Because the last valuation of government properties was done back in 2000, Auditor General Dan Duguay has concerns those assets could be significantly under insured.
‘I believe that the Government may still be at substantial risk in regard to its insurance cover for physical assets,’ Mr. Duguay wrote in the special report released last week on the Cayman Islands Government’s post Hurricane Ivan insurance settlement with Cayman General Insurance.
Mr. Duguay noted that after the 2000 valuation on government assets, there had been one scheduled for October 2004; however Hurricane Ivan came in September 2004.
When the government obtained new insurance in April 2006, it did so at a value of CI$400 million.
‘These values were determined based on input from the insurance broker and attempted to include adjustments for estimated increases in property values,’ Mr. Duguay wrote in the report.
‘With this method, it is possible that the Government properties could be significantly under insured.’
In addition, Mr. Duguay stated that in the event of another catastrophe such as Hurricane Ivan, there would be a substantial delay in the claim payment while the government and the insurers determined fair value of the assets.
It is also possible that the government is over insured, which could mean unnecessary expense, Mr. Duguay stated.
The sum of the government’s property insurance at the time of Hurricane Ivan was $353 million. The initial estimated damage claim was estimated at $108 million. A settlement figure of $70 million was later reached.
Had the government not reached a settlement with Cayman General Insurance, there would have likely been long delays in settling that claim, possible as long as three years.
Not only was the previous valuation of government properties already four years old at the time of Ivan, Cayman General Insurance representatives have contended in the past that the government did not have the supporting documentation to substantiate the claim.
Mr. Duguay pointed to lessons that should have been learned since the hurricane.
‘If Hurricane Ivan has taught the residents of the Cayman Islands anything, it is that all owners, including Government, need to continually update the value of [their] assets and to ensure that the insurance company agrees before an event that the [policyholder] is adequately insured,’ he said.
Senior Assistant Financial Secretary Michael Nixon disagrees that the figure of $400 million as the current value of government property for insurances purposes is inaccurate.
He pointed out that under the new Financial Management Law, government departments, ministries and authorities are responsible for their own properties and some have already done valuations on those assets.
In addition, Mr. Nixon said the Ministry of Finance sat down with Lands and Survey and Public Works to help determine the values of other properties.
‘We feel pretty comfortable with the [insured value] figure,’ he said. ‘You’re never going to be spot on. As soon as you have a disaster, the insurance company is going to disagree with the value.’
In his report, Mr. Duguay strongly recommended that government perform an immediate evaluation of all its properties and to ensure that its insurance coverage was adequate.
‘In addition, the Government should plan to do regular re-assessments to ensure that its assets are adequately insured.’
The Auditor General’s report stated that the Lands and Survey Department agreed with his recommendations.
The Lands and Survey Department believe the valuation process should be a continual one.
‘The Valuation Office of the Lands and Survey Department has been advocating this for the last four years and it is only recently that they have been given the go-ahead by [the] Risk Management Unit to now prepare a rolling programme to carry out these valuations,’ the report stated.
‘This should be done annually, with physical inspections carried out at least every three years by qualified Chartered Surveyors.’
Chief Valuation Officer Nigel Bates said the idea would be that each year different government building would be physically inspected and appraised. This would allow all 150 or so of government’s buildings to be re-appraised on a three-year cycle. On a yearly basis, a valuation report would be issued on all government assets taking into account information from the various ministries, departments and authorities.
As was the case in the last valuation of government properties, it is possible that private sector valuators might be used in addition to Lands and Survey Valuation Office staff.
The Lands and Survey Department is in the process of preparing a proposal for the government concerning the re-valuation of its assets. The proposal will outline things like how long the initial re-valuation will take, the number of staff needed and the cost the Valuation Office will have to charge.
Mr. Nixon said the Ministry of Finance will take the proposal to Cabinet once it is completed and that the funding would hopefully be approved in the next budget.
In addition to insurance purposes, the valuations will be used for government accounting purposes, Mr. Nixon said.
‘It’s a very comprehensive exercise,’ he said.
Lands and Survey also pointed out in their response to Mr. Duguay’s report that the Cayman Islands Government should be looking at storing all its property records on a proper property management database. Currently, the data is only kept on Microsoft Excel spreadsheets, Mr. Duguay stated.
Mr. Nixon said the Ministry of Finance is in favour of a database that would give all government agencies access to make changes to the value of their assets. Lands and Survey would handle the oversight of the database and the Ministry of Finance would have access to it, too, Mr. Nixon said.