Dr Simon Young looks at the Caribbean Catastrophe Risk Insurance Facility after almost a year in existence.
Since 1995 there has been an increase in the frequency and intensity of hurricanes recorded in the Atlantic Basin compared to most of the past 150 years and probably much longer.
As was the case in Florida, 2004 served as a banner year for the Caribbean, with overall losses of almost $4.5bn recorded. The following year was even busier, with a record 27 named storms including 15 hurricanes. Hurricane Ivan alone caused damage of almost double the national GDP in both Grenada and Cayman Islands.
As a direct result of these economic impacts, a public/private partnership was developed with the goal of providing immediate, short-term liquidity to Caribbean governments in the event of a catastrophic hurricane or earthquake. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) was launched on 1 June 2007, underpinned by what is now a pool of almost $50m donated by Canada, the World Bank, and the Caribbean Development Bank among others.
Public/private partnerships have always been difficult propositions for the groups that wish to create them. Ownership of ideas, consensus and cost sharing are contentious topics especially when they are broached at a regional level. This is no different in the Caribbean, where political views coupled with limited resources decide whether a good idea can become a useful one. But in this case, the need for technical and financial mechanisms to assist in catastrophe risk transfer across the region was compelling enough to overcome all barriers.
Since the facility’s launch it has faced numerous challenges: changes in government and poor understanding of the concept led to disappointment after it did not make a payment after Hurricane Dean. These issues compounded the problems any new insurance concept would have faced in its first year.
However in November 2007 nearly $1m was paid in claims to the governments of Dominica and St. Lucia after being hit by a major earthquake, demonstrating the ability and willingness of the facility to make quick payments. Pledges continue to be made by countries eager to strengthen the facility’s reserve pool. This year the CCRIF will support a feasibility study for a parametric rain/flood policy, something the member governments are keen on.
Now what was born out of a public/private partnership has become a Caribbean institution, one that must remain as dynamic as the governments it serves, responsive to the challenges it will face and receptive to change.