BOGOTA (AlertNet) - South Pacific nations threatened with rising sea levels linked to climate change are looking to adopt a regional disaster insurance plan based on a lauded Caribbean scheme which aims to soften the economic impact of natural catastrophes.
The World Bank launched the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the first multi-country insurance scheme of its kind, in 2007, after Hurricane Ivan inflicted billions of dollars in losses on the region in 2004.
The scheme promises member governments prompt payouts after hurricanes or earthquakes -- ensuring cash flows vital for countries that must otherwise wait months for emergency aid to arrive before they can start rebuilding after a disaster.
CCRIF's most recent payment was $7.75 million made to the Haiti government 14 days after a 7.0 magnitude quake struck the Caribbean nation in January.
As scientists predict more extreme climate change-related weather, the Caribbean insurance plan is being viewed as a model for countries seeking to incorporate a financial safety net in their disaster risk management, especially small storm-hit nations.
Efforts to draw up a similar insurance scheme for island nations in the Pacific and Indian oceans are already underway.
Â?Quite a lot of progress has already been made in developing a similar model to that of the CCRIF in the South Pacific," said Simon Young, head of the Caribbean Risk Managers Ltd, the company that acts as a facility supervisor to the CCRIF.
"Discussions are close to finalising the risk modelling work for the South Pacific, including countries such as Fiji, the Solomon Islands and Samoa. Madagascar, the Maldives, and Mauritius are also interested," he told AlertNet.
PAYOUTS
CCRIF is a parametric insurance scheme, which means that payments of claims are not based on actual losses or damage following natural disasters but are instead calculated according to pre-defined indexes based on the intensity, period and location of a disaster. Countries can buy coverage limited to specific events, areas, and for a specified amount of time.
"Other pools exist but the CCRIF is unique because it is multi-country and parametric and itÂ?s not an indemnity insurance scheme,Â? Young explained.
Backed by a fund pool of around $20 million a year, the CCRIF can make payouts faster than traditional insurance schemes, Young said, because parametric insurance does not require the insurer to evaluate losses after an event, which can take months or even years.
By pooling their risk, CCRIF's 16 member governments share administrative and operational costs and pay lower premiums, ranging from $200,000 to $4 million a year.
Â?Small countries pooling together works financially more efficiently as they can diversify risk,Â? Young said.
Since 2007, the CCRIF has paid nearly $1 million to Dominica and St. Lucia following an earthquake and $6.3 million to the Turks & Caicos Islands in the aftermath of Hurricane Ike.
Traditionally Caribbean countries lying in the Atlantic hurricane belt have focused on buying coverage for hurricanes but the earthquake in Haiti is prompting states to reassess.
Â?Haiti raised awareness of earthquake hazards and some countries have decided to partition more of their money to earthquakes and away from hurricane hazards,Â? Young said.
CHALLENGES
With cover for hurricanes and earthquakes already established, the CCRIF has several new insurance products in the pipeline, including one that provides cover for excess rainfall.
Initially available only to Haiti in the next couple of months, the rainfall product will be offered to other Caribbean governments early next year, Young said, adding that countries will be able to choose which basins they want to cover and over what period of time.
Â?The feedback is that members are interested in access rainfall coverage but there are fiscal constraints in spending more on premiums,Â? he said.
The CCRIF is also considering developing an insurance programme for electric utilities in the region to guard against wind damage and an insurance scheme that would allow governments to cover farmers against crop damage caused by weather-related disasters.
However, attracting new countries to buy coverage remained a challenge, Young said.
Â?At the country level it is still difficult to convince countries to buy coverage if they donÂ?t see a payback in five years' time,Â? he said, adding that more funding from international donors was needed to help CCRIF member countries pay their premiums.
Developing more sophisticated risk models for parametric insurance against natural disasters also remains a challenge in many developing countries because of the lack of historical weather and seismic data needed to calculate risk indexes.
Â?The overall level of understanding of catastrophe risk models, and particularly the uncertainties, is still below where it should be," Young had told industry experts at a June conference.
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