Insurance for small islands in the Caribbean: The Caribbean Catastrophe Risk Insurance Facility (CCRIF)
In September 2017, Hurricanes Irma and Maria caused severe devastation in the Caribbean: on the island of Barbuda, 95 per cent of all buildings were destroyed. Thousands of people in the Caribbean lost their homes. Such events often also cause enormous financial damage. Economic losses caused by Hurricane Matthew in Haiti in 2016 amounted to one fifth of the country’s gross domestic product – money that could otherwise have been invested in health, education or rural development.
Worldwide, climate change is increasing the frequency and intensity of extreme weather events, such as droughts, storms and floods. In small island developing states, these natural disasters are not only posing an immediate threat to people’s lives and livelihoods, but are jeopardising long-term development and growth. States and societies need to prepare for these risks. However, adaptation and disaster risk reduction can significantly reduce but not eliminate these risks. As a response, climate risk insurances are developed and implemented to complement risk prevention.
One of these climate risk insurance solutions is the Caribbean Catastrophe Risk Insurance Facility (CCRIF). It was founded in 2007 as the world’s first regional risk pool. Each member pays an annual premium to insure against the impacts of hazard such as tropical cyclones, earthquakes and excess rainfall events. Through this pool, CCRIF member states save approximately 50% on premium payments compared to if they were to purchase individual coverage.[/vc_column_text][/vc_column][vc_column width=”1/2″][vc_column_text]In the event of extreme weather, payouts are triggered by weather parameters such as wind speed or precipitation. This avoids lengthy estimation procedures of losses and enables quick disbursement of payouts based on an objective calculation method. In some cases, these payouts constitute up to 50% of the total financial aid a government receives in the first ten weeks after the occurrence of an extreme event. CCRIF is making these payouts within 14 days, which provides the financial liquidity for a faster disaster response and recovery than with conventional humanitarian assistance. For instance in Haiti, USD 23 million were provided in response to hurricane “Matthew” in 2016. This allowed for emergency housing for 1.4 million people, medication for children and the reconstruction of public infrastructure.
So far, 17 countries in the Caribbean and Central America have joined CCRIF. Since its founding, CCRIF has paid 12 out of 17 member states more than USD 120 million. CCRIF is a successful example for an innovative and cost-effective risk management mechanism, which constitutes an important part of a comprehensive disaster risk management framework. Furthermore, CCRIF contributes significantly to the cooperation between finance, disaster and meteorology professionals as well as between different countries.
More information: http://www.ccrif.org/