Haitian insurance badly shaken

Jaki Gardner spends her working days in Minnesota making sure consumers here never go through what Haiti experienced. On top of the destruction and loss from the devastating earthquake, many Haitians were left homeless, lacking adequate insurance on their ruined property or stuck with policies from insolvent insurance companies.

Gardner, an assistant commissioner with the Minnesota Department of Commerce, used her expertise as a member of a five-person team of volunteer experts sent to investigate the health of Haiti's insurance companies this spring. The team came together through the Financial Services Volunteer Corps, a nonprofit made up of economists, accountants and other financial professionals who help in developing countries. In Minnesota, Gardner is in charge of making sure insurance companies licensed in the state have the ability to pay claims.

Q Why was your team sent to Haiti?

A We were to assess the insurance industry and its financial problems to find out why they weren't paying claims. We were like a SWAT team. We set up a process where we went into every insurance company -- there's only eight in Haiti -- and we said, 'We want to open up your records and see how much coverage did you provide in this area and then compare that to how much money you have in reserves.'

Hopefully the reserves are higher than the claims, but that wasn't the case for three companies. The problem was they had a high concentration of risk because they were only insuring in Port Au Prince. If all your claims come due on one day, which is the day of that earthquake, that's it. You don't have the cash on hand.

The other five had adequate reinsurance. They were able to mitigate their losses by being insured themselves. The worst of the three that failed had made a conscious decision not to buy reinsurance coverage.

The U.S. regulators wouldn't allow that. That's how you protect your own capital, by reinsuring the losses and spreading that risk out.

Q So what did you recommend?

A We recommended that they put together a disaster relief fund and that they use the money to make loans to the insurance companies to pay their claims at a favorable interest rate. For families, they're hopefully going to get some of that money through a building effort. In other words, we'll rebuild your property and then we'll give you a low interest loan for the difference between what is your insurance coverage and what it's going to cost to rebuild. Before we left there, they put $10 million in.

Q Did most Haitians have adequate insurance coverage?

A No. The main risk of a catastrophe in Haiti, they thought, would have been a hurricane, so they had a lot of wind insurance coverage. But an earthquake hit. Homes got toppled and if they did have property coverage it was a total loss, but they didn't have enough coverage. So they can't rebuild. They didn't have replacement coverage.

You've got to teach the people how to buy insurance and what their coverage should be because if you're underinsured, it doesn't do you any good.

A One thing the Haitian industry did not have were standardized reporting requirements. They don't have to file financial statements. Nobody knows if they have money or not. And they're family-run. They're private entities, so there's no stockholders. There's no accountability.

Our companies have to report to us, the regulator, on a quarterly basis what their financial condition is. We're checking to make sure they have security in place to cover those potential losses. Companies have to be licensed.

Here in the United States, if a company goes bust, we have a guaranty association that would pick up the pieces. They don't have that, and the families formed limited liability corporations that protect their personal wealth. So when the company went belly up, they just said, 'I'm gone, I'm out of here.'

Q What appealed to you about the Haiti trip?

A I'm a minority. I want minority people to see minority professionals, and I want them to see that their help can come from within. I was interested in having them see me in a position of assistance in a professional area that's a very unique and specialized field.

I am now putting together my own insurance professional team to volunteer two weeks of our time every year to go on a project with the Financial Services Volunteer Corps.