Why managing risk is key to Haiti’s social progress
Development in Haiti requires two important ingredients to succeed where previous attempts to put the country on a sustainable path failed. First, we need a thriving ecosystem of small businesses and innovative entrepreneurs. Second, we need an environment that protects small and growing businesses by giving them appropriate tools to manage risk.
A well-functioning insurance industry can support credit access for entrepreneurs who are willing to take risks to build businesses, according to a 2006 USAID study. The same study found that entrepreneurial investment in high-risk and high-return projects feeds greater demand for insurance services. Moreover, the depth and efficiency of a country’s financial sector largely determines how well its economy allocates resources.
Haiti suffers from both an undeveloped insurance industry and an ineffective banking system, meaning that our entrepreneurs have a steep mountain to climb. Although small and microfirms make up 90 percent of Haiti’s private sector, there is little appetite for investing in high-risk ventures. Indeed, most entrepreneurs build businesses out of necessity. The vast majority of Haitian businesses—95 percent by one estimate—are informal. And nearly half of all Haitians work in agriculture, an industry highly exposed to risk.
Risk and fatalism
Haiti’s vulnerability to shocks large and small is not news. The country’s economy is small and undiversified. Haiti relies heavily on imports, and its geographic location exposes the country to natural disasters. In my opinion, we Haitians compound our natural vulnerability with a fatalistic mind-set that is best summarized as “God will prevail.” Fatalism limits our ability to understand and plan for the future. It’s a national trait that I’ve noticed at all levels of Haitian society, from elite officials and business executives to striving entrepreneurs and the very poor. A Haitian Creole quote captures this cultural sense of futility: “Nan mal, nan mal nèt à” (“If you are in a bad situation, you are in deep”).
In my view, fatalism partly explains why the Haitian insurance market remains woefully underdeveloped. The vast majority of households and businesses in Haiti are uninsured. Fewer than 3 percent of Haiti’s ten million people are covered by Social Security, our national insurance program for private-sector employees. Fewer than 200,000 Haitians have access to health insurance. In all of Haiti, no more than 300,000 people are insured by any product.
The lack of proper risk management has contributed to Haiti’s economic stagnation in recent years. Per capita income in Haiti has dropped by nearly 50 percent since the late 1980s. Today the richest 10 percent of the population receive roughly half the country’s total income. To make economic progress, we need to give Haitian entrepreneurs, and indeed all Haitians, the ability to make investments in the future that carry both risk and the opportunity to reap significant rewards.
Insurance in Haiti
Like Haiti itself, the local insurance industry has experienced foreign occupation and withdrawal. In the early 1990s, foreign insurers decided that the Haitian market generated too little revenue and too much risk. They withdrew from the country en masse, giving their Haitian agents the chance to convert their foreign-backed insurance agencies into independent local enterprises.
The upside of this shift was an established Haitian client base served by experienced agents who understood the local market. The downside was that the local agents lost much of their capital base and technical capacity, both critical to underwriting risk. They also lost governance standards in line with international norms. Haiti’s insurance industry remains unregulated to this day.
Most Haitian insurance companies serve elite clients exclusively. Yet insuring the elite does not reduce overall risk levels in Haiti. In particular, it does little to mitigate the risks faced by small entrepreneurs operating in a hostile environment. That said, some Haitian entrepreneurs have managed to thrive despite the difficult economic climate and the inherent risk of doing business on a denuded Caribbean island.
For example, Edouard Carrié’s recycling company ECSSA has contributed to the dramatic cleanup of Port-au-Prince while providing thousands of jobs to low-income Haitians. Under Carrié’s leadership, the company bootstrapped its way to success. ECSSA bought secondhand baling equipment, built a series of international vendor relationships, and is now profitable and growing.
Alain Villard’s story is equally impressive. Villard could have closed his Palm Apparel Group after 300 employees lost their lives in the 2010 earthquake. Instead he restarted production 15 days later and launched community initiatives that included helping local city officials raise money and coordinate reconstruction and relief efforts. Today Villard employs 4,000 Haitians.
Like their counterparts in other countries, Haitian entrepreneurs seek to shape their own destinies. They do so facing the same challenges one expects in any poor country: a policy environment that does not encourage business, a ruling class that is not interested in competition, and a variety of external risks that can decimate cash flow from one day to the next.
This unmanaged risk limits Haitian entrepreneurs in profound ways. Without insurance, our businesses have had great difficulty recovering from major shocks such as the earthquake of 2010. After the earthquake, 75 percent of small and microenterprises lost their ability to operate, according to a study by the consulting firm ESP Partners. Those same businesses lost 40 percent of their assets to the earthquake because they lacked insurance.
Building a regulatory structure
Haiti needs a well-regulated insurance industry that can help manage the real risks that our entrepreneurs face. Despite years of discussion and efforts by many parties, the industry still lacks a basic regulatory framework on which insurers can build products adapted to the Haitian market. Such regulation would help foster a more stable environment in which Haitian entrepreneurs can survive, grow, and compete.
To start, Haiti needs to pass an adequate insurance law. At the most basic level, such a law would push Haitian insurers to maintain adequate capital reserves and start reporting their results. It would also create an efficient, transparent supervisory body that has the confidence of both industry and government and can begin to implement a proper reporting structure.
In 1804, Haitians took the greatest risk of all by fighting for independence with no safety net. Yet today the benefits of that independence are limited because we have not protected the investment in this country that our forefathers made. The insurance industry’s greatest contribution will be to help build a predictable environment that allows entrepreneurs and other Haitians to move from a mind-set of “God will prevail” to one of preparedness. When we insure the things most precious to us—our lives and our assets—we take the first step on the path to self-determination.