Wednesday, September 12, 2012

Insurance Fact and Fiction

I recently had the opportunity to review the 2011 Economic Impact Study put out by the Association of Bermuda Insurers and Reinsurers a few months ago. There is something rather odd going on: their narrative is at odds with their own data. 

In commenting on the study, ABIR chairman Constantine Iordanou cites as a key finding the continuing downward trend in jobs since “it means fewer jobs in Bermuda; lower payroll tax revenues; less compounding economic activity from these highly compensated executives; and fewer meetings filling up hotels and restaurants”. The organisation’s executive director Bradley Kading attributes the 2011 results to “the continued impacts of a global economy in recovery mode and a soft insurance market” but also “$105 billion in global natural disaster catastrophe losses”.

When the data are examined in aggregate we see that during this difficult economic period job reduction of the ABIR members was a negligible 1.7 percent in 2011 over 2010 (1,696 employees) and down 6.5 percent from the 2007 peak year. The number of Bermudian jobs is down by 13 from 2010, or 1.1 percent. It may well be that “the five ABIR members with historically the largest number of employees in Bermuda have reduced their employment during that time by an average of 23 percent” as Mr Iordanou asserts, but it also necessarily means there has been growth among other ABIR companies. Further, the data seem not to suggest there is “a direct correlation between these senior executives being in Bermuda and employment opportunities for Bermudians”.

By praising Government for passing the Job Creator’s Act, ABIR — and no doubt Government — believes there is a strong causality between encouraging more senior executives to the Island along with giving them security of tenure and the creation of more jobs for Bermudians. That remains to be seen but available data do not support this contention. This legislation is a consequence of international business lobbying and its origins seem to stem more from personal motivations than business logic and a focus on strengthening the Island’s economy. Perhaps it is a nod to fragility of our economy and that we rest on a single pillar. 

In contrast with the comment that job losses automatically lead to less injection of money into Bermuda we see that these declines in employment notwithstanding, ABIR’s 22 members had a greater economic impact in 2011 than during the previous year in critical areas: travel and entertainment expenses are up seven percent; business services expenses in Bermuda are up by about six percent; charitable donations up by 13 percent; and construction and housing costs up by 4.3 percent. That that increased revenue was derived with a slightly smaller workforce is instructive and there may well be some merit in probing deeper to better understand this. 

These findings should give us all pause. There is no doubt that international business — and insurance and reinsurance in particular — is the core of our economy today. 

We should all value it and work to ensure that it remains strong; and appropriate policies and strategies from both the government and private sector are important to achieve this goal. Decisions, though, should be rooted in fact, not anecdote, and careful assessment of available data. Our dependence on international business should not blind us to our responsibility to critically assess any and all assessments and proposals regarding improving our economy. A failure to do so may well mean we fail Bermuda.

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