Bonnick concerned about potential problems in sub-sectors

Bonnick

CONSULTANT economist to the World Bank, Dr. Gladstone Bonnick, who in the early 1990s pointed the Jamaican Government to the imminent crisis in the financial sector and later coined the acronym FINSAC for Financial Sector Adjustment Company, has now pointed to potential problems in the auto insurance, health insurance and pension funds management sub-sectors.

Dr. Bonnick, a former executive director of FINSAC, said those sub-sectors did not suffer in the financial sector crisis of the past few years, but they were not without actual or potential problems.

"These will have to be studied separately in order to ensure the relevance of future approaches in meeting the specific challenges facing them in the 21st century," he said.

Dr. Bonnick was speaking at a seminar organised by the Jamaica Deposit Insurance Corporation (JDIC) at Le Meridien Jamaica Pegasus Hotel, New Kingston yesterday, in a wide-ranging presentation in which he cited deficiency in the quality of indigenous management as one of the major contributing factors to the collapse of the financial sector.

In the auto insurance sector, he said, "there is enough dissatisfaction voiced by motorists ... to warrant a careful review of its before a crisis develops."

According to Dr. Bonnick, "not infrequently, companies do not process or pay legitimate claims. Since government requires that motorists buy these services as a means of protecting the public in general, the government should act to ensure the quality and integrity of the services and the reasonableness of the prices that have to be paid for it."

The consultant economist said that as a first step, the present arrangements for regulation and supervision ought to be reviewed. In addition, he said, known ways of reducing costs, such as a no-fault approach to reduce the burden of litigation, and the provision of liability insurance by the state, ought to be studied.

Dr. Bonnick said that since most Jamaicans were without any form of health insurance and were dependent on government to provide health care services, "it is high time to study the desirability and feasibility of a national health insurance scheme."

According to him, while the issue of payment for and supply of health services were matters for determination within decisions of health policy, the performance of the fledgling health insurance sub-sector should be a matter of concern to the regulators of financial institutions.

Noting that the essence of health insurance was a contract to provide funds to defray future health expenses in exchange for current premium payments, Dr. Bonnick said:

"The business should be monitored to ensure that appropriate standards are set and met in the transparency, security, efficiency and equity aspects of the business. The insured should not face unnecessary risks of default or unduly high cost or poor quality of service."

RECENT EXPERIENCE

The World Bank consultant said recent experience with troubled insurance companies revealed that pension funds under their management were sometimes put at risk from co-mingling of operations and borrowing/lending between various parts of the business.

He said arrangements for handling pensions varied from one firm to the other and were sometimes internal to firms that were not primarily in financial management. "There are even cases in which pensions are promised but not funded, the equivalent funds being available for re-investment within the same establishment," he said.

Against that background, he said a review could start with a study of the pensions arrangements in the public sector with the ultimate goal being that anyone who works in Jamaica should contribute to a pension and be eligible for benefits.

He said an arrangement similar to deposit insurance could provide some security and provide opportunity for imposing and monitoring standards for pension fund operations. "The setting up of a national secondary pension fund should be studied with a view to ensuring portability and a uniform level of security of all pensions," Dr. Bonnick said.

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