The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government should extend the elimination of VAT from insurance premiums to small and micro-sized business following Hurricane Dorian, the Inter-American Development Bank (IDB) is urging.

The multilateral lender, in its full 220-page study of Dorian’s impact, reiterated the need “to increase insurance penetration” to both reduce risk and the burden on Bahamian taxpayers in the wake of future natural disasters.

While admitting that VAT’s removal from homeowner insurance premiums has yet to spark an increase in residential coverage penetration, the IDB voiced optimism that the extent of Dorian’s devastation might prompt a rethink among those who are not mandated by mortgage lenders to take-out full coverage.

“While most large business were well insured, many small and micro enterprises were not insured or were underinsured,” its report on Dorian’s aftermath found. “As insurance is a key factor in the financial protection pillar, efforts should be made to increase insurance penetration, both for property and loss of business.

“In 2018, the Government removed the VAT requirement from homeowners’ insurance. Something similar can be done for small and micro enterprises. While discussion with the Bahamas Insurance Association revealed that this measure has not yet significantly increased insurance penetration among homeowners, witnessing the level of devastation left by Hurricane Dorian may influence both homeowners and small business owners to increase their coverage.

“Another suggestion that arose in discussions was the possibility of government subsidising insurance for homeowners and small businesses. While this would increase the Government’s annual expenditure, it may reduce the total relief expenditure in the event of another disaster. Besides direct subsidies, the Government could also promote business associations and support their requests for group insurance and rates.”

The IDB report also urged the Government to take out insurance on key public infrastructure assets, as has been done in nations such as Ecuador. “The purchase of insurance for public sector infrastructure should be further considered and the culture of insurance should be promoted,” it added.

“Financial protection should be established starting with new public works. For this, it is important to conduct negotiations with private insurance companies to include costs that the Government would incur when buying this service. This policy is followed in other countries, such as Ecuador, where the purchase of insurance for public infrastructure is mandatory.”