A catastrophe risk pool in the Caribbean is the world's first regional disaster insurance vehicle. Called the Caribbean Catastrophe Risk Insurance Facility, it could set precedents for how the world's poorer nations cope with CAT exposure.
The $47 million fund allows the 18 participating countries to pool their catastrophe risk for earthquakes and hurricanes, with savings estimated by the World Bank to be as much as 40 percent off the insurance costs they would otherwise pay alone.
The CCRIF was established by the World Bank with the help of international donors. The participating nations pay an annual premium, based on their exposure level, their ability to afford it and the amount they want to contribute.
Annual premiums could be from $200,000 to $2 million, for payouts ranging from $10 million to $50 million, according to a brief from the World Bank.
In essence, the participating countries buy into coverage similar to commercial business interruption, which allows them to access recovery cash immediately following a catastrophe. Insurance payouts, according to the World Bank, would be based on the intensity of an event, not the damage caused by it. Claims payments would also depend on the type of catastrophe, its location and its arrival time.
The CCRIF, designated a "pilot" program by the international monetary agency, could prove a viable tool to prefund CAT risk for other poorer nations, saving them from having to wait on international support post-disaster.
As discussed in the recent Swiss Re Sigma report, developing countries often fail to be covered adequately for disasters.
"Here, insurers and governments can expand on insurance cover, or make it possible in the first place, by delivering innovative solutions," the reinsurer's report recommended.
April 15, 2007
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