When it comes to the Government bailout of the Insurance industry, I must confess that I am caught in two minds. I have bought life insurance all my working life. Following the formula recommended by the industry, I have taken out life insurance with premiums to the tune of approximately ten percent of salary. When it became clear that whole-life and endowment policies were of limited value I started to buy equity related insurance. Moreover, I bought insurance from three of the major companies so that the investments in insurance would not be in one basket. On that record, there could be little doubt that I would have more than a passing personal interest in what happens to the life insurance industry.
However, when I read the comment of the Executive Director of the PSOJ on the Supplementary Budget stating that Government was overspending by including $4 billion for pay increases to public sector workers, while remaining silent on the $6.3 to bail out the insurance industry and the $5.5 billion to repay the Bank of Jamaica for the advances made to Century National Bank I was livid with anger. I was livid for two reasons.
First, Government has an obligation to pay teachers, nurses, civil servants, police, soldiers, prison warders etc. but, what obligation does Government have for spending $11.8 billion of taxpayers money on private sector bailout, including that of the insurance industry? How in the name of patience could a spokesman of the private sector criticise Government for overspending because it had paid $4 billion for public sector pay increases when in the same Supplementary Estimates it is spending $11.8 billion on private sector bail-out.
Second, I recalled being a part of the JTA salary Negotiating Team presenting the case of the teachers for pay increases in 1994 to the Salary Review Board. In cross-questioning the representatives from the Ministry of Financing, appearing before the Board, I remembered dragging out the fact that Government’s tax revenue for 1994-1995 was likely to exceed its expenditure by more than $5 billion. The government was therefore in a position to pay the teachers, and all public sector workers, the level of increases that they were asking for. The representatives of the Ministry of Finance insisted that for the macroeconomic stability of the economy this excess of revenue over expenditure had to be sterilised in the Bank of Jamaica. They were adamant that financial ruin would follow if these funds were paid out as salaries. I remembered asking whether the teachers and public sector workers, were being forced to make sacrifices which the powerful financial interests in the country would later appropriate as a matter of right.
In the statement of the Minister of Finance, explaining where the money was going to come from to bail out the insurance industry, the Minister informed the country that $4.3 would come from the funds sterilised in the Bank of Jamaica and the remaining $2 billion would be borrowed. By a round-about route just what I thought would have happened has actually happened. Ironically, the sterilised funds are being used to save policyholders and depositors from the financial ruin that would follow if Government did not bail out the financial sector.
In this fit of anger, I said to myself that probably the country would be better off if people like me lost our entire savings and investment in insurance if this would mean that the country would get a different breed of people than those on whose behalf the Executive Director of the PSOJ spoke. In the midst of this massive expenditure on the debacle in the financial sector, members of the private sector, on whose behalf the Executive Director spoke, could only bemoan Government’s payment of just increases to its employees and scold the Government for paying such increases, when in a very real sense it is public sector workers, including teachers, who have bailed out the insurance industry by the increases they were denied in the recent past.
Deep down inside I felt that there is no justice in this land and that there is a set of people who consider themselves the “Kings Pyjamas” and expect to benefit from the sacrifices of the ordinary people as a matter of right and without any conscience. Also, that the Government in the name of the ordinary people seems always to be paying for the folly of the rich.
In the midst of this anger, I read the three installments of the statement made by Mr. Dennis Lalor on the crisis in the insurance industry. This statement was of a different tone and character. Mr Lalor was admitting that the leaders and managers of the insurance industry had made mistakes and had some responsibility for the present state of the insurance industry. He highlighted some of the short-term measures that were now beginning to have adverse long-term consequences. He recognised the need for the top management to make sacrifices and acknowledged that the Government bail-out had to be paid back.
I cannot remember when last I heard any leading member of the private sector admit to making serious mistakes, accept responsibility of adverse outcomes, acknowledge that they had to make sacrifices and did not blame the Government totally for what was happening in their sector. Moreover, some of the points he made I could relate to because I remember being the Chairman of the Finance Committee of an organisation, dear to my heart, and having to resist and restrain some of my more optimistic brethren who saw no danger in using the short-term money to finance long-term investments. Indeed, it has caused me considerable pain to see the JTA Housing Co-operative being included in the institutions being bailed out by the Government. The Board and Management of that organisation made the very mistake of using short-term deposits to purchase land and finance mortgages.
I can relate to the private sector on whose behalf Mr. Lalor spoke. Admitting mistakes, accepting responsibility for their consequences, committing to make sacrifices, acknowledging obligations that must be honoured and having the courage to give a public explanation to policyholders, and the public at large demonstrates a level of maturity and openness that I can relate to. This would seem to signal some change in the usual haughty and blaming others approach, especially workers and Government, that usually characterize private sector pronouncements.
The private sector that the Executive Director spoke for, in my mind, is not worth bailing out. The private sector on whose behalf Mr. Lalor spoke seems repentant, self-critical and willing to make amends for what has gone wrong. This private sector may be worth bailing out. To Mr. Lalor, and others like-minded, I would say that that three installment statement is a good beginning. However, policy-holders, like myself, and the tax-paying public need to be told a lot more. A number of questions spring to mind. What does a mismatch in the assets of the companies really mean? What has happened to those assets that were acquired outside of Jamaica which is unaffected by the decline in the Jamaican stock market or slump and softness in real estate prices? What is the real price tag of this bail-out? What measures are needed to ensure greater prudence in the future? Until more answers are given by the likes of Denis Lalor I will continue to be in two minds on this matter.