It is often said internationally that Barbados ‘punches above its weight’. Since the coining of this phrase by former UN Secretary-General Kofi Annan, the operating environment and the global financial sectors have seen seismic shifts, ranging from financial crises and pandemics to the ever-pressing climate agenda. Despite its small size, Barbados continues to demonstrate resilience and innovation, adapting to challenges while maintaining its reputation as a globally-respected financial centre and its top tier ranking.
The climate agenda and sustainability discussions have been one of the hallmarks of where Barbados has created global attention. ‘The Bridgetown Initiative’ has highlighted its efforts. This initiative embodies the country’s commitment to equitable and sustainable finance, especially for vulnerable nations confronting climate change. It is a call for urgent and decisive action to reform the international financial architecture (IFA).
Although ‘The Bridgetown Initiative’ is named after the capital city of Barbados, it is not an isolated initiative pertaining to Barbados alone. Similarly, Captive Insurance isn’t practiced in Barbados alone, but it is a mature and well-established domicile for captive formation and by extension risk financing creativity. How can this maturity and expertise be harnessed to provide advantages for companies and by extension Barbados?
Captive Insurance: Maturity and Momentum
Beyond thought leadership, Barbados has built tangible financial infrastructure. Barbados is the 3rd largest captive domicile in this region after Bermuda and the Cayman Islands – and the 7th largest globally. This mature regulatory framework, sound governance and strong human capital have positioned Barbados as a trusted jurisdiction for captive insurance.
As sustainability becomes a boardroom imperative, the interaction between Captive Insurance and Environmental, Social and Governance (ESG) principles offers a powerful synergy. By using its assets and strengths, Barbados has the potential to provide through the connected sustainability themes and frameworks such as ESG, an avenue for companies to domicile and align their risk financing strategies, whilst considering their sustainability goals.
Environmental, Social and Governance (ESG)
The social dimension of ESG lends to a natural expression to the Captive Insurance space. Barbados and businesses can connect on a meaningful level to unlock the full potential around these key issues. Therefore, the Captive Insurance industry and the marriage of ESG principles provide the platform for ethical and synergistic opportunities.
ESG looks past financial performance and delves into the realm of sustainability and a company’s ethical impact. Its environmental frameworks consider how a company performs and expresses its relationship with nature.
The Social component of the framework considers how the company manages and interacts with its supplier, employees, customers and community or supply chain network. Meanwhile, the aspect of governance considers key areas of leadership and transparency – it takes into account issues around executive pay, shareholder rights, audits and internal controls.
Environmental
Environmental advantages can be illustrated through supporting the sustainable and climate goals articulated within ‘The Bridgetown Initiative’. A Captive Insurance company created in Barbados can provide coverage for climate-related and emerging environmental risks alongside parametric insurance.
The utilization of Carbon Credits is a great tactical addition for companies exploring Barbados as an option. According to a Zurich 2023 article, “Captives smooth the transition to a low-carbon world”. The article, which touches on utilisation of Carbon Offset and Carbon Credits by companies, cites that using self-insurance ahead of traditional markets, which are slowly being brought into the market, can aid companies to “increasingly use carbon offset and removal certificates in their de-carbonisation efforts, they will be able to retain the associated carbon credit risks, such as invalidation or shortfalls in produced credits, using self-insurance”. Practically a company “may own land for biodiversity regeneration and opts to finance and retain the associated risks via self-insurance through the captive.”
Captives can therefore be utilised as a carbon management system and offsetting mechanism. A Barbados based captive can underwrite or fund the measurement, reporting, and offsetting of the parent’s carbon footprint.
Social
By establishing a Captive Insurance company in Barbados, a business can underwrite employee benefit plans and wellness programs. This ties into and aligns with Barbados’ Health Tourism and Life Sciences (pharmaceuticals) push. Furthermore, companies can explore Insurance of telehealth and coverage of pandemic-related workforce continuity or vaccine programs. These measures promote the social aspect and deliver stakeholder and community impact which can also cover supply chains and various risk protections.
Governance
Strong governance has long been a hallmark of the Barbados captive sector. Captives naturally require enhanced governance and provide key data insights, reporting disclosures and transparency. By pursuing a Barbados based Captive Insurance strategy, companies can potentially strengthen governance oversight as well.
Opportunities
What more can be done to benefit from these frameworks?
- Regulatory Incentives – reduced fees and fast-track licensing for green/ESG captives
- PPPs – Potential for participation in national resilience funds
- A Barbados ESG certification framework for Insurers – as per the example in Guernsey, which guides Insurers and Insurance Managers on how to manage ESG opportunities and risks and follows the UN recommended approach on incorporating ESG to align with development goals
- Barbados could develop a “Green Captive Charter”
Barbados: Where Innovation Meets Integrity
The next decade presents an unprecedented opportunity for Barbados to anchor global sustainable finance in the Caribbean.
Companies can reinvest their reserves in Green Bonds and ESG Funds which can be measured and noted within their Captive IPS Statements. Barbados must then ensure that good financial formulation and governance is upheld, which bodes well for promoting the domicile as a sustainable finance ecosystem.
Barbados clearly has all of the right tools at its disposal to create the framework for companies to consider a path towards growth by utilising its available expertise and established assets and risk financing to improve efficiencies.
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