Continued from previous page Empirical evidence based on studies undertaken by the World Bank illustrates that insurance obtained through CCRIF could be as low as half the cost of coverage a member country could obtain on its own. CCRIF has demonstrated that catastrophe risk insurance can effectively provide a level of financial protection for countries vulnerable to natural disasters. In fact, between its launch in 2007 and up to the end of 2019, CCRIF made 41 payouts totaling US$152 million to 13 member governments. Payout amounts increase with the level of modelled loss, up to a pre-defined coverage limit of up to US$150 million. CCRIF was never set up to cover all the losses on the ground. So while these payouts are relatively small compared to the overwhelming cost of rebuilding, all recipient governments have expressed appreciation for the rapid infusion of liquidity, which they are able to use to address immediate priorities and to support the vulnerable. to withstand future tropical cyclones. CCRIF is playing a part in closing the insurance penetration gap. In the Caribbean, it is estimated that indemnity insurance used to hedge the immediate impacts/direct losses from natural disasters is only about three to five per cent, compared to developed countries, in which that figure is more than 40 per cent. CCRIF has demonstrated that catastrophe risk insurance can effectively provide a level of financial protection for countries vulnerable to natural disasters It is clear that the absence of insurance will have negative consequences for the scale and duration of the economic impacts of disasters. The importance of catastrophe risk insurance in the face of a changing climate cannot be overstated and is supported by the United Nations Framework Convention on Climate Change (UNFCCC), G7 leaders and the Paris Agreement, all of which have established insurance as an acceptable climate CCRIF payouts have benefitted over 2.5 million persons in the Caribbean and Central America. Use of payouts has included providing food, shelter and medicine for affected persons; stabilizing drinking water plants; providing building materials for persons to repair their homes; repairing critical infrastructure such as roads, bridges and schools; payment of government salaries; and support for the agriculture sector; among others. It is important to note that some countries have used portions of their payouts for disaster mitigation – for example by building back better as was the case in the Turks and Caicos Islands where their CCRIF payout following Hurricane Irma in 2017 was used to reconstruct schools across the island to be able adaptative instrument. Insurance therefore must be an essential component within governments’ fiscal policy frameworks and an important tool of Climate Change adaptation as countries strive to advance the sustainability agenda. CCRIF and the parametric insurance products that it provides must not be seen in isolation from other disaster risk financing tools. Countries in the region need to take a more holistic approach to disaster risk financing and build a financial protection strategy that combines a number of risk financing instruments that address different layers or types of risk – incorporating instruments that support low and high probabilistic events as well as those that address both low or high severity events – such as disaster reserve funds, contingent credit facilities, risk insurance, CAT bonds etc. Continues on next page 18
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