools available. It cushions losses, prevents households from sliding into poverty, and stabilises public finances in the aftermath of disasters.

Study findings and caveats

The Prudential/PwC team analysed data from 1999 to 2019 across six ASEAN countries: Indonesia, Malaysia, The Philippines, Singapore, Thailand, and Vietnam. They employed econometric modelling to test the relationship between insurance uptake and GDP growth. Then, they projected a scenario where insurance penetration rose by half over the next quarter century.

The results: life insurance growth could raise per-capita GDP by 5.1 per cent, while broader insurance uptake could add 4.4 per cent to total GDP.

But before we race to apply those numbers to Jamaica or St Lucia, we must note the study’s limitations. Correlation is not causation. Richer countries often buy more insurance, so teasing out whether insurance drives growth – or growth drives insurance – is difficult.

Forecasting out to 2050 also assumes that past relationships will hold, despite looming disruptions from climate change, technology, and demography. And the six ASEAN economies are far larger and more diversified than our small island states. In short: the study offers a valuable vision, but not a precise blueprint for the Caribbean.

Despite the caveats, the ASEAN findings are relevant to the Jamaican reality in three ways. First, Jamaica’s low insurance penetration means there is immense room to grow. Too many households remain one hurricane away from ruin, and too many businesses operate without adequate cover. Expanding protection could reduce volatility, spur investment, and attract capital inflows.

Second, the island’s exposure to climate shocks makes insurance indispensable. Unlike ASEAN countries, which can spread risk across vast populations and diversified geographies, Jamaica’s vulnerabilities are concentrated. This makes coverage more urgent, even if it is more expensive.

Third, insurance is a development enabler. A farmer with crop insurance can invest in higher-yield seeds. On a personal note, I worked with experts in India, France, and Switzerland, and three ministers of agriculture a few years ago to develop a pilot project to determine the feasibility of a compulsory crop insurance scheme for local farmers, at no cost to the government and the possibility of premium subsidy.

The project was abandoned without explanation after Hurricane Beryl. At the same time, technocrats in the Ministry of Finance and the Public Service were constructing layers of protection to prevent the government’s budget from being blown off course. Insurance is a development enabler when SMEs can get business interruption insurance to fund debt repayments when their businesses are disrupted by an insured peril.

Takeaways

Caribbean policymakers, insurers, and citizens should draw the following lessons from the study:

• Insurance should not be viewed purely as a recurring expense or grudge purchase but rather as an integral part of our economic growth strategy;

• Insurance uptake will not rise on its own. Tax incentives, regulatory reform, and public-private partnerships are necessary to make insurance affordable and accessible;

• Product innovation is essential. Microinsurance, parametric covers, and digital distribution can reach those currently excluded;

• Without better disaster loss records, actuarial capacity, and risk models, Caribbean insurers cannot price risk accurately or attract reinsurance; and

• In small states, priority must go to loss prevention/mitigation, insurance literacy, catastrophe, agricultural, and health protection before we scale to broader lines.

The ASEAN study’s over four per cent GDP projection should not be taken literally for Jamaica. But it serves as a powerful rhetorical anchor. It should be used as a reminder that insurance is not simply about paying claims after disasters. It is about creating the conditions for inclusive development and resilience.

If Jamaica and its Caribbean neighbours can embrace this mindset – treating insurance as essential growth infrastructure – then perhaps our own economic future will be measured not by annual losses of two per cent of GDP, but by the stability we secure and the opportunities we unlock.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com