By YOURI KEMP
Up to 80 percent of private homes and businesses devastated by Hurricane Dorian were uninsured, the deputy prime minister revealed yesterday, creating an unsustainable burden for the state.
K Peter Turnquest, opening the annual Accountants Week conference, said the failure to properly insure meant that a "significant loss" event would likely transfer the costs of rebuilding and restoration to the government and Bahamian taxpayer.
He described this as "neither tenable nor budgeted for", and a trend that could threaten both The Bahamas' fiscal stability and its sovereign credit rating if the government was forced to pick up an increasing proportion of restoration costs that should be borne by the private sector.
"Initial assessments of uninsured risk in this storm are high: As high as 80 percent," Mr Turnquest said. "The gap between the coverage and exposure is being put to the government as a social responsibility, which gives us a significant exposure from a budgetary point of view.
"The failure to adhere to building codes has aided in catastrophic destruction, and will likely lead to higher insurance premiums, further challenging home ownership for many." Pointing to the tendency for Bahamians to cut corners and "tip the person" to look the other way in order to speed up the process, he encouraged persons to do it right first time and properly invest in their home's infrastructure so that risk was reduced and insurance premiums kept affordable.
Mr Turnquest said 87.6 percent of the $580m damages and losses incurred from Hurricane Matthew in 2016 impacted the private sector, yet just 20 percent of those businesses and homeowners have full insurance coverage.
"Many Bahamians have bought into the myth that says: 'It won't happen to us'," he added. "Unfortunately many of you Nassauvians, in particular, have bought into this thinking. But persons and businesses simply cannot afford to operate with this mentality, as we know that day is coming.
"Persons owe it to their families, businesses owe it to their shareholders, their employees and their customer and to the community at large, to take emergency risk management seriously."
Mr Turnquest called on accountants to help their clients properly manage their disaster-related risks, thereby reducing the financial burden imposed on the Government in the aftermath of disasters such as Hurricane Dorian.
His comments came after John Rolle, the Central Bank's governor, forecast that total Hurricane Dorian losses could exceed $2.5bn at the "low end" - a sum equivalent to 20 percent of The Bahamas' total economic output.
The Bahamas Insurance Association's (BIA) chairman, Warren Rolle, also said Hurricane Dorian has to-date inflicted "over $1bn in insured losses" on Bahamian insurers, with some industry executives suggesting this figure may rise to between $1.5bn to $2bn.
Meanwhile, Mr Turnquest confirmed that the Government's projected fiscal deficit for 2019-2020 may balloon by $450m. While the Minnis administration had "brought the annual deficit from 5 percent of GDP down to 1 percent last year", Mr Turnquest said the Government was on track to deliver a deficit equivalent to 0.5 percent of GDP - around $50-$60m - and was "even looking forward to a surplus" pre-Dorian.
Preliminary projections for the deficit now place it anywhere between $550m to $580m, up from the $137m that was forecast in the May budget and back close to 5 percent of GDP.
Mr Turnquest also said the Government had invested $1m into a disaster relief fund via a line item in the annual budget for the last two years, generating an accumulated $2m. He added that once the accrued expenses have been paid down, the Government will "begin budgeting and setting aside in real dollars between 0.5 percent and 1 percent of GDP" that will go towards sustaining this fund in order to have a pool of restricted sovereign investment funds that will be self-sustaining.
He asked accountants to speak with the commercial banking sector in order to come up with "disaster relief clauses" in loan documents, so that in the event of a disaster principal payments can be suspended for at least two years and interest payments can be capitalised.
Urging the private sector not to be "penny wise and pound foolish" by failing to fully insure, Mr Turnquest also warned that too few companies knew enough about business interruption insurance.
" There is no better case study than Hurricane Dorian," he added. "Very few companies can finance the cost of asset replacement much less revenue loss. 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.
"There is a private sector component that has been exposed by this storm not many have considered, and that is the responsibility of a business to its employees. As pointed out by the Bahamas Chamber of Commerce and Employers Confederation, many businesses have found themselves in an impossible moral dilemma.
"In the face of business interruption, tremendous demand for cash resources to secure damaged property and begin clean-up and reconstruction, employees demand salary payments or severance in order to meet their own needs.
"So when the business needs its cash reserves the most to get the business open, they face large downtime social costs with no revenue. It is a real dilemma that businesses must plan for and be prepared to responsibly address."