Cedric Stephens | Should taxpayers bear the burden of under-insured businesses?

Jamaica Gleaner | 2025-12-07 | Original Article

‘SBAJ sounds SOS. Small businesses call for cash aid, loan freezes to jump-start commerce’. That statement summarises a request for help by the Small Business Association of Jamaica’s president to government, in the wake of Hurricane Melissa. It...

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It was one of two headlines that dominated this newspaper’s November 24 edition.

Help, in the form of grants (cash), generators, lumber, zinc, and roofing materials were among the items being sought to restart their operations. Funding for the recovery process will be costly, even though assessment of losses in the micro, small, and medium-size enterprise sector will not be available until year end. The SBAJ president believes the total costs will run “into hundreds of million, if not billions of dollars”.

The research of global technology giant Mastercard of the payments industry, provides valuable information that partly explains the local SME sector’s dependence on government for post-Melissa handouts.

“While SMEs represent more than 90 per cent of businesses in Latin America and the Caribbean, and their contribution to gross domestic product ranges from 20 per cent to 35 per cent, the sector has historically been underserved” in the payments industry, and, by extension, the insurance industry. Mastercard researchers found that, in Jamaica, there are about 425,000 small businesses, but only about 14,000, (3.3 per cent) are officially registered. Most, 96.7 per cent, are unregistered.

As a result, property and business interruption insurances are foreign to them, as I will show from an article I wrote many years ago. The 2025 needs of local SMEs, as identified by the SBAJ head post-Melissa, consist of assets and income, which are usually the subject of insurance coverage.

Why is it that our government, which has implemented a pre-event risk transfer strategy – a catastrophe bond, CCRIF parametric insurance, contingent lines of credit and other devices to manage catastrophe risks – while most privately owned SMEs operate without a similar strategy in a country that is highly exposed to natural disasters?

Is it fair to distribute scarce resources to these businesses in a market economy or for the government to be the after-the-event insurer?

Nearly 25 years ago, I posed the following question in print: Non-life insurers – are they playing an effective role in the context of Jamaica’s economic development? It was raised following the Portmore Mall fire, which was described in 2001 as “one of the largest in the island’s commercial history”.

Then Finance Minister Dr Omar Davies had portfolio responsibility for the insurance sector. In the article I implored him to find out why the contents of 29 of 37 shops (78.3 per cent) that were destroyed in the fire were not insured. Should the government entity that owned the mall have, based on the previous histories of fires in similar shopping areas in Kingston and calls for assistance from the public purse, have bundled insurance coverage with the rent?

“A review of the insurance sector is vitally important for several reasons,” I wrote. “The Portmore Development Committee is seeking the Prime Minister’s intervention to get assistance for persons displaced by the fire. Why should the owners of these businesses get bailouts while there are more pressing demands on the public purse? Coverage was available because a minority of the tenants, 21.7 per cent, had insurance. Was the high level of non-insurance a sign of insurance market failure or a deliberate decision on the part of those shop owners?”

Those questions were never answered. Now 25 years later, government assistance is being sought by the SBAJ when the number of businesspersons affected by the hurricane has increased and the cost of the bailout has mushroomed.

Companies like Amazon, Uber, Airbnb, Tesla, and others that use technology, such as IOT or internet of things, and, more lately, artificial intelligence, to help consumers like SMEs grow their businesses, bundle and manage risks, and, at the same time, disrupt the business models of traditional brick and mortar providers across a variety of industries including insurance, are on the increase.

This trend has shown the importance of always questioning the status quo. In the meantime, the proposed legislation to facilitate micro insurance, which is one way to increase insurance penetration and foster innovation, continues to gather dust.

For insurance markets like Jamaica and the wider Caribbean, these developments can improve insurance penetration and promote financial inclusion by offering affordable and modular products, enhance consumer trust through transparency and proactive risk management; and support regional resilience by integrating several types of coverage into bundled packages.

Has Hurricane Melissa and technology created the conditions for insurers and their regulator to redefine their respective missions, innovate, and help the society to become more resilient and less dependent on the largesse of the government and donors for handouts when the next catastrophe occurs?

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com

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