The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The “very inefficient” National Insurance Board (NIB) has been urged to slash its administrative costs, as a percentage of total contribution income, by more than 50 per cent over a 10-year period.

Consultant actuary Derek Osborne, in the ninth actuarial review of NIB, called on the national security system to cut its administrative costs to 10 per cent of contribution income by 2023.

And, in doing so, he called for a “significant reduction” in NIB’s workforce.

The report noted that NIB’s administrative costs in 2011 stood at 21.6 per cent of contribution income, a ratio far in excess of similar schemes in the Caribbean and developed world, and which had been driven by “overstaffing” and “relatively high salaries” paid to staff.

Barbados and Trinidad & Tobago ran social security systems where administrative costs, as a percentage of contributions, were 5.2 per cent and 4.9 per cent, respectively - more than four times’ less than NIB’s ratio.

And the same applied when benefits paid out were added to contributions. Mr Osborne’s report showed that NIB’s administrative costs, as a percentage of these two variables, stood at 11 per cent in 2011, compared to 2.8 per cent and 2.7 per cent in Barbados and Trinidad, respectively.

While acknowledging the differences between social security systems, and the Bahamas’ unique geographical layout, Mr Osborne’s report said the “significant difference in costs.... between the Bahamas and the other countries shown cannot be dismissed” by using these factors as an excuse.

“The NIB continues to be a very inefficiently-run organisation, with 22 per cent of contributions, or 2 per cent of total insurable wages, going towards operating expenses,” Mr Osborne wrote.

“Seventy per cent of NIB’s administrative costs are staff related. The total staff complement of 532 in October 2012 is around 100 more than it was in 2006.

“These high employment-related costs are not only due to overstaffing, but also due to relatively high salaries (average increase of 6.2 per cent over the previous 10 years), generous pension and health insurance plans.”

Suggesting that a “significant reduction” in NIB’s staff was required, Mr Osborne said that slashing administrative costs would boost both the Reserve Fund’s sustainability and help eliminate the need for increases in contribution rates.

“Significantly reduced operating costs can go a long way to enhancing sustainability and reducing the level of contribution rates that will be required decades from now,” Mr Osborne said.

“The Board should therefore set, as a 10-year goal, the reduction of administrative costs to 10 per cent of contribution income, and immediately take steps towards achieving this.”

Concerns over NIB’s relatively high administrative costs are nothing new, having been flagged as a potential issue by the International Monetary Fund (IMF) more than 10 years ago.

Yet it remains to be seen whether the Government has the political will to act on Mr Osborne’s recommendations and progressively downsize NIB, given the likely voter fall-out and the fact that, like other public corporations and bodies, it has traditionally been used to reward party supporters with jobs.

NIB’s 2012 annual report showed that its workforce increased by 8.7 per cent, or some 42 persons, year-over-year, growing from 484 to 526.

And, more pertinently, the annual report showed that NIB’s administrative costs ‘skyrocketed’ in 2012, increasing by 44.9 per cent to $57.8 million, compared to just $39.9 million in 2011.

However, Mr Osborne warned that NIB’s “overstaffing” was jeopardising the potential returns, and financial savings, from its new Insurance Administrative System (IAS).

While this was designed to boost efficiency, and enhance customer service to both beneficiaries and employers, the actuarial report said the IAS would incur annual amortisation costs of $1 million.

“Therefore, to generate any financial savings from this investment, significant reductions in staff will be required,” Mr Osborne wrote.

Elsewhere, the report said NIB had been able to achieve “significant savings” on medical care costs, reducing these by 33.7 per cent to $5.9 million in 2011, compared to the $8.9 million average for the previous three years.

The biggest share of these expenses, Mr Osborne said, came from the treatment of severe industries at Doctor’s Hospital.

He added that there was scope to achieve greater savings on medical care costs if NIB was to create a provider payment network, ensuring beneficiaries had access to standardised treatment at a wide range of facilities.

A key problem, the actuarial report added, was that workers frequently went to Doctors Hospital first, where medical costs were higher, even though injuries were relatively minor.

Ms Osborne said any expansion of unemployment benefit, either increasing the duration of payments from 13 to 26 weeks, or raising the benefit rate from 50 per cent to 60 per cent of lost income, should only be done if there were enough funds to support it.

He argued that unemployment benefits should only be increases if benefits and administrative costs remained under 1 per cent of insurable wages, or if NIB contribution rates were increased.