Strategic Management and Culture in the Bahamian Insurance Industry

The Bahamian Insurance Industry: Background

The Bahamian insurance industry is divided into two main branches — one domestic, one captive — each operating without regard to the other and overseen by its own act of Parliament (Oxford, 2009). Within this field, around 100 companies are engaged in business, the bulk of them working as brokers, with just a few working as underwriters, collaborating closely when they do (Oxford, 2009). A system of checks appears to be in place: agents are not able to underwrite, and companies cannot engage in direct sales pitches to prospective customers (Oxford, 2009).

The Office of the Registrar of Insurance Companies (ORIC), overseen by the Ministry of Finance, regulates the entire insurance arena and is largely expected to inspect, license, and supervise the companies, agents, brokers, and sellers that make up this industry (Oxford, 2009). ORIC has made clear that it would like to raise the local industry's standards of corporate governance, internal controls, and professionalism, and to move from a prescriptive, rule-based approach to a more risk-based advisory approach (Oxford, 2009).

The industry has experienced rocky times in the last few decades, with nearly every election in the Bahamas entailing political promises to help reform the insurance sector (Craton & Saunders, 1998). In 1981, the Bahamas engaged in an elaborate effort to attract multinational insurance companies back to doing business there, targeting mostly captive insurance companies as a means of growth and warding off competition from other banking centers in the Caribbean (Craton & Saunders, 1998). One of the main ways ORIC sought to accomplish this was through an overhaul of the 1969 Domestic Insurance Act, which nearly all professionals in the field regard as outdated, mostly inapplicable, and insufficiently responsive to the evolved financial instruments of the modern era (Oxford, 2009). While a draft of this updated act was created in 2005, approval was met with many delays due to disputes arising between agents and underwriters.

Captive insurance refers to firms that insure and reinsure the risks of subsidiaries and affiliated units through a company established for that purpose in the Bahamas. Despite its well-established position as an international center for banking and finance, the country still holds a limited share of the international captive insurance market (Oxford, 2009). Expert panels and overseers of the field broadly believe there is much to be gained if the local sector increases its share in an expanding global market, and new legislation is being developed to help achieve such objectives (Oxford, 2009). The captive insurance sector is rapidly evolving, and one could make that argument about the industry as a whole. New investment vehicles have debuted in recent years, and many players in the field were initially unsure of the proper risk management techniques to apply to these unfamiliar instruments.

Strategic Management Practices in Bahamian Insurance

Thus far, the Bahamian insurance industry has been characterized by the creation and revision of legislation specifically intended to spur the captive insurance arena. This is a classic tactic of strategic management aimed at stimulating internal growth (Harrison & St. John, 2009). Bahamian insurance offers potential American and foreign clients a higher level of asset protection: "the degree of asset protection is obviously higher when the policy is provided by an insurance company outside the US and where the assets are also held offshore" (Whelehan, 2002, p. 427). One could argue that the Bahamian insurance industry has worked hard to promote this asset to potential clients, giving the impression of offering superior asset management. This is representative of another classic strategic management tactic — one focused on customer needs and viewpoints (Kozami, 2002).

For instance, segregated accounts were offered in the event that an individual wished to protect their assets separately from the insurance company at large; in the event of liquidation, these assets would not be subject to the demands of creditors (Whelehan, 2002). Furthermore, insurance companies in the Bahamas offer a greater degree of investment flexibility: by engaging in offshore insurance, an American can access a wider range of investment opportunities, creating bolstered cash-flow benefits that should be attractive to any potential client (Whelehan, 2002).

Another branch of the Bahamian strategic management plan was the focus on, development of, and promotion of captive insurance plans. This exemplifies the Bahamas carefully scrutinizing its strengths, determining that captive insurance plans represent one of them, and making a decision to mobilize and calibrate that strength (Teece, 2009). The benefits of setting up a captive were promoted strongly, and these benefits formed much of the foundation on which the strategic management plan rested. For example, massive cost reductions exist when setting up a captive because one is no longer paying commissions that contribute to the insurer's profits (Whelehan, 2002). This is also a more attractive form of insurance for medical groups, as many businesses must buy insurance at market rate even when their risk profile is reduced: "by using its own insurer, a business can control its exposure by use of deductibles and reinsurance such that it can cover itself more effectively at less cost" (Whelehan, 2002, p. 428).

