The Cost Of Catastrophe: Breaking Down Home Insurance in Barbados
The reaction to a price quote for home insurance in Barbados is often disbelief: “But my home in (the United Kingdom, Canada etc.) is worth so much more and I am only paying a few hundred pounds/ dollars...for broader coverage!”
One of the significant costs for homeowners in Barbados is insurance against the risks of fire, weather, natural disasters etc.that comes at a higher rate than for the equivalent or better cover internationally.
As brokers, while we do sympathize, we will never be able to reduce the cost of insuring a Barbados property to the same level as our international counterparts.
A large part of the cost of a home insurance policy is the reinsurance cost component. This is what it costs to spread some of the risk of insuring your home along with thousands of others throughout the worldwide insurance market. In the event of a loss or series of losses, your insurance company doesn’t bear all the burden. Reinsurers and insurers consider several factors when pricing the risks associated with doing business in a region. Barbados is not rated independently, but as part of the Southern Caribbean region. Rating factors include:
Market size – Barbados housing stock with approximately 300,000 people, is estimated at under 120,000 units - many of those uninsured. For example, when a loss occurs, there may be 100,000 insured units among which to spread the loss. Compare this to more than 20 million in the UK, 9 million in Canada, and almost 100 million in the USA.
Susceptibility to Catastrophic Loss – This includes exposure to the familiar Caribbean hurricane and its accompanying perils of wind, rain and storm surge - with possible rises in sea level. Losses also arise from earthquakes - which may generate devastating tsunamis - with effects usually felt thousands of kilometres outside the earthquake zone.
Although Barbados has neither experienced a serious hurricane in over 50 years nor recorded incidents of other natural disasters for the past two centuries, recent changing weather patterns have made future weather trends less predictable - with larger, more extreme weather systems occurring.
The region is located in a ‘Geological Subduction Zone’ with frequent (more than one weekly) recorded earthquakes/ tremors - with recent activity in some neighbouring islands. This complex interaction of natural phenomena in small regions like the Caribbean Basin, constitutes unpredictability - coupled with a small market presents an adverse natural risk profile.
Regulation of Construction Quality – Many construction professionals ensure there is high quality building stock through voluntary adherence to an as yet unlegislated building code. Barbados along with other Caribbean countries, does not have an ‘official’ (legislated into law) building code - meaning that regulatory agencies’ control over the quality of construction and materials is limited, particularly for private residences.
Fire Protection – In a North American or United Kingdom situated town, a fully serviced fire department is seldom farther than 5 kilometres away. Public water mains are high pressure and ‘head pressure’ is sufficient for adequate fire coverage. Differential insurance rating systems are employed to compensate for properties outside the area’s fire protection zone.
Fire protection in Barbados is not as intensive. Mains are smaller, pressure gradients are frequent, the distribution of fire stations is lower and many properties are outside the 5-kilometre ‘umbrella’. There is no effective differential rating.
Low-Lying Risks – Several beachfront properties are constructed at or below 20’ above sea level. As a percentage of the entire housing stock, the ratio of this ‘higher risk’ to other inland stock is much more adverse for smaller Caribbean islands than for larger markets.
Despite this significantly increased cumulative risk, great downward pressure on property insurance rates has been experienced in the past three years, resulting in reductions of 25% in some areas, mainly due to competitive pressures. Additionally, three relatively quiet years for major weather events have contributed.
Mitigation – To obtain the very best insurance rates when purchasing a home in Barbados:
• Buy a high-quality home of stone/concrete construction that is hurricane-resistant with substantial roofs and minimal overhangs. Insurers recommend that existing homes have their roofs retrofitted for strengthening against wind damage.
• Purchase a home more than 200 metres inland from the beach. If it is beachfront, ensure that it has a substantial, engineered seawall – not a garden wall on the seafront.
• Install a centrally monitored fire and burglary alarm system.
• Install internal smoke detectors and an ABC (All purpose) fire extinguisher on each floor and elsewhere as needed ( i.e. kitchen, garage/workshop, guest cottage etc.)
• If you only use your home seasonally and it is vacant for prolonged periods, ensure that your Property Manager or security firm visits every few days to inspect both the inside and the outside for leaky pipes, signs of attempted forced entry, vandalism or other incursions.
• If your home will be managed by a professional Property Manager, enquire about Group Property insurance for clients which may offer enhanced coverage and lower rates.
• Consult with an experienced Insurance Broker who will analyse your needs and provide the best options. Your Real Estate Agent or Property Manager can recommend one.
Owning a home in Barbados can be very rewarding though it can also be a major investment, The same reasons for insurers considering the region to be ‘higher risk’, is why you should protect your investment with adequate insurance coverage.