Monday, April 20, 2015
It’s always heartening to read about insurance being made available to a market or sector that for whatever reason has not been able to benefit from risk transfer in the face of natural disaster.
So the news that countries of Central America will now be able to access affordable catastrophe cover by joining the former Caribbean Catastrophe Risk Insurance Facility—now the CCRIF SPC—is a positive.
A memorandum of understanding signed by the Council of Ministers of Finance of Central America, Panama and the Dominican Republic (COSEFIN) and CCRIF SPC will allow Central American countries to join the sovereign catastrophe risk insurance pool.
Nicaragua has signed a participation agreement to become the first Central American country to join the pool. Other member nations of COSEFIN are expected to join later this year and in 2016.
A press release puts some context around the need:
Climate change also represents a significant development challenge, with average economic losses due to weather-related disasters amounting to 1 percent or more of GDP in 10 Caribbean countries and four Central American nations, including Nicaragua.”
As Artemis blog reports here, some 16 Caribbean countries are now members of the 2007-established CCRIF SPC, benefiting from parametric insurance products covering tropical storm and hurricane risks, earthquake risks or excess rainfall risks.
The risk pooling facility helps its members to access post-event risk financing, based on the actual event parameters, with a rapid payout and disbursement of as little as two weeks possible. This enables countries to access financing for recovery from natural catastrophes, while benefiting from cheaper premiums due to the risk pooling nature.”
The newly-expanded 23-nation partnership is a win-win for both existing and new CCRIF members, providing low prices due to more efficient use of capital and insurance market instruments. New members will be able to take advantage of CCRIF’s low premium costs and existing members could realize premium reductions due to the increased size of the CCRIF portfolio.
Consider this example: the CCRIF made a $7.75 million payout to the Haitian government some two weeks after the January 2010 earthquake hit close to Port-au-Prince. The value represented approximately 20 times the premium of $385,500 based on Haiti’s catastrophe insurance policy for earthquakes for the 2009/2010 policy year.