The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

An Inter-American Development Bank (IDB) executive yesterday said it was “prudent” for the Bahamas Government to insure against natural disasters, while agreeing there was a need to “fill the gap” on payouts.

Therese Turner-Jones, the IDB’s Bahamas country manager, told Tribune Business: “I’m not going to get into a political debate about what’s good and what’s not good. I just think it’s prudent to take out insurance against future negative events.

“That’s just a sensible way to approach financial management. You have to insure your assets. You may not be able to have 100 per cent coverage, but you want to be able to insure the most important assets that you have.”

Ms Turner-Jones continued: “I think there is a lot more to be done with insurance in the region. We are talking billions of dollars in damages, but the payouts are in the millions. There is a huge shortfall. There is, probably and possibly, another way to fill that gap, and we need to find out what those conditions would be, how much it would cost and how we can structure it.”

The Caribbean Catastrophe Risk Insurance Facility (CCRIF) has confirmed that the Bahamas will receive a $397,598 payout in relation to damage caused by Hurricane Irma, but the relatively limited payout in comparison to the $2.6 million premium paid by the Government has stoked political controversy over whether the latter outlay was prudent.

The Bahamas’ payment was less than 1 per cent of the total $31.201 million paid to Caribbean islands by CCRIF to-date, and likely represents a fraction of the multi-million dollar sum required to repair damage in Ragged Island, Inagua and Acklins.

CCRIF also said the Bahamas’ payment was based on the Aggregate Deductible Cover (ADC), because the damage did not meet the ‘benchmark’ that would trigger payment. It added: “The ADC represents a means by which CCRIF can help its members when modelled losses fall below the attachment point, but where there are observed losses on the ground.”

Seemingly aware of the ongoing political fall-out in the Bahamas, CCRIF took out a three-page newspaper advertisement earlier this week seeking to justify why this nation and other Caribbean countries should insure themselves through it.

It explained that the former Christie administration paid just a $1.08 million premium in 2015-2016, its last year of CCRIF membership, because it was able to then-offer all nations a 50 per cent premium rebate.

This compared to the 10 per cent rebate offered to the Minnis administration for 2017-2018, when it paid a $2.8 million premium, and CCRIF also absorbed “additional premium costs” for the Christie government when it changed the payout trigger point.

CCRIF added that the Government had purchased four ‘excess rainfall’ sub-policies to cover different areas of the Bahamas this year, something that was done for the first time.

It said it would continue to explore ‘policy splitting’ options with the Government, and added that Hurricane Matthew would have triggered CCRIF payouts of $32.7 million total to the Bahamas had the Christie government maintained the insurance policy. These estimates, CCRIF said, were independently verified.

Controversy over the former administration’s decision to exit the CCRIF facility first arose during the Budget debate, when Prime Minister Dr Hubert Minnis read out a letter from its chief executive suggesting the Bahamas had missed out on a $32 million Matthew payout.

Dr Minnis told Parliament: “He (the CEO) wrote: ‘We are pleased that the Bahamas has been a member of CCRIF since its inception in 2007. We are pleased that the Government purchased tropical cyclone (hurricane) policies every year between 2007 and 2014, and also purchased policies for both tropical cyclones and excess rainfall for the 2015-2016 policy year.

“However, we deeply regret that the Government decided not to renew its CCRIF policies for the 2016-2017 year, resulting in the Bahamas missing out on two CCRIF payouts from Tropical Cyclone Matthew.’”

Dr Minnis added: “I note that the annual policy for this insurance facility was approximately $900,000. I was shocked by what the CEO of the Caribbean Catastrophe Risk Insurance Facility went on to say in his letter.

“He stated: ‘Based on the registered losses, it means that had the Government of the Bahamas renewed its tropical cyclone policy for 2016-2017, using the previous year’s policy conditions, the policy would have triggered, resulting in a payout of approximately $31.8 million, equal to the coverage limit’.”

This would have been the single biggest payout, according to the Prime Minister, ever made by CCRIF to any country.

The Bahamas’ excess rainfall policy would also have been triggered, resulting in a payout of $855,874. Those payouts would have been larger depending on the coverage purchased, Dr Minnis said.

The Government subsequently renewed the CCRIF policy, and talked about a maximum $35 million payment that could have been triggered had Irma made a direct hit on this nation.

However, Philip Davis, the Opposition leader, said the Christie administration only withdrew from CCRIF on the advice of several government agencies.

And Tribune Business sources said it ceased paying the annual $900,000 premium after it was advised that the likelihood of ever receiving a payout was “almost zero”.

Following Hurricane Matthew’s passage, Michael Halkitis, then-minister of state for finance, said the Government had ceased the annual premium payments because the Bahamas would only have received compensation in the event of a Category Five hurricane.

Hurricane Matthew came through the Bahamas as a Category Three/Four storm, and Mr Halkitis said the Christie administration had decided to drop CCRIF participation and establish its own disaster fund as “the threshold was just too high”.

And a source familiar with the matter told Tribune Business: “We have been a part of this thing for 20 years, and could never get a claim. Our information was that the likelihood of us getting a claim was almost zero.

“A committee had been put together comprised of persons from the Met Office, Ministry of Finance and other agencies. They submitted a report suggesting that the Government drop it.

“After Hurricane Matthew, the guys from the CCRIF commented on what would have happened if the Bahamas had kept it. That was taken with a grain of salt. It was almost impossible for us to have gotten anything.”