PESTLE Analysis of Clico Insurance prior to the collapse
Political Environment & Issues prior to the collapse
Prior to collapse of Clico Barbados, the department of the supervisor of insurance composed a staff of 19 persons who reported to the minister of finance through the permanent secretary. At that time, Owen Arthur was Prime Minister of Barbados and served in that position between 1994-2008. Following the elections in 2008 one year before the collapse, the Democratic Labour Party became the government of the day. Subsequently David Thompson became Prime Minister. Essentially the political environment in which Clico operated was based mainly on associates. Indications are that the politics of the day greatly influenced the operations of Clico Barbados. Mr. Parris who was chairman of Clico Barbados was considered to be associated with both political parties in Barbados. However, he was inclined to favour the DLP. Consequently, the senior decision makers/directors were mainly members of the DLP & to some extent this was seen as a conflict of interest. In addition to being the chairman of Clico Barbados, Mr. Parris was the chief executive of a company called Professional Financial Services Inc. This relationship between Clico Barbados & PFSI by virtue of Mr. Parris’s position reinforced the argument that there could be conflict of interest. Indeed a contract which was signed on the 15th of May 2005 attracted the public of interest. Subsequently to the collapse, Mia Mottley saw this as being corruptive and represented it as “sweet heart contracts”. It is of significance that the contract was legally put together ; witnessed by persons from the law firm Thompson ; Associates which provided services to Clico Barbados as well as PFSI. In addressing the possibility of corruption due to the close relationship between PFSI, Thompson ; Associates ; Clico Barbados, Ms. Mottley stated that if by chance Mr. Parris was found guilty of misconduct, he would be immune to damages and would be assured $10 million that Clico Barbados would have to pay to Parris for services rendered. Prior to the collapse, a number of concerns were raised about the operations of Clico Barbados ; its political interrelationships with the government of the day. On several occasions, the supervisor of insurance, William Belgrave as far back as 2002 expressed that department’s concern over Executive Premium Annuities that were offered by Clico which could not be offered by credit unions. However, since he did not have legislative power to intervene, nothing was done. It was evident that the collapse of Clico Barbados resulted from poor corporate governance as well as the inclination to act as though there was no specific law or regulation governing the company. Given the combination of poor corporate governance & the lack of action by regulators Clico Barbados was free to act in its own interests without regards to stakeholders, shareholders, management etc. The result is that Clico became bankrupt and had to be put in the hands of receivers & effective government intervention to aid depositors & policy holders as they still await the outcomes of the actions of receivers and legal interventions.
Economical Environment & Issues prior to the collapse
The Barbados economy was already growing but at a declining rate of 3.8% between 2005-2007. The 2007 Cricket World Cup along with good travel credits were the main reasons for the growth during the 2005-2007 period. Unfortunately, due to the global financial crisis which shocked the economy low growth rates were recorded for the following years. The main foreign exchange earning sectors which included the tourism industry, financial services and sugar sector services recorded declining growth to a large extent contributed to the suboptimal performance of these sectors impacted adversity on the overall national economic performance. Also of significance, the construction industry was on a decline. It should also be mentioned that these same sectors generated significant employment opportunities. Additionally inflation was spiked to as high as 11.2%. Prior to the downturn of the economy the unemployment rate was declining from 9.6% to 7.4% during 2004-2007, as a result of the economic crisis the rate spiked to around 10%. High unemployment rate also impacted on economic growth because of the decline in disposable incomes of residents. National and Foreign investments was also low during this period which also combined to contribute to the poor performance of the economy. Clico Barbados having to operate in an economy that depended heavily on external factors found itself very vulnerable in terms of performance. Unfortunately with the occurrence of the financial crisis, the situation escalated. However the fact that the Barbados economy is heavily dependent on external factors cannot be considered the only reason for the inadequate performance of Clico during this period. In assessing Clico’s performance during this period one should look critically at the overall management practices and various investment strategies of Clico Barbados. Indeed, it can be argued that the collapse of Clico could be traced back to the inadequacies of its management and investment decisions. For example, Clico Barbados used funds gained from depositors to invest in high risk asset purchases which did not have a good rate of return. Additionally, the interest rates proposed to these depositors were significantly higher than interest rates proffered by other financial institutions. Business activities and poor decision making of Clico Barbados prior to its collapse ensured that collapse or financial hardship would be at the front door rather sooner than later whether or not there was the occurrence of a global or national financial crisis.
