By NEIL HARTNELL
Tribune Business Editor
BAHAMIAN general insurers yesterday revealed "we've not relaxed our guard" despite being relieved of increased customer due diligence obligations.
Timothy Ingraham, Summit Insurance Company's president, told Tribune Business that the industry's memories of the "last minute" Value-Added Tax (VAT) reversal were still too raw for it to completely trust the late change to the Financial Transactions Reporting Bill.
The Minnis administration amended the Bill, prior to last week's House of Assembly debate, to remove property and casualty insurers from the list of industries defined as 'financial institutions'.
Had the sector remained in that list it would have been required to impose enhanced Know Your Customer (KYC) due diligence on all current and former clients, thereby increasing bureaucracy and costs that would likely have to be passed on to Bahamian consumers through higher premiums.
The industry, through the Bahamas Insurance Association (BIA), successfully persuaded the Government to change course on the basis that the Financial Action Task Force (FATF), the global standard-setter in combating financial crime, does not currently include property and casualty underwriters in its list of 'financial institutions'.
Mr Ingraham, though, pledged that the sector will remain "vigilant" despite the legislative change, recalling how the former Christie administration performed a last-minute u-turn in imposing 7.5 per cent VAT on premiums.
"We're staying vigilant," he told Tribune Business. "We remember in 2015 how the previous government took VAT off the table and did an 'about turn' at the last minute. We've definitely not relaxed our guard and the issue remains at the forefront."
Carl Bethel QC, the Attorney General, last week told this newspaper he was going to seek further advice on the Bill's treatment of the insurance industry from the Caribbean Financial Action Task Force (CFATF), the regional FATF affiliate that last year identified serious weaknesses in the Bahamas' anti-money laundering and counter-terror financing regime.
Those findings have placed the Bahamas in an 'enhanced review process', where it must now satisfy the FATF and world community that it has satisfactorily addressed these deficiencies to avoid the possible imposition of sanctions.
The BIA argued that the Financial Transactions Reporting Bill's initial version subjected general insurers to 'over-regulation' by going beyond world standards, and Mr Ingraham yesterday revealed that "small agents and brokers" had been especially vexed by its contents.
With such businesses operating on already-thin margins, the Summit chief said some would have needed to alter their business models had the enhanced KYC customer verification regime been imposed.
He added that the nature of property and casualty insurance limited its vulnerability to abuse by money launderers, given that annual third-party motor insurance policies worth $300-$400 would be of little use to such criminals.
As for property insurance, Mr Ingraham said owners would have already undergone significant background checks by banks and attorneys before they reached insurers.
"From the industry's perspective I think we're all relieved at the moment that we weren't included," he disclosed, "and that the Government decided to stick with the international definition that excludes the property and casualty companies.
"Anything that contributes to the 'ease of business', and making business easier to do for local residents, is a good thing in our minds."
Had the Bill not been changed, Mr Ingraham said general insurance clients would have endured "a fairly stringent" application of KYC rules and regulations similar to that found in the banking industry and life/investment insurance sector.
"The concern was you could have someone taking out a $300-$400 motor insurance policy and they'd be subject to the same KYC as someone opening a bank account," Mr Ingraham told Tribune Business of the original Bill.
"We understand and fully appreciate we need to be very careful on money laundering, and crack down on financial crime, but it was difficult for us to see how a $200-$300 motor insurance policy could be used for money laundering."
Mr Ingraham said this also applied to other property and casualty insurance products, such as home insurance. "By the time the home owner gets to the insurance company they've been through a number of certifications at the bank, government agencies, attorneys and everybody else," he added.
"If somebody's purchasing a home they have to go through the legal process with their attorney. By the time they get to property and casualty insurers they will have been through a number of legal entities who have done checks, or are expected to have done checks, before they get to us."
Mr Ingraham said there was "a possibility" insurance premiums would have had to rise to offset any increased compliance costs, given that the sector would have had to hire extra staff to conduct customer KYC.
"At the industry meeting last week, some of the small agents and brokers were especially concerns about this," he recalled to Tribune Business. "They'd be required to do this in a situation where margins are already thin. They were appealing for a different way for this to be handled.
"It was definitely a case where some companies would have had to look at their business model, margins, and see how they could accommodate the additional cost of this."
Carl Bethel QC, the Attorney General, previously told Tribune Business that the Government had suggested to the insurance industry that it contract KYC due diligence services from outside companies - rather than hire their own staff - as a means to control such costs.
Mr Ingraham added, though, that cost 'pass-through' to consumers could have meant more Bahamians "going without insurance" at a time when the Government was seeking to make coverage more affordable to reduce the burden on taxpayers in the aftermath of major hurricanes.
"Certainly, at a time when, because of the storms last year, insurance rates are going up in any event, it would definitely have been a double whammy," the Summit chief told Tribune Business.
Anton Saunders, RoyalStar Assurance's managing director, said the original Financial Transactions Reporting Bill would have made it "extra impossible to get insurance in a timely manner" had the KYC obligation been imposed on the property and casualty sector.
"We are all in favour of making sure our industry has anti-money laundering rules and regulations, but we're glad the Minister looked at it and realised the industry will take care of what we take care of ourselves, and doesn't need obligations that over-burden it and are passed on to clients," he said.
"It was going to create unnecessary hardship for the industry, and make it extra impossible to get insurance in a timely manner. The general insurance industry has always shown it will do what is necessary, but we will voice our concerns if things are onerous."