When Royston Hopkins returned from London
last month to his Spice Island Beach Resort in Grenada, it was with
an uneasy sense of deja vu.
had swept over the island just days before, causing moderate to
severe damage to resorts, homes and businesses in Grenadas northern
sectors. Only 10 months earlier, he had returned from a European
vacation only days after Hurricane Ivan had destroyed both his
four-star resort and his home.
I missed both
storms -- but they didnt miss me, he told TravelWeekly.com by phone
from his office in the still-closed Spice Island resort. This
storm, fortunately, did very little damage to the southern part of
the island, (where his resort is located) though its still a little
Hopkins and his
experience in storm-torn Grenada have become something of a
regional legend among the Caribbean islands hundreds of independent
hotel and resort operators, but not because his well-known resort
was involved in two hurricanes less than a year apart. Rather, it
is because hes among a shrinking number of hotel operators who
managed to find, afford -- and collect on -- storm insurance
from Ivan helped finance a $12 million reinvestment in his
beachside resort, setting him apart from the large number of resort
operators who are underinsured by responsible business
What Grenada has
done is to open the eyes of everyone about the need for insurance,
said Berthia Parle, general manager of the Bay Gardens Hotel in St.
Lucia and president of the Caribbean Hotel Association
organization has hammered together an international deal that many
see as a possible cure for the growing insurance woes that have
left many Caribbean operators unable to rebuild if they have been
hit by hurricanes. Those who ducked recent bullets fear that their
businesses will be wiped out if they find themselves in the path of
the next storm.
The CHA stepped
in because property insurance problems have reached crisis levels
in this part of the world.
Parle, like many
others in the trade, has seen coverage grow increasingly difficult
to obtain at any price over the past few seasons as shifting storm
patterns in the Caribbean have brought troubles to areas that
rarely had been touched in years past. Before Ivan devastated 90%
of the homes and businesses in Grenada, the island hadnt seen
serious hurricane damage in nearly 50 years.
In a region of
the world where travel and tourism are the engines of economic
stability, the availability and cost of insurance have become
topics of ever more anxious discussions. As hurricane seasons seem
to be growing more unpredictable with climate change, the stakes
are getting higher.
Even under the
best conditions, replacing your product is nearly impossible with
insurance settlements because labor costs here are so very high.
said Hopkins. It is very expensive. And even though we had
insurance that some saw as adequate, it is very hard to know what
adequate might be.
Even we are not in winners
row, so to speak, he said. If we were fortunate, it is because I
have always been very conscious of having myself covered in all
areas -- liability, property and consequential business loss and
interruption. Otherwise, everything you have worked for could
disappear in a single day.
Hopkins had the
foresight to include business consequential loss that allowed him
to temporarily retain many of his employees -- 80% of whom lost
their homes to Ivan, he said -- and to keep his top management and
security staff for a full year while the hotel was
The fact that
Grenada had long avoided serious storm damage encouraged some
operators to ignore needed upgrades of their policies, he said. And
even insurance brokers and carriers themselves had been lulled into
believing that the islands past good fortune would continue into
companies used to offer a yearly rebate on premiums if you would
move your boat to Grenada during the storm season, said Richard
Doumeng, owner of the Bolongo Bay Beach Club in the U.S. Virgin
Islands. Id say 75% of the boats that were damaged by Ivan were not
in their home port.
Ivan and other
recent storms, he said, offered a costly lesson in the capricious
nature of storms. The resulting uncertainty has transformed the
entire Caribbean into a high-risk zone as far as insurance carriers
are concerned. As a consequence, hotel and resort owners have
experienced a decline in insurance availability coupled with rate
hikes and a growing reliance on self-insurance.
executives, resort owners and others agree that hurricane insurance
-- primarily wind damage and sea surge coverage -- has become
increasingly hard to get. When it can be had at all, it has become
prohibitively expensive as more and more storms leave the Caribbean
with the stigma of hurricane alley.
say higher costs are inevitably passed along to travelers as
operators try to protect their bottom line, though competitive
pressure often keeps full increases from being passed directly to
You dont see
surcharges for insurance costs as you do with higher utility costs,
said Parle. But these are part of the cost of doing
In addition to
rising rates, a growing number of assets, ranging from docks and
cabanas to landscaping, awnings and other nonstructural items, are
being excluded from coverage altogether. In fact, the sheer number
of new exclusions has discouraged many operators from insuring
their properties at all.
said Joe Murray, an insurance consultant to the CHA based in Puerto
Rico, resort operators go bare in certain places as far as
windstorm coverage goes. We have tremendous, beautiful boutique
hotels throughout the Caribbean, held by generation after
generation of families who may have $15 million invested in their
property. And they are rolling the dice.
In fact, it is
safe to say that underinsuring has become a widespread business
strategy among small and midsize Caribbean operators. Avoiding the
escalating costs of damage insurance enables them to resist
increasing their room rates at a time when theyre facing a
competitive squeeze from international hotel chains.
The chains have a
competitive advantage because they often have access to low-cost
umbrella coverage that dilutes their risk within a broad portfolio
of less risky properties around the world.
I have a friend
who manages a large-chain hotel on St. Thomas, who is paying
one-tenth of what we are facing for windstorm coverage, said
Doumeng, whose family has owned the Bolongo Bay for half a century.
And that is after weve adopted the strict Miami/Dade County rules
for construction to withstand hurricanes. We still have the high
rates. And so we dont have windstorm coverage.
