Continued from previous page The impacts of Hurricane Ivan in 2004 brought into focus at the political level the need for quick liquidity following a natural disaster – to meet immediate needs of the population even before considerations of reconstruction and redevelopment. CCRIF and the introduction of parametric insurance in the Caribbean were born out of Hurricane Ivan. That one hurricane in 2004 resulted in two Caribbean nations – Grenada and the Cayman Islands – each suffering economic losses which totaled close to 200 per cent of their annual GDP; and a further seven countries were also severely impacted. Regional losses totaled over US$6 billion. Again, these losses are not dissimilar to those from Hurricanes Irma and Maria which resulted in damage and loss being estimated at US$130 billion and which affected 18 countries, including CARICOM member countries. Indeed, the catastrophic events of 2017 resulted in CARICOM declaring its ambition to become the first climate-resilient zone in the world. But there is a reason that this paper opened with a discussion on Hurricane Ivan. This is because, following Ivan, CARICOM Heads of Government approached the World Bank for assistance to design and implement a cost-effective risk financing programme for its member governments. This marked the beginning of what would become the Caribbean Catastrophe Risk Insurance Facility, now CCRIF SPC – the world’s first multi-country risk pool based on parametric insurance. The selection of a parametric insurance instrument as the basis for CCRIF policies was largely driven by the fact that parametric insurance is generally less expensive than an equivalent traditional indemnity insurance product as it does not require a loss assessment procedure after a disaster, allowing for claims to be settled quickly and in the case of CCRIF, within 14 days of an event. This is an important feature considering the urgent need for liquidity after a catastrophic event. CCRIF limits the financial impact of devastating hurricanes, earthquakes and excess rainfall events by quickly providing financial liquidity when a policy is triggered. CCRIF currently offers four parametric insurance products – for tropical cyclones (based on wind and storm surge), earthquakes, excess rainfall (based on rainfall) and for fisheries – the latter was launched in July 2019 in two member countries – Grenada and Saint Lucia. CCRIF currently is in the process of developing products for agriculture and flooding (run-off). Countries are also requesting that CCRIF considers providing parametric insurance coverage for government assets such as building stocks (e.g. hospitals and schools) – as well as housing stocks. CCRIF has 22 members – six more than the original 16 governments that joined in 2017 – three from Central America and 19 from the Caribbean. CCRIF is a captive insurance company because of the nature of the service it provides and the insurance products that it sells, which attract risks that are priced too high by the traditional market. CCRIF therefore provides a bespoke insurance solution that enables the Facility to provide unique and tailored insurance/ coverage that is not readily available in the commercial market. Another characteristic of a captive is that it is able to achieve lower premiums by retaining a portion of the risk while maintaining a claims-paying capacity that is better than the industry average. This is because CCRIF is able to directly access the reinsurance market as a captive and coverage can be made available at the lowest possible price because of risk pooling. Risk pooling makes the overall risk more stable and therefore more attractive to the reinsurance market, thereby reducing the cost of reinsurance. Continues on next page 17
18 Publizr Home