Speaking recently in her capacity as the state-appointed Judicial Manager of the embattled CLICO, Ms. Maria van Beek, the Commissioner of Insurance, expressed the view that the liquidation of CLICO is “not inevitable”. That opinion, surely, has to be based on a very optimistic reading of the company’s financial statements, and, further, by a feeling that reality is dictated solely by figures on a sheet of paper.
In fact, reality really ought to be based on an assumption that policy-holders will continue to pay, thus securing some semblance of an income stream for the entity and more critically, on the likelihood of recovery of monies, especially the 53% of CLICO’s assets tied up in the Bahamas investment.
But we do not inhabit that sterile world of facts and figures that all too many accountants, actuaries and financiers imagine exists. In the real world, there are myriad other considerations that will impact the “inevitability” or otherwise of the liquidation of CLICO. One of those is trust.
It is not by accident that a huge insurer like Prudential has as its logo “The Rock”, or that Allstate Insurance has the tagline “You’re in Good Hands”. Those companies and insurance companies the world over are pursuing branding strategies that are crafted around the notion of trustworthiness, that intangible but absolutely critical quality being the very cornerstone of the business of insurance and of all financial services sector, as a whole, for that matter.
The nature of the insurance business is different from that of banking in that when a client makes a call on the insurance company, it is usually in a situation of distress or even catastrophe. In cases of devastating loss, sickness or, in the extreme, death of a loved one, that client turns to his or her “rock” and expects it to be there, strong, safe and sure.
In assessing whether the liquidation of CLICO is inevitable, therefore, much consideration, surely, must be given to the issue of trust or lack thereof, even if every ‘red cent’ of its investments were, somehow, to be miraculously restored today. Would the restoration of the monies serve to restore the trust that is necessary to ensure that persons feel comfortable leaving their monies with the company? Would that engender the confidence of the Guyanese public that the authorities will have their eye on the ball next time around?
The CL Financial Brand has been discredited across the entire Caribbean on account of its breach of the collective trust of its customers. Rather than to seek to give what may very well turn out to be false comfort, the most sensible thing to do, may well be to give urgent priority to repackaging the sound policies for sale to reputable companies still standing.
This leaves us with the question of that other class of clients – those with annuities and other investments, and this leads to another statement by the Judicial Manager, that is, the statement about a government guarantee. We are by no means sure of the capacity in which Ms. van Beek was speaking when she sought to assure clients of CLICO that their monies were guaranteed by the government. While, as court appointed Manager of CLICO Ms. van Beek may have every right, indeed, every obligation to provide CLICO’s hapless clients with assurances, as Commissioner of Insurance, which she still is, she must deal with more than words. To put it simply, one is inclined to believe that were financial statements for CLICO to be produced at this very moment, it would require considerable nerve on the part of any qualified and responsible auditor to sign off on accounts that report as income that which is nothing more than a politician’s promise.
Make no mistake, a political promise is all that policy holders have until the government goes to the National Assembly and passes a supplemental allocation for the missing $6.9 billion or whatever fraction thereof may eventually turn out to be necessary. Then and only then can any concrete assurances be offered policy holders and investors that their monies will be restored. At this time, such assurances ought, correctly, to be left to the President, the Finance Minister and the rest of the political directorate and each individual client of CLICO should make a decision based on their trust in those assurances. Here, the point should be made that whatever official utterances are made about remarks that undermine confidence in assurances, the fact is that no one can reasonably deny that the breach of trust and the lack of confidence on the part of CLICO’s clients has already occurred and that facing the cold truth of the situation can by no means be equated with ‘talking down’ official assurances.
As the practical difficulties of finding such a huge sum (some 8% of Guyana’s projected 2009 revenues) begin to confront the President and the Finance Minister, they may well be compelled to resort to “clarifications” regarding what, at this time, are the seemingly unambiguous assurances being offered that no one will lose their money. Indeed, there is, already, a distinction between policy holders and investors creeping in to official lexicon on the CLICO matter. Is this going to be a basis for a “clarification” regarding exactly whose money is guaranteed and whose is not? If I give you 10 million dollars today with an expectation of being repaid with 10% interest in a year’s time, what exactly is “my money”? Is it 11 million or 10 million adjusted for inflation? Will there be a cap on the amount that the government is going to pay?
Since all of these “clarifications” may become necessary, the prudent stance for Ms. van Beek to take would be to let the politicians do the promising while she gets on with the job of telling them how much they have to find to make good on their promises. Only when the required sums are voted in the National Assembly should she become involved in allaying the fears of policy holders. Ms. van Beek must appreciate – as we assume she does -that while she must act in concert with the President and his Finance Minister to retrieve the situation as far as is possible, her own role is really separate and distinct from theirs. Thus while it is acceptable for politicians to make certain statements, these should not be given any credence by the regulator until they are backed by tangible action.