All the problems
associated with commercial property insurance for Caribbean hotel
owners -- high rates, lack of availability and slow payouts for
storm losses -- may be about to change, however, if the CHAs new
program gets backing from operators when it is launched next
has struck a deal with Cooper Gay, a London-based, independent
specialty broker, to create what amounts to a buyer group composed
of independent hoteliers throughout the region.
Cooper Gay, which
operates in 30 countries, is already the largest insurance and
reinsurance broker in the Caribbean. The CHA said it hopes the
program will enable members to replace what many describe as an
antiquated, provincial system that has left hoteliers with few
options, high prices, and a dangerous level of exposure.
CEO of Cooper Gay North America in New York, said his company has
been working on a solution with the CHA for the past eight
Caribbean is a difficult place to get insurance -- and beachfront
hotels in particular have had trouble getting insurance or are
paying prices that are very high -- we have come up with a
structure that allows them to pool their resources and use that
leverage to obtain greater coverage at more competitive rates,
taking advantage of bulk-purchasing power, pulling a number of
hotels together, he said. For example, Marriott is a big,
international hotel company, and they have leverage in the
marketplace. The CHA is trying to create a program that enables the
small and not-so-small independents to get a similar type of
himself a former president of the CHA, the opportunities are
attractive. I would say insurance rates in Grenada have risen some
40% since Ivan, he said, and I expect them to go up another 4% to
5% as a result of Emily. That will leave more people
frequency of devastating storms in the Caribbean has been well
documented by weather officials. The National Oceanic and
Atmospheric Administration noted recently that above-average
hurricane activity in the Caribbean has occurred in all but two of
the last ten years. It is predicting that storm activity this year
will be 70% above normal.
prompted the Organization of American States last month to issue
warnings that it expects severe economic consequences in the region
as a result of the growing frequency and severity of storms in the
general manager of the Mango Bay Hotel and Beach Club in Barbados,
said that although the regional aspect of storm risk is rising,
location still plays a part in obtaining insurance.
At the moment, we
do not have an issue with availability, but where storms have hit,
that is clearly not the case, Odle said. In Barbados, we have not
had really serious damage since 1995, so insurance remains
available and affordable.
But Odle said he
knows that can change quickly, and he views the new insurance
program from the CHA as potential relief for operators beset by the
regions insurance problems.
They (CHA) have
tried this before, but there were problems because of the approach,
he said. They have had an interest in trying to put together an
insurance program for years, but always have had a problem with the
implementation part of it. Thats because local insurance companies
usually have a vested interest with hotels.
Odle was alluding
to a sort of good ol boy tradition that has long marked insurance
programs for hoteliers in the Caribbean. That tradition has
contributed to the problem.
In the Caribbean,
the local bank is often an investor in the local hotels, he said,
and you as an operator are forced to get involved in a way that
your lender wants you to get involved. It may not be the most
professional situation, but operators may be compelled to use a
certain company because it is owned by the brother of the banker.
Its been an issue.
At times it has
also left hoteliers covered by insurance companies that have
insufficient reserves to handle major storm damages. In some cases,
reinsurance has been ceded to companies that do not cover losses in
a timely way or dont pay certain claims at all. Murray, who was
instrumental in crafting the CHAs new insurance program with Cooper
Gay, admitted that introducing reform without threatening these
longstanding relationships was a balancing act.
problems with collecting from, or reaching settlements with,
reinsurers have delayed rebuilding, which has in turn left the
tourism economy to suffer.
Goodman said the
new program would offer a higher-quality, more-stable insurance
product by moving reinsurance coverage to respected international
We will use a
number of major reinsurance companies to cover that risk, he said,
and by allowing the independent hoteliers to use their own broker
agents, we will provide them with options as an alternative to the
coverage they have now. We as brokers will be able to give them an
indication of price so that they can window shop, if you will, to
see if they like what they see.
He said that
pooling risk in a pan-Caribbean offering would result in broader
access to higher-quality insurance throughout the region, which
would potentially benefit not only those who have had direct
insurance claims, but those who have so far avoided being pummeled
by the whims of weather.
Doumeng said he
was encouraged by that, especially since insurance carriers have
begun to lump the entire region into a single, high-risk area -- a
trend that he says has been exacerbated by news
like baseball players, he quipped. They can have a .300 batting
average and still have a job the next day. When they lump the
Caribbean together as a single region, they dont stop to tell you
that the distance between Bermuda and Trinidad is farther than New
York City and Miami. It makes a difference in perception all
perception might play as Cooper Gay and local brokers shop for
better insurance for Caribbean hoteliers through the CHA is yet to
be determined. But he predicted that more sophisticated coverage,
backed by international reinsurance, would inevitably have benefits
-- not the least of which are improved building
After we were hit
in 1995 and again 10 months later, we rebuilt with poured concrete
and with the higher standards you see in Florida now, Doumeng said.
My heart goes out to places like Grenada when you read that their
jail, which was made of wood, was destroyed or that the hospital
was destroyed because it was made of wood.
insurance can help finance higher construction standards when
rebuilding after future storm damage, Doumeng said, and that, in
turn, can bring more economic stability to the region and improve
the business of travel suppliers.
that when he settled his past claims, I had to give in on one or
two points, but my coverage allowed me to step back and look at
this as an opportunity to reinvest and to upgrade my hotel. Many
people did not have such adequate insurance, and were not able to
As a result, he
said, When we reopen on Dec. 15, we will have moved up to a
five-star property, and that means we will have made the best of a
reporter Dan Luzadder, send e-mail to [email protected].