By this year end, insurance coverage will be available through the Caribbean Catastrophe Risk Insurance Facility (CCRIF) for “excessive rainfall” and Guyana will be among the countries utilizing this service.
The CCRIF has developed their indicators and criteria to be used and payments will be based on these. “This is country insurance”, Agriculture Minister, Robert Persaud told Stabroek News yesterday. He explained that it will be government who will be paying the premiums. This new service is distinct from crop insurance where individual farmers have to pay the premiums and which has not yet been developed. However, Persaud said, by this year end, an insurance service for rice should be ready.
Persaud said that the new service is a very important step and will complement crop insurance. “It’s a welcome and positive development”, he said. Next month, a World Bank team will be here to further discuss crop insurance, he pointed out too.
The CCRIF was launched in June 2007, as an innovative response to the need by small island nation states in the Caribbean for immediate funding after natural disasters. It is a risk pooling facility and is designed to limit the financial impact of catastrophic hurricanes and earthquakes to Caribbean governments by quickly providing short term liquidity when a policy is triggered. Over a dozen countries of the Caribbean Community have joined and maintained their membership. CCRIF is open to governments only and, currently, specifically to CARICOM members. However, non-CARICOM governments can also be considered for participation. CCRIF is the world’s first and, to date, only regional fund utilising parametric insurance, giving Caribbean governments the unique opportunity to purchase earthquake and hurricane catastrophe coverage with lowest-possible pricing.
Following lobbying by Guyana and other interested groups; CCRIF has been developing a facility that will assist the country in managing the cost of the impacts of excessive rainfall. A statement from the Agriculture Ministry on Saturday said that in an effort to ensure a common understanding of the Facility, a team headed by Todd Crawford from CCRIF paid a courtesy call on Persaud on Friday.
It said that during the discussion, the Minister made a case for urgent attention in this regard as Guyana mobilizes support for a risk insurance facility in light of the intensifying negative effects of climate change. He emphasized that the facility will provide a regional tool which can be used to help manage the risks caused by extreme rainfall, as well as droughts, which are being experienced in a number of CARICOM countries currently.
Both parties agreed that the facility will be invaluable in analyzing the impacts of past rainfall (and drought) events and changes in rainfall patterns due to climate change. This will also contribute a great deal towards efforts by the Government of Guyana in Risk Management and Agriculture Insurance, the statement said.
According to information on the CCRIF’s website, excess rainfall coverage will be available during the 2010/11 policy year. It noted that many CCRIF participating countries and stakeholder partners had expressed a strong interest in being able to contract for catastrophic flood coverage. In response to these needs, CCRIF, using the World Bank’s Global Fund for Disaster Risk Mitigation, partnered with the Caribbean Institute for Meteorology and Hydrology (CIMH) to determine the feasibility of this coverage for member governments.
Following this study, CCRIF contracted CIMH and a specialised hazard modelling company, Kinetic Analysis Corporation (Kinanco) to develop and test a synthetic numerical rainfall model and, with input from Caribbean Risk Managers (CCRIF’s Facility Supervisor), implement a parametric excess rainfall insurance product. “The excess rainfall product will utilise the rainfall amounts generated by the model as the parameter which triggers coverage. The proof of concept for the model and a comprehensive testing programme were undertaken during the second half of 2009. In January 2010, the rainfall model was installed at CIMH and training provided to allow stand-alone, 24/7 operation of the model by CIMH”, the website says.
It points out that the excess rainfall coverage will be a separate product from the currently available hurricane and earthquake policies, which remain of utmost importance. “The rainfall product will be offered to Caribbean governments in 2010, and its aim is to reasonably replicate the overall impacts of extreme rain events”, it says.
Currently, for hurricanes and earthquakes, the CCRIF payout calculation proceeds in a very similar way to a traditional insurance payout. The only difference is the way in which the loss is estimated. For CCRIF, the loss is calculated through an index or model in which hazard levels (wind, storm surge and waves for hurricane, ground shaking for earthquake) are used as a proxy for losses. In a traditional loss estimation, a loss adjuster will visit each claim and decide what the cost of repair is relative to the original replacement value of the building. Thereafter, payment is dependent on the total amount of coverage a government buys and the deductible selected.
“It is important to note that the object of the Facility is not to cover the entire losses faced by affected states, but to provide, in case of a major adverse event, short-term liquidity to covered governments to fund both disaster response and basic government functions”, CCRIF says. Premiums are determined by the amount of coverage a country decides to take, the attachment and exhaustion points of that coverage, and the risk profile of the country. Thus each country pays in exact proportion to the amount of risk it is transferring to CCRIF, so that there is no cross-subsidization.
The Facility has already been used with CCRIF paying out almost US$1 Million to the Dominican and St Lucian governments after the November 29, 2007 earthquake in the eastern Caribbean. In 2008, CCRIF paid out US$6.3 Million to the Turks and Caicos Islands after Hurricane Ike made a direct hit on Grand Turk. More recently, Haiti received a payment of US$7.75M (approximately 20 times their premium for earthquake coverage of US$385,500), 14 days after being struck by a devastating 7.0 magnitude earthquake on January 12 this year.
