Although there are two distinct arms of the insurance sector in Barbados, with both domestic and international firms operating from bases on the island, their activities are quite distinct.
The local insurance sector covers all forms of policies, but the most active segment is property insurance. This is in part due to the existence of the state's National Insurance Scheme, part of the country's social security network, which provides for pensions along with unemployment benefits, and with contributions met equally by employers and employees.
With the social security net in place, many Barbadians do not take out life and general health policies, with the World Bank saying in a 2003 report that the scheme, while necessary, was not widely perceived as contributing to a material boost in the level of private retirement savings.
The property insurance market in Barbados is dominated by businesses seeking to take out risk policies for their premises, with a far lower pick-up rate among the broader community. An example of this is demonstrated by statistics relating to fires on residential properties last year. Yvette Branch, manager of the re-insurance department of the Insurance Corporation of Barbados (ICBL), told local media in November that only 13 of the 105 homes then destroyed by fire in 2008 had been insured.
According to Marion Williams, governor of the Central Bank of Barbados, while the domestic market may be limited, opportunity for growth is offered by the Caribbean Community Single Market and Economy (CSME) - a strategy for growth in the region.
"We have seen that some Barbadian insurance companies are doing more business outside of Barbados than in Barbados, and indeed the trend has been outward expansion," Williams said in an address to the Barbados Association of Insurance and Financial Advisors last February.
According to Williams, the ongoing institution of the CSME would result in a continuing process of change, including such areas as liberalisation of services. Additionally, with the expected relaxation of exchange controls, there should be no barrier to the movement of funds, making cross border delivery of services possible, she said.
This process of expansion is already taking place, with Barbados-based insurer Sagicor now operating in 21 countries, mainly in the Caribbean but with additional offices in North America.
The other segment of the country's insurance industry is captive insurance, representing foreign firms registered in Barbados. The Barbados Exempt Insurance Act of 1983 allows for the registration of companies that only insure risks and retain premiums generated from outside of Barbados, and whose shareholders are not residents of Barbados. These "captive" insurance companies are established to insure the risks of their parent firms, not usually in the insurance business.
Among the most active in the Barbadian captive insurance sector are firms from Canada, a result of the Canada-Barbados tax treaty of 1980, which allows a Canadian company with an established domicile in Barbados to take a tax deduction for its insurance premium while still accruing tax-free income from the insurance business.
According to official figures, there are more than 400 captive insurance companies registered in Barbados, with the state taxing such firms at the rate of 0% for the first 15 years and 2% thereafter on the first $250,000 of profits. Such firms are also exempt from withholding tax and exchange control restrictions.
Though active, there have been calls for the state to tighten regulation of the sector. In a report issued in late August, following consultations with officials, the International Monetary Fund (IMF) said that while the country's financial system remained resilient to the ongoing global economic turmoil, in order for Barbados' financial sector to thrive, authorities had to address certain issues. According to the report, there were also weaknesses in oversight procedures, with the fund's directors referring to the insurance industry in particular when they suggested that "priority be given to removing the gaps in the supervision of the non-bank sector".
The results of the IMF report mirrored those of the 2003 World Bank study. While finding the insurance sector in Barbados to be dynamic and having the capacity to expand its operations into other countries in the region, the report said there was a need for an improved regulatory framework.
The World Bank report especially called for full observance of many of the core principles for effective supervision established by the International Association of Insurance Supervisors (IAIS).
These recommendations may have struck a cord with the government. In November, the Office of the Supervisor of Insurance, the state body charged with regulating the insurance sector, was transferred from the Ministry of Foreign Affairs, Foreign Trade and International Business, becoming a unit of the Ministry of Finance, Investment, Telecommunications and Energy.
The government is also looking at draft legislation that would require insurance firms to have higher levels of capital adequacy, another recommendation of both the IMF and the World Bank.
With plans to bolster the regulation of the industry in train, liberal conditions for captive insurance to attract overseas firms and even greater potential for growth across the region, the insurance sector in Barbados is well positioned for further expansion, especially if it can increase awareness in its home market.