Grand Cayman, Cayman Islands:
CCRIF SPC,developed under the technical leadership of the World Bank along with a grant from the Government of Japan. will make a payout of approximately US$40 million to the Government of Haiti following the devastating magnitude 7.2 earthquake that struck Haiti on August 14th, 2021, significantly impacting the city of Les Cayes.
This payout,representing CCRIF’s largest single payout to date. has activated the full coverage limit under the country’s parametric insurance policy for earthquakes for the 2021/22 policy year.
As CCRIF’s insurance policies are parametric, payouts are made within 14 days of an event.
The earthquake is likely to cost insurers around $250 million, according to catastrophe modeling firm Karen Clark & Co. (KCC).
While the insured losses from this event are estimated at $250 million, the KCC Caribbean Earthquake Reference Model shows that insurable losses are around $1.7 billion (which indicates an insurance protection gap of approximately $1.45 billion).
To begin to support the people of Haiti as quickly as possible, CCRIF will provide a first tranche of US$15 million to the Government within one week of the event and the remaining amount of approximately US$25 million within the 14-day window, to allow for the independent verification of the model results.
CCRIF will continue to provide earthquake coverage to Haiti for the remainder of the policy year which ends on May 31, 2022, under a special feature of the earthquake policy known as the Reinstatement of Sum Insured Cover (RSIC).
The RSIC, introduced by CCRIF in 2017, provides access to coverage after the maximum coverage limit of a country’s earthquake or tropical cyclone coverage limit has been reached.
According to Haiti’s Minister of the Economy and Finance, Michel Patrick Boisvert, “The payout from CCRIF to the Republic of Haiti following the earthquake on August 14, 2021, will help finance rapid and tangible government activities geared towards supporting the poor and vulnerable affected by the earthquake in the Grand Sud region. Given the proliferation and recurrence of natural disasters, access to parametric insurance policies offered by CCRIF and other risk financing mechanisms makes it possible to better manage the impact of these disasters on public finances and strengthen financial resilience in the medium term. For a country like Haiti, which is exposed to multiple natural disaster risks, it is imperative for us to adopt preventive measures to reduce vulnerability to shocks, while improving disaster preparedness and response.”
The August 14 earthquake was centred near Petit Troup de Nippes, approximately 78 miles to the west of the capital city Port-au-Prince and released approximately twice as much energy as the 7.0 earthquake that affected the country in 2010. Both quakes occurred on the same fault line but the 2010 earthquake occurred nearer to the capital – about 15 miles west of Port-au-Prince.
In 2010, the Government of Haiti received a payout of US$7.8 million from CCRIF following that earthquake. Since 2010 the Government of Haiti has continued to increase its parametric insurance coverage for earthquakes, with the cumulative increase being about 400 per cent. This increased coverage has been made possible through premium support provided initially by the Government of Canada and subsequently by the Caribbean Development Bank, which has paid Haiti’s insurance premiums for earthquakes, tropical cyclones and excess rainfall either fully or in part.
Since the Facility’s inception in 2007, it has made 53 payouts totalling US$242.4 million to 16 of its 23 members. Of these, Haiti has received five payouts totalling US$78.3 million (32 per cent of total payouts). This recent payout is further testimony to the success of the partnership involving member governments, the donors that support CCRIF, and the reinsurance community, in assisting countries to be able to better access disaster risk financing and reduce budget volatility following natural disasters.
Since the start of the 2021 Atlantic Hurricane Season, Haiti has been impacted by both tropical cyclones Elsa and Fred. Haiti received a payment of approximately US$343,000 under the Aggregated Deductible Cover (ADC) of its tropical cyclone policy following TC Elsa. The ADC provides a minimum payment for events that are not sufficient to trigger a country’s tropical cyclone policy but for which losses on the ground are registered by a member government.
Following the 2010 earthquake, the payout from CCRIF, provided within 14 days of the event, was the first form of liquidity received by the Government. The funds were used to ‘keep the wheels of government turning’ – for payment of salaries to medical personnel and rescue/emergency workers, medical assistance to affected persons, clearing of debris, and provision of civilian security. Although CCRIF acts as a security blanket for countries in times of natural catastrophes, it was not designed to cover all losses on the ground. It is instead meant to close the liquidity gap and provide governments with a quick infusion of cash to allow them to support the most vulnerable in their populations and to begin early recovery efforts immediately after a natural disaster, prior to accessing other resources for long-term redevelopment.
