15 March 2013Analysis

Caribbean catastrophe captive honored by CICA

The Caribbean Catastrophe Risk Insurance Facility (CCRIF), a risk pooling facility owned and operated by sixteen Caribbean countries, was honoured as the winner of the CICA 2013 Outstanding Captive Award.

The award recognises a captive that has shown creativity, prevailed in difficult times, and gained a positive reputation among rating agencies, regulators and colleagues in the industry.

Captive International spoke to the innovative risk transfer programme about its inception, its most outstanding accomplishments and what the future holds.

What led to the formation of the CCRIF? How did the founders realise that there was a need for such an organisation?
The CCRIF idea was prompted by Hurricane Ivan in 2004, which caused billions of dollars of losses across the Caribbean. Following the passage of Ivan, the Caribbean Community (CARICOM) heads of government held an emergency meeting to discuss critical issues surrounding the need for the provision of catastrophe risk insurance for its members. Consequently, CARICOM resolved to take action and approached the World Bank for assistance to design and implement a cost-effective risk transfer programme for member governments. This resulted in the formation of the Caribbean Catastrophe Risk Insurance Facility in 2007.

What aspects of your organisation make it particularly deserving of your Outstanding Captive Award?
To date, CCRIF remains the first and only fully operational multi-country regional fund utilising parametric insurance and provides hurricane and earthquake coverage for 16 member Caribbean governments. CCRIF is controlled by its participating countries, all of whom pay a premium directly related to the amount of risk it transfers to CCRIF. By pooling their risks into single diversified portfolio, insurance costs are significantly lowered with pricing reduced by half of what it would traditionally cost if countries were to purchase coverage individually directly from the global markets.

The parametric nature of CCRIF’s policies allows payments to be paid quickly. CCRIF disburses funds based on the estimated loss from a sophisticated catastrophe risk model which uses hazard inputs (wind speed and storm surge for tropical cyclones and ground shaking for earthquakes) from real time data sources, without having to wait for an on-site loss assessment, which may take weeks or months.

Of what accomplishment or innovation are you as an organisation most proud?
CCRIF’s payout of $8 million to Haiti 14 days after the devastating earthquake in 2010 was the first set of funds received by the Government of Haiti after the event and enabled the Haitian public sector and emergency services to continue to function in the weeks and months after the earthquake.

CCRIF has played a key role in bringing together finance, disaster and meteorology officers to discuss risks and hazards and the linkages among these three areas. This has created a mechanism for the alignment of fiscal policy with disaster management objectives and has promoted the consideration of insurance tools in the disaster management arena.

Stakeholders have indicated that CCRIF’s efforts have resulted in increased awareness of disaster management in the Caribbean, with governments and policymakers in particular paying more attention to this area. The facility has encouraged people of the region to think differently about hazards, which has resulted in a paradigm shift from response to planning and enabling countries to make more informed decisions.

CCRIF is more than simply an insurance provider. CCRIF’s responsiveness to members’ needs, support of research and capacity development, and its expanding relationships and partnerships with Caribbean government agencies and regional organisations have resulted in the Facility becoming an integral part of the disaster risk management landscape in the region.

Are there any exciting developments coming up in the next year for the CCRIF?
CCRIF now has a new offering: the CCRIF/Swiss Re Excess Rainfall product, which is being made available to all CARICOM countries to provide coverage for extreme rainfall. The new product will complement the facility’s tropical cyclone coverage which is based on wind and storm surge losses. The excess rainfall product has the potential to help all countries in the Caribbean region – including those which are not at significant risk from tropical cyclones, such as Guyana and Suriname.

CCRIF’s engagement in the climate risk adaptation and insurance in the Caribbean programme is also an example of the facility broadening its involvement beyond the sovereign level coverage it provides to its members. It is a step towards addressing some of the significant risks that low-income groups within the Caribbean face to their livelihoods as result of exposures to catastrophe events. The project seeks to design and implement (micro-)insurance products that combine risk reduction and insurance to protect the livelihoods of low-income groups such as farmers and those employed within the tourism sector, persons who otherwise would not have access to insurance.