Social Environment ; Issues prior to the collapse
Barbados has an exceptionally good record as it relates to its social stability therefore it can be said that Clico Barbados operated in a solid social environment which the company would have contributed to in many aspects before collapse. These contributions are as follows; Clico Barbados became involved in the real estate and housing sector. In this connection they built houses that could be acquired by middle income as well as low income Barbadians. For example the housing project of Crystal Heights which were mainly for middle income persons. Other areas in Barbados such as St. John, St. Phillip and St. George they developed housing opportunities for middle income persons. Many of these initiatives were in conjunction with the national housing corporation. It could further be argued that this assisted in improved the Barbados infrastructure. In the agricultural and sugar sector, Clico harbour land and production plantations in St. John which produced a significant portion of sugar cane and food products resulting in employment opportunities as well as savings of foreign exchange. The company also invested in the UWI Cavehill Campus through infrastructure while providing investment opportunities with high returns even though up to this day scores of investors have not been paid. Prior to the collapse, Clico Barbados surely made positive impacts on the quality of life for persons living in Barbados. However, Clico gave attractive interest rates that coerced or enticed the policy holders to invest more money due to the high interest rates being offered which were neither sustainable or comparable with interest rates that banks could offer and thus there were implications that the company was bounded to collapse even though they contributed positively to the social environment of Barbados. Several pensioners are feeling the financial hardships due to their inability of Clico to meet the demand returns of investors.
Technological Environment ; Issues prior to the collapse
Clico, like all other business entities in Barbados adopted and used the new technologies that were becoming available. Prior to the Clico Barbados collapse technology had already been taking over in Barbados. The major development was social media; companies including Clico were attempting to intermingle their business with social media to gain competitive advantages. This development allowed for companies to do business online effectively ; interact with customers whether through conversation or advertisement. However, there was wastage of the online systems in place to ensure that all parties involved were connected. Apparently the interconnectivity between Clico Barbados, Central Bank of Barbados, Supervisor of Insurance and the Ministry of Finance was not effective. If the technology were appropriately used Clico Barbados would have been effectively supervised and pre-emptive measures would be put in place to mitigate the impact of the financial issues ; the financial crisis.
Legal Environment ; Issues prior to the collapse
Clico Barbados was an insurance company and therefore it was regulated by the Supervisor of Insurance and the Ministry of Finance. These regulations included limiting exposure, ensuring that the company would have been able to settle their debts, identifying the business they can offer with the approval and certifications of actuaries, accountants, officers and brokers under the Insurance Act ; the Exempt Insurance Act. Given the collapse of Clico as an insurance company the act may well require some reconsideration for revision. It can be said that the legal environment in which Clico Barbados operated was lackadaisical and insufficient. Prior to the collapse there was not a financial services commission in position to prevent or mitigate financial hardships. Additionally, the insurance legislation was stagnant for more than 20 years therefore the regulatory environment was inadequate ; due attention was not being paid to Clico Barbados.
Environmental analysis ; Issues prior to the collapse
Insurance companies have to be well aware of the environment they operate in as the products they offer can be affected hugely by weather events as it relates to health, life and property insurance. Prior to the collapse the crime rate in Barbados was relatively low compared to other countries and Barbados boasted one of the best life expectancy rates in the Caribbean. Clico Barbados operated in an environment that was dynamic and changing. However in the case of Clico Barbados it was not due to weather causing issues for the conglomerate but that of the financial crises of 1992 ; 2008. Mechanisms that should’ve been in place prior to the collapse of Clico Barbados were not in place and thus there was no financial aid to mitigate the situation prior to the collapse.