Report on Second Roundtable on Hazard Mitigation in the Banking and Insurance Sectors

St. Kitts – April 4, 2001

Attendance: There were 22 attendees with 9 from the banking sector and 13 from the insurance sector. Steven Stichter ([email protected]) represented OAS and Arthur Evans, consultant to OAS, ([email protected]) acted as facilitator.

Terms of Reference: The meeting referenced the report of the first roundtable (Antigua - Jan. 18, 2001) and the second roundtable agenda.

Attendees’ Evaluations: Attendees were asked to give ratings for Agenda, Value of Meeting, and Facilitator’s Role, on the basis of 5 = Good to 1= Poor. For each category the collective ratings clustered around 4.5.

Agenda Item A – Review of Vulnerability Reduction Action Plans selected at 1^st Roundtable.

1. Establish Effective Cooperation – Bankers/Insurers/Construction Professionals and Trades people.

Harmonize Criteria. There was consensus on:

• Accepting the long-term nature of vulnerability reduction efforts.
• There exist many local entities and people involved in implementing effective and durable vulnerability reduction programs.
• There were many valuable external vulnerability reduction information sources – including those available from OAS web site.
• Vulnerability Reduction has logically to be accepted as benefiting all sectors and individuals.

In light of the above, the banking and insurance sectors, in designing and establishing their specific vulnerability reduction programs, would adhere to the following principles:

• Be legal and transparent.
• Identify all their constituencies and respond to their varying needs – this does not preclude the banking and insurance sectors’ self-interest in achieving reasonable profitability.
• Establish and sustain effective communications with constituencies.
• Drive vulnerability reduction efforts with long-term sustainability.

Revitalize Respective Trade Associations with Missions to progress Vulnerability Reduction.

Both sectors in both nations reported that since the January roundtable, they had taken practical steps in this regard. There would now exist four trade association entities providing the structures through which vulnerability reduction program design would be channeled. Attendees agreed on pro-tem chairs and secretaries for their respective trade associations and the workshop discussions followed these alignments –see attachment A.

Steven Stichter reported that the Building Codes are available for purchase in both countries. The view was that this code would not meet the ‘layman friendly’ requirement for the banking/insurance sectors i.e. for their day-to-day dealings with their staff and clients and to equitably classify building structures by their hurricane protection characteristics. It seemed preferable to review the Code together with other materials (e.g. United Insurance’s booklets, the several OAS produced materials). These materials, together with construction professional’s input, could be distilled into simple classification criteria – e.g. A, B, C, for standard dwellings and similarly for standard commercial properties. Such protection classifications could cover at least two-thirds of the properties.

The intention is that the protection classifications be common to both banking and insurance sectors to enable:

• Common inspection standards and personnel being employed for both sectors’ purposes.
• Gradated (A, B, C,) protection standards by caliber of protection could fit corresponding incentives/disincentives and give awareness that protection upgrading is feasible and worthwhile via retrofitting.

Attendees were aware of OAS and other efforts to upgrade property inspection capabilities for vulnerability reduction. The banking/insurance sectors would ascertain from the construction trade associations precise information on their current licensing, certification, and enforcement practices (including penalties). Both sectors agreed that inspection criteria must include:

1. Verification that construction technique and materials’ quality specifications in the design & plans are adhered to during implementation via expediting inspections.
2. A requirement that engineers/inspectors write up (with signatures) their observations with timely copies going to all parties (inc. lenders & insurers) concerned with proper work execution - including retrofitting.
3. Latent structural weakening resulting from past successive storm forces – even when visible damage has not been suffered.
4. Specific commentary on a structure’s foundation capability of holding its integrity in storm conditions.
5. Commentary on the potential of adjacent/near structures to cause storm damage exposure e.g. from flying debris.

Attendees were impressed with the OAS presentation and expressed a consensus that structures’ specific localities formed an important factor in assessing hurricane protection characteristics. They aspire to having their islands’ topographies mapped with suitably precise graphic resolution to substantiate clear locality classifications. They will keep in touch with OAS on this.

There was some feeling that the DCA on occasions gave authorizations for reasons that overrode sound land use and design considerations. It was felt that this situation just had to be accepted and that lending and insuring decisions had to be made against these realities.

3. Upgrade Public Awareness on Vulnerability Reduction -Cost/benefits, Methods and Procedures.

There was consensus on the critical importance of this challenge and the following elements were reckoned key to designing effective programs:

• The Banking and Insurance sectors themselves need to clearly identify their own public images (existing and aspired for) as to their contributions to vulnerability reduction.
• Both sectors should identify their various constituencies, the vulnerability reduction information requirements thereof, and persistent program efforts to meet these requirements. These sectors were reckoned to include property owners, construction professionals and trades people, regulatory agencies, reinsurers and the media as well as the public at large perhaps best represented by their educational, civic and community associations. Taking the construction fraternity as an example, a cooperative venture could be to mount a mobile exhibit with simple examples of good and bad construction/retrofitting techniques together with cost and benefit estimates.
• The cost/benefits of vulnerability reduction to property owners needed to be clearly demonstrable in layman’s terms. Such displays should be simple and include monthly loan payments for vulnerability improvement loans. Realtors could be consulted on the property sale and rental values. Engineers’ and/or underwriters’ estimation on storm probable maximum loss reduction potential is also pertinent information to property owners.
• Bankers and Insurers should very precisely set out their available vulnerability reduction related products and services together with the costs thereof.
• Both sectors should make public policy commitments to being entirely transparent and persistent in making vulnerability reduction a way of life in their businesses.

The bankers reiterated that premium levels had now been climbing for 5 years with no sign of abating despite a year without storms. They saw insurers inflexible on price as well as policy scope of coverage. Insurers maintained that their catastrophe reinsurers remained insistent on the current rate levels reckoning to recoup the very large claims payments made over several recent years’ storms.

There was discussion on United Insurance’s program for discriminatory rating to recognize verifiable protection improvement measures. Some insurers said they had not dissimilar approaches.

The bankers felt that local insurers where primarily interested in their reinsurance commission levels derived from the high premium rates and did not recognize the potential of enlarging their client bases by attracting those property owners currently uninsured or under insured. The St. Lucia NRDF insurance cum inspection program was outlined but otherwise the discussion came up without any positive proposals on this topic.

Agenda Item B – Agree to a Common Project Management Approach.

There was consensus that the Bankers’ and Insurers’ trade associations in both nations would develop their vulnerability reduction programs using the common project management approach suggested in the agenda material.

Agenda Items C & D

See meeting discussion notes under Agenda Item A above.

Attendees agreed to activate their trade associations to designing and implementing worthwhile vulnerability reduction programs as well as interchange ideas and progress reports among each other. They would avail themselves of OAS and other information resources. Urgency was indicated because of the upcoming hurricane season.

Attachment A