Infinite wealth faces a finite future

Risk & Insurance, Oct 1, 2004 by Roger Crombie

Bermuda, an oasis of great wealth, finds its riches unevenly distributed among its citizens. One top insurance executive even says the island may have reached its zenith in terms of expansion. For now, insurers and reinsurers are safe but in teh future the island may find itself captive of forces it can no longer control.

By many yardsticks, Bermuda is the most successful country in the world. With an average per-capita income of $53,000 a year, it ranks at the top of the tables published by the World Bank. Bermuda's 65,000 residents own 1.08 televisions per person and make an average of 2.0 journeys overseas each year. More of its population has Internet connectivity than almost any other society on the face of the planet. Here, the economic divide is not between the "haves" and the "have nots," it is between the "haves" and the "have lots."

The wealth, however, is not evenly spread. Nor is it anywhere in the world, but Bermuda's disparity is magnified by two factors.

One, the island's small confines mean that the enormously wealthy routinely rub shoulders with the poor. And two, a greater percentage of the enormously wealthy is not Bermudian.

This is a natural result of importing only the best talent in the word to work alongside all of Bermuda. The disparity, and more importantly the perceived disparity, causes pain, resentment and sometimes xenophobia. Some in Bermuda perhaps rightly feel that a giant party is going on in their home, and they have not been invited.

Bermuda has developed extremely rapidly from a fishing village to a sophisticated business machine in two generations. Bermudians have never liked change, but it has become a constant, like the construction and the traffic jams. Change has replaced Bermuda's island outlook on life with a vitality and an urgency not out of place in any modern business center where billions of dollars are routinely batted about.

The question all this extraordinary success as an international financial center has brought to the fore is not whether Bermuda is half-full or half-empty. The debate is whether it is full now, or whether it will be full soon. The situation is considered so acute that in 1998 it helped sweep into power for the first time the Progressive Labour Party (PLP), which acknowledged the problem and had plans to change itself. The party was re-elected in 2003, after at least making the right noises about fixing the problem during its first term.

The Bermuda economy produces about 38,000 jobs, 8,000 more than there are Bermudians to fill them. Some of these jobs are in gardening and other semi-skilled work that Bermudians no longer enjoy, but not all expatriates are manual laborers. Many are in the management, actuarial, underwriting, commercial, accounting and legal sectors of international companies and the banks and professional firms that support them. International business, of which insurance and reinsurance is generally reckoned to constitute about two-thirds, has simultaneously created successive waves of white-collar jobs, some of which a new generation of Bermudians has snapped up.

The government estimates that 8,000 more jobs will be created in the next eight years. The need to import expatriates, house them, and school their children has collided with the exploding prosperity of the Bermudian middle class to produce a full-blown crisis that affects everyone differently.

A BRUTAL HOUSING MARKET

Drastic shortages in the housing market make it hard for Bermudians to buy their own homes. Rents are stratospheric. The average price of a home is $1.2 million, and houses routinely rent for as much as $15,000 or $20,000 a month. At the lower end of the scale, there are not enough homes to go around. The housing crisis persuaded the government to think of importing some mobile homes, just a few days before Hurricane Charley reinforced the view of the skeptical in Bermuda, that is everyone--that proper houses are built of brick.

The traffic is a bear. Jams are endless on Bermuda's narrow roads, and the whole thing is made even less tolerable for taking place at an official speed limit of 20 mph. Some commuters are spending 90 minutes in their cars each way each day, which may not sound like much to New Yorkers, say, or Londoners, but puts an appalling crimp in the day on a little island, where that 90 minute drive only covers 12 miles.

Another major source of friction is the squeeze growth has placed on education. Bermuda operates a public and a private educational sector. The private sector, established in the 17th century, is considered solid. Many expatriates head automatically for private-sector education, leaving some locals who could find a way to afford private education with the sense that their children are trapped.

All this aggravation. The battle lines in the debate on sustainable development are drawn between those who, in summary, would just say "no," or who would say "slower," and those who believe that you don't change a winning team.

In her sprawling history of Bermuda's insurance sector, Held Captive, former underwriter Catherine Duffy writes that Bermuda's No. 1 problem is the "real and imminent danger that our society will implode in chaos if we do not successfully address the problem of sustainable development."