NASSAU, BAHAMAS – Initial assessments peg the uninsured risk in Hurricane Dorian as high as 80 per cent, according to Deputy Prime Minister K Peter Turnquest.
Turnquest explained the private sector often incurs the majority of the damage and loss in the aftermath of a major hurricane, addressed the Bahamas Association of Charter Accountants (BICA) Accountants Week conference.
“This is important to know, especially when the bulk of the public dialogue is trained on the Government’s emergency management response,” Turnquest.
“However, when a storm hits, the damage and loss to the private sector is significantly larger than the damage and loss incurred by the Government, although cultural and political factors are forcing more and more of the public resources to be spent to cover the private sector insured risk gap,” said Turnquest.
“Unfortunately, too many Bahamians take on unmanageable and unsustainable risk by not taking out insurance coverage on the home and business or, are underinsured,” Turnquest said.
“In the event of a significant loss, this exposed risk is transferred to the Government, which is neither tenable nor budgeted for, and thus poses a substantial threat to the country’s finances and credit standing. Initial assessments of uninsured risk in this storm is high: as high as 80 per cent.”
Turnquest further noted that this hurricane season the government employed a multi layered approach to risk coverage.
“We prearranged for a $100M contingent credit line at zero upfront cost that only incurred fees and cost when triggered by a hurricane event and drawn down,” Turnquest.
“This line has given us immediate cash flow to address evacuations, temporary shelter, provisions and down payments on materials necessary to rebuild public infrastructure.”
He said: “We engaged the CCRIF for catastrophic insurance coverage, for which we received a $12 million payout as a result of a restructuring of the policy, which I am proud to say we pioneered.
“We passed legislation to restrict funds transferred from the expired Dormant Accounts at the Central Bank to use strictly in disaster relief.
“So far we have drawn down $20 million from the approximately $40 million fund, to be used to support temporary accommodations on the ground in Abaco, $10 million and to support MSME capital grants and credit programs- $10 million- which to date has resulted in over $1M and growing, of emergency capital being made available to small business entrepreneurs to get back on their feet and in business.”
Turnquest said government budgeted and paid into a Disaster Relief Fund via a line item in the Ministry of Finance budget of $1 million per year for an accumulated total of $2 million.
“The plan is that once past accrued expenses have been paid down, we will budget between 0.5 per cent to 1 per cent of GDP to this Fund, to eventually have a pool of restricted sovereign investment funds, which will become perpetual and self sustaining,” he said.
Turnquest lamented that far too many businesses know too little about interruption insurance or pay too little regard to its importance.
“There is no better case study than Hurricane Dorian. Very few companies can finance the cost of asset replacement much less revenue loss.
He said: “In the short to medium term recovery phase after a catastrophic disaster, the impact on future cash flows can be devastating at a time when employees and business owners need resources at their disposal to recover.”
Turnquest also suggested businesses consider information management and the benefits of electronic commerce as a key component of their disaster management.
“This area is directly related to the work of finance officers and accounting professionals. Access to electronic records and access to banking are just two important challenges faced by businesses after a disaster,” he said.
“Decisions around the use of cloud storage, data back-ups are all connected to a company’s loss and mitigation strategies, not only operational processes.”
The deputy prime minister said data protection and privacy concerns are important considerations in a disaster.
“In Abaco for instance you may be aware that several financial institutions were destroyed by storm surge washing records into the streets and God knows where.”
Turnquest added: “Electronic data records were also potentially exposed to loss or breach in the aftermath. An effective recovery and protection plan is essential.”