Rising climate risks may leave homes, businesses without adequate coverage

Barbados is at risk of being left exposed to catastrophic financial losses, with insurance leaders warning that households and businesses may soon struggle to secure adequate cover as climate change drives up the cost of protection. 

The country could face up to $3.6 billion in commercial property damage from a once-in-a-century storm surge, industry executives and its watchdog said, suggesting the threat was growing.

Paul Inniss, Chief Executive of Sagicor Life Insurance Inc, said that a long-mooted regional reinsurance company (RRC) may hold the answer to Barbados and the rest of the Caribbean being able to mitigate the high cost of relying on international reinsurers to back natural disaster payouts.

Inniss disclosed that stakeholders have started work on pushing for the establishment of the proposed company.

Speaking during a recent Central Bank of Barbados (CBB) roundtable on the findings of the 2024 Financial Stability Report (FSR), Inniss said: “One of the things I have learned in the Caribbean is that as big as some of us think we are, this whole idea around capital is a challenge. How do you raise enough capital over time, and you hear about one-in-100-year events which can happen any time. So, we don’t know when it’s going to happen, and the ability of that facility to respond.”

The insurance expert suggested that the RRC was something that needed to be pursued, especially given the substantial sums of money in premiums that have to be repatriated.

“It is something that we need to start looking at, because when you look at the 50-plus per cent of the premiums that are collected in Barbados, actually goes through the Central Bank of Barbados and into the international market, but for a very good cause,” the veteran insurance and banking executive argued.

“Because if that doesn’t happen, we have another problem in Barbados that none of us would want to face … and that would be the inability of the insurance industry to basically respond appropriately to the losses that we will see in the Caribbean.”

Warrick Ward, Chief Executive of the Financial Services Commission, attributed the long delay in having the regional company up and running to an inability to raise the necessary funding.

“Unfortunately, we have not been able to mobilise the capital that is required. It’s really a planning thing. It’s a planning and executing [endeavour],” he suggested.

Alwyn Jordan, Deputy Central Bank Governor, warned that the estimated $3.6 billion in commercial property damage which that one-in-100-year storm surge could inflict on Barbados would likely rise as climate risks intensify.

“General insurers are expected to face headwinds from slowing growth and rising reinsurance costs in 2025. Geopolitical tensions and tariff disputes may dampen regional expansion and drive modest imported inflation, while climate-risk repricing is expected to push up reinsurance premiums,” Jordan contended.

“These pressures could temper premium growth and marginally widen the portion of total uninsured property (the protection gap). Proactive monitoring and calibrated policy support will therefore be essential to sustain market resilience and coverage.”

Referring to the passage of Hurricane Beryl last year, and the damage it inflicted on the fishing and maritime sectors, Jordan recommended a fresh approach to insurance cover.

“Insurers must therefore adopt adaptive underwriting practices and recalibrate policy frameworks to absorb rising climate-driven losses and safeguard long-term market resilience,” he said.

“Rising reinsurance costs driven by escalating climate risk threaten to undermine access to affordable insurance coverage, even as reinsurance remains a key risk-mitigation tool.”

Last year, insurers ceded an estimated 54 per cent of general insurance business to reinsurers, employing both proportional and excess-of-loss treaties to guard against catastrophic events, he said.

Jordan added: “As climate shocks become more frequent and losses mount, reinsurance premiums are set to rise further, constraining insurers’ ability to absorb costs and offer adequate coverage. Consequently, local households and businesses may face growing protection gaps, and regional governments may increasingly need to shoulder the financial burden of post-disaster recovery.”

Heightened climate risk is reported to be posing near-term challenges to underwriting performance.

Despite a stable five-year average claims ratio of 62.5 per cent and a modest fall in the loss ratio from 62.4 per cent in 2023 to 60.4 per cent in 2024, more frequent and severe hurricanes threaten to reverse these gains, according to the Central Bank. 

emmanueljoseph@barbadostoday.bb