CCRIF has provided 11 grants totalling over US$340,000 to NGOs in Haiti to implement projects in disaster risk reduction, climate change adaption and environmental sustainability.
Accordingly, CCRIF will reach out to its local partners on the ground to determine how the communities in which they operate have been impacted by this recent earthquake and identify additional support the Facility can provide under its Small Grants Programme.
CCRIF's Parametric insurance
Parametric insurance that is offered by CCRIF is very different from traditional indemnity insurance. CCRIF’s parametric insurance products make payments based on the intensity of a natural hazard event (for example, hurricane wind speed, earthquake intensity, and volume of rainfall) and the exposure or assets affected by the event, and the amount of loss calculated in a pre-agreed model caused by the event.
Thus, CCRIF does not need to wait for on-the-ground assessments of loss and damage – unlike with indemnity insurance – to make payouts, enabling the Facility to disburse funds to governments within 14 days of an event.
A CCRIF policy is therefore triggered based on the government loss estimated in the loss model, which in turn is based on the characteristics of the hazard – wind and storm urge for tropical cyclone policies and amount of rainfall for excess rainfall policies – and the vulnerability, distribution and exposure of government assets affected by the event.
A country’s policy is triggered when the modelled loss for a hazard event in a member country equals or exceeds the attachment point selected by the country and specified in the policy contract (similar to a deductible in a traditional insurance contract).
In 2017, CCRIF introduced a new feature, the Aggregated Deductible Cover (ADC), for tropical cyclone and earthquake policies. It was designed to provide a minimum payment for events that are not sufficient to trigger the CCRIF policy because the modelled loss is below the policy’s attachment point.
CCRIF’s risk models underpinning its policies are dynamic and innovative and are regularly updated to include new data or new developments in modelling.
Empirical evidence based on studies undertaken by the World Bank illustrates that insurance obtained through CCRIF could be as low as half the cost of coverage a member country could obtain on its own.
CCRIF continues to demonstrate that catastrophe risk insurance can effectively provide a level of financial protection for countries vulnerable to natural disasters and is key to closing the insurance penetration gap. CCRIF represents a cost-effective way to pre-finance short-term liquidity to begin recovery efforts for an individual government after a catastrophic event, thereby filling the gap between immediate response aid and long-term redevelopment.
Over the years, assessments have shown that about 3 million persons have benefitted from CCRIF payouts in the Caribbean and Central America. Use of payouts over the years has included providing food, shelter and medicine for affected persons; stabilizing drinking water plants; providing building materials for persons to repair their homes; repairing critical infrastructure such as roads, bridges and schools; and support for the agriculture sector, among others.
Although CCRIF acts as a security blanket for countries, it was not designed to cover all losses on the ground as a result of a catastrophe. It is instead meant to ensure that there is some measure of quick liquidity available to governments as additional resources are mobilized to assist with the longer-term recovery and redevelopment processes. CCRIF is therefore designed to provide quick liquidity to allow governments to support the most vulnerable in their population immediately after a natural disaster; reduce budget volatility; and offer diverse products for both a range of perils and economic sectors and industries that are not readily available in traditional insurance markets.
About CCRIF SPC:
CCRIF SPC is a segregated portfolio company, owned, operated and registered in the Caribbean. It limits the financial impact of catastrophic hurricanes, earthquakes and excess rainfall events to Caribbean and Central American governments by quickly providing short-term liquidity when a parametric insurance policy is triggered.
It is the world’s first regional fund utilising parametric insurance, giving member governments the unique opportunity to purchase earthquake, hurricane and excess rainfall catastrophe coverage with lowest-possible pricing.
It was capitalised through contributions to a Multi-Donor Trust Fund (MDTF) by the Government of Canada, the European Union, the World Bank, the governments of the UK and France, the Caribbean Development Bank and the governments of Ireland and Bermuda, as well as through membership fees paid by participating governments.
In 2014, a second MDTF was established by the World Bank to support the development of CCRIF SPC’s new products for current and potential members and facilitate the entry of Central American countries and additional Caribbean countries. The MDTF currently channels funds from various donors, including: Canada, through Global Affairs Canada; the United States, through the Department of the Treasury; the European Union, through the European Commission, and Germany, through the Federal Ministry for Economic Cooperation and Development and KfW. Additional financing has been provided by the Caribbean Development Bank, with resources provided by Mexico; the Government of Ireland; and the European Union through its Regional Resilience Building Facility managed by the Global Facility for Disaster Reduction and Recovery (GFDRR) and The World Bank.