A new Insurance Act will be enacted in Grenada to help improve confidence in the sector, improve contract certainty, and better protect policy holders.

This commitment was given to the Washington-based International Monetary Fund (IMF) by the ruling New National Party (NNP) administration of Prime Minister, Dr. Keith Mitchell.

An IMF document obtained by this newspaper indicated that the proposed act "is expected to strengthen insurance supervision, which currently does not involve any on-site inspections".

"The (NNP regime) authorities will also look into other ways to encourage greater insurance coverage, although they note that the destruction caused by Ivan has increased demand for housing insurance". Following the passage of Hurricane Ivan in September 2004, a number of home owners complained about the treatment received at the hands of some insurance companies operating on the island.

Several home owners who filed claims for damages to their property received less than expected on the grounds that their properties were "under-insured". One major insurance company ran into problems with policyholders who claimed that they are yet to receive thousands of dollars owed to them in compensation.

According to the IMF document, the Mitchell government is also looking to participate actively in regional initiatives to pool insurance risk, including the World Bank's Catastrophic Insurance Project. The fund quoted the NNP regime as saying that the banking system on the island had coped relatively well with the impact of the recent hurricanes that hit Grenada.

However, the IMF indicated that the increase in the share of non-performing loans in recent months is a concern for Grenada. "...the authorities and (IMF) staff reached understanding that in light of the damage caused by Ivan to a large swath of the country's capital stock and the high share of mortgages in total lending (close to 40 percent), it would be beneficial to have an on-site inspection of the banking system.", the report said.

"Accordingly, the authorities have asked the ECCB, which is responsible for bank supervision, to conduct such an inspection, expected to be initiated by mid-2006", it added. The IMF Staff also stressed the need for Grenada to strengthen its financial sector's regulatory framework.

It noted that weaknesses in this area have allowed a small domestic bank to operate without supervision. It said: "The authorities (government) explained that their ability to ascertain that this bank is complying fully with regulatory and prudential norms is constrained because of an ongoing court case regarding the validity of its banking license.

"Further, they noted that the bank's ongoing operations posed limited risk to the rest of the financial sector, given that it has been kept outside the formal clearing system as well as its relatively minor role in the financial system (accounting for less than 2 percent of the banking system's total assets).

Nonetheless, the authorities are committed to strengthening their relationship with the ECCB regarding licensing practices and the development of strategies to address problems which may arise in banks", it added. The above is a clear reference to problems being encountered by Capital Bank with the Eastern Caribbean Central Bank (ECCB) headed by Sir Dwight Venner.

The ECCB has been challenging the licence which CapBank has been operating under.