One must also note that captive insurance companies are essentially insuring only the risks of another company, which results in simpler claims records and makes them better candidates for reinsurance. Finally, Bahamian insurance companies recognized that they offered prospective clients a means of profit center diversification, making them attractive investments for overseas companies wishing to gain profits outside their jurisdiction in an arena distinct from their general line of business (Whelehan, 2002). Bahamian insurance companies were aware of the human tendency to seek out something different and to invest in areas outside one's standard line of work. Strategically, captive insurance companies — which constitute a substantial portion of the Bahamas' economic activity — knew they could offer potential customers not only a mass of practical benefits but also the appeal of novelty for many business professionals. As a result of the captive model's many benefits and growing popularity, a range of additional captive vehicles were created, including association captives, medical captives, and credit life captives, among many others.

Culture is no small force; it shapes individuals and impacts tremendously on politics (McCartney, 2004). Nations are made up of people who, from the moment of their birth, are deeply shaped by the cultures and customs from which they come (McCartney, 2004). Because history and culture are so inseparable, it is worthwhile to take a brief look at the history of the Bahamas.

A Brief History of the Bahamas

Many historians believe that the first inhabitants of the Bahamas were Aborigines of Mongol ancestry who migrated there approximately 100,000 years ago via a land bridge connecting Alaska and Siberia. Others attribute the original dwellers to have come from Haiti (McCartney, 2004). Still other scholars believe that the original inhabitants were the Lucayan Indians (Arawaks) whom Columbus encountered when he arrived in 1492 (McCartney, 2004). Despite Columbus's "discovery" of this land on behalf of the king and queen of Spain, Spanish influence never took hold in the Bahamas (McCartney, 2004). This did not stop the Spanish from attempting control: the Spaniards enslaved or transported the Arawaks — some 40,000 were sent to Hispaniola, where they died working in mines. British pirates also used the islands, and in 1629 the islands were given their first constitution as part of the Carolinas (nationsonline.org, 2012).

The strongest foreign influence on the Bahamas was British, beginning in 1647 and continuing to the present; British influence is evident in Bahamian laws, parliamentary and court structures, educational systems, and cultural customs (McCartney, 2004). Because the bulk of the Arawaks died as a result of Spanish enslavement or disease, the islands remained largely deserted for a couple of centuries — occupied mainly by pirates such as Blackbeard, Calico Jack, and Sir Henry Morgan. In the late 1700s, the area was resettled by a group of Americans referred to as Loyalists: "The Bahamas lay close to the North American colonies and the outbreak of the American Revolution put the Bahamas in the firing line. The islands' ties to the 13 colonies were intimate, for Charles I's original grant to Sir Robert Heath had lumped the Carolinas and the Bahamas together. Trade and family ties bound the islands to the colonies" (Baker, 2001, p. 23). When the American colonies gained independence, a large number of English Loyalists relocated to the Bahamas, essentially tripling the population there from 1783 to 1785 (Baker, 2001).

One could argue that the Loyalists introduced two things to the Bahamas that would prove extremely important in shaping its future: slaves and cotton (Baker, 2001). However, many of these American colonists lacked a strong agricultural background, coming largely from merchant classes, and combined with the infertile soil of the Bahamas, such agricultural efforts failed (Baker, 2001). This ultimately spared the Bahamas from a massive slave economy and the brutal oppression that accompanied it. It did, however, cause the population to become predominantly Black almost overnight — 75% by 1788 — and wove African culture into what had been mainly British culture (Baker, 2001). Slavery failed, slaves were emancipated, and they became the foundation of the population as it exists today.