Disaster and Catastrophe Risks Financing in Sierra Leone

The latest natural disaster resulting in the drowning of over 150 people in Sierra Leone on September 8, 2009 has again highlighted and exposed on an international scale the issues of how our nation addresses and manages liability, not only for catastrophe risks, but risks in general especially in the commercial sector. In the wake of the boat disaster and several other catastrophe losses before, questions such as who will pay death benefits to survivors of the deceased, permanent disability benefits; wages or income loss compensation to the victims, medical expenses of the injured, property damages and replacement of vessels involved in disasters and assumption of general liability of the owners and operators towards passengers and crew, still remain to be not only adequately addressed but codified by our society.   

In most developed societies, systems and structures involving the management of disasters and catastrophe risks include a combination of commercial liability insurance, risk management techniques and loss control measures, all of which aggregate to minimize the frequency and severity of natural disasters and catastrophe risks. In Sierra Leone and most developing countries however, post-disaster management and reconstruction are largely relegated to government largesse and ad hoc emergency response, which mostly is inefficient and lacking in resources.

A regulatory and legal framework embracing a risk-based approach, where the pooling and scaling up of risks enables the many to share the costs of the financial misfortunes of the few, a bedrock principle of insurance, represents the most efficient model for Sierra Leone to provide protection to her businesses and institutions against the adverse financial effects of liability and property losses. The role of risk financing to reduce the suffering of victims, economic losses and financial pressures following such disasters will also forestall the diversion of limited and scarce resources from sustainable developmental programs in the country.

As aptly stated by President Koroma in the aftermath of the boat disaster, "We cannot leave the lives of our compatriots in reckless hands...We should ensure that the lives of Sierra Leoneans are not wasted in this manner any more...It is a loss to our country, a loss to our economy, and a loss to the future of this country. And now we should resolve not to allow it to happen again. And for this not to happen again, we must take hard decisions; for it not to happen again, we should comply with the laws passed; for it not to happen again, the people responsible for regulating sea transportation should do it in a manner that they will not compromise their offices - the maritime officials, the harbor masters, those supervising the construction of these boats, and the police should not compromise, because when you compromise for a small amount of money, you would not know the number of lives that could be lost for that..."

While reactions from other governmental officials and policymakers have primarily focused on violations of rules, overcrowding of the boat and lack of life jackets, all foreseeable, our politicians and policymakers, especially the Parliament risk squandering the opportunity for radical reforms in the nation’s commercial liability laws this tragedy affords our country.

The recent tepid and ineffectual directives and proposals published by the Ministry of Transportation and the Maritime Administration in the wake of the boat disaster, is a case in point; as not a single directive sought to address the central issue- the lack of liability insurance by the owners of commercial boats in the country. This status quo not only applies to boat owners but is rather prevalent in all sectors of our economy as evidenced by the very low penetration rate of liability insurance for all manner of risks confronting the country.

The Maritime Administration in discharge of its statutory duties, to establish regulations in respect of vessels operating in inland waterways including near coastal voyages, must as a matter of its regulatory due diligence seek to dialogue with the Sierra Leone Insurance Commission (SLICOM) and marine insurers so that policies of liability insurance can be made compulsory as part of the licensing process. Thus, by allowing a mandatory marine insurance coverage requirement for operators and owners of commercial boats and vessels, effective risk management will be incentivized, thereby allowing for monitoring, measurement and control of risks and hazards of the seas.

The insurance industry could be made to use its enormous risk management skills and expertise to assist governmental regulators in managing not only disaster risks but help introduce safety and technological innovations using market-based solutions. The underwriting process can be utilized as a tool to allocate economic penalties on boat owners thus ensuring compliance with safety regulations and safety equipments. For example, during renewals of marine policies commercial vessel owners will be required to provide proof of installation of safety kits in exchange for reduced premiums.  The same principle can be used for example in motor insurance to ensure that government vehicles are only used during working hours and in the performance of official duties.

As an advocate of the principle of risk pooling as an organizational technique and a disaster risk reduction strategy,  it is unfathomable and unconscionable that commercial boats could be licensed and allowed by the Maritime Administration to engage in transportation of passengers, crew and cargo without evidence of even a basic marine Protection and Indemnity(P&I) insurance coverage.

For readers unfamiliar with marine insurance, a Protection and Indemnity (P&I) insurance policy provides coverage to merchant vessel owners or owners of boats against liability for loss of cargo, injury and or death of passengers and crew. For as common carriers, boat owners just like motor vehicle owners, should be required to obtain insurance to cover their potential liability resulting from operation of their vessels. Businesses and non-profit organizations and institutions should be made to obtain protection and adequate liability insurance against the adverse financial effects of such disasters especially when the public is involved, as in the instant boat disaster and loss.

The economic impacts of the recent boat disaster and floods in Freetown for example can be mitigated if the insurance industry could be made to us its risk management skills and techniques to help governmental regulators, planners and politicians and other stakeholders in managing the inherent natural disaster risks and flooding the country confronts annually.

Natural disasters are generally categorized as acts of God; however experience should now have taught us that the consequences of these natural God-made disasters and catastrophes are largely due to the negligence or inertia of man. Therefore, the mere reactions of shock and empathy by politicians and policymakers without embarking on identifying the causes and implementing policies that will if not totally prevent, but certainly minimize  such catastrophe losses, will be unacceptable. The shock of the government to this disaster, as noted in a State House Press Release, must serve as a catalyst for reforms to our nation’s largely non-existent and non-enforceable liability laws.

Major natural disasters and accidents have severe negative socio-economic ramifications on societies. However, in developed societies systems and programs involving severity loss minimization of natural catastrophe disaster risks abound. It is thus hoped that as a first step a structural strategy framework designed to identify the nation’s disaster vulnerabilities and catastrophe loss potentials, with adequate financing mechanisms through risk management and insurance is commissioned to address the adverse financial effects within the larger society.

With the increasing frequency of natural disasters, catastrophe accidents and Sierra Leone’s vulnerability to their escalating human and financial losses, it is no longer acceptable for platitudes and mere lip service by policymakers and institutions such as the Maritime Administration, that acts of God are inevitable. The large elephant in the room continues to be the absence of a coordinated liability insurance scheme underpinning our nation’s socio-economic pillars.