Is the Caribbean Catastrophe Risk Insurance Facility providing enough cover?

There is an interesting article in Sundays Jamaica Gleaner which I though may interest the audience of Artemis.

The Caribbean Catastrophe Risk Insurance Facility is a risk pool covering the Caribbean islands, it launched last year to support Caribbean governments in the event of catastrophic hurricanes and earthquakes by providing financial liquidity when a parametric policy is triggered.

The article discusses the concerns of disaster management and meteorology officials that the island (Jamaica) is not likely to receive an insurance payout if the hurricane that hit it caused more damage from heavy rainfall than high winds. Following Hurricane Dean last summer, Jamaica discovered it could not claim indemnity because the insurers behind the cat fund said the hurricane was not severe enough, despite causing around $22B in damage.

Payouts from the cat fund are based on a parametric model, and so provided on the basis of the intensity of the hurricane rather than on any specific loss. Intensity is based on wind speed and does not factor in rain or flood damage.

Local stakeholders are concerned that the fund is not providing the value they had been led to believe and that they are still extremely vulnerable to the economic shocks of major tropical storms. They also say that local experts such as the Met Office were not consulted during the inception of the fund.

So; it seems there is work still to do in order to protect these vulnerable communities from hurricane and tropical storm risk. It seems a number of options lie with the CCRIF, including; they could add rain related peril cover (and secure against it using weather derivatives) or they could rethink the parametric triggers to try to account for these concerns.

Whatever happens it seems they need to consult more closely with the communities in the area to ensure they have their support or they risk not being taken as seriously as they perhaps should.

More details available in the full story at the Jamaica Gleaner.

In other news the fund they have appointed Isaac Anthony and Dr Warren Smith to its board to represent the interests of CARICOM – the Caribbean Community – and the Caribbean Development Bank respectively. Hopefully this move will lead to a desire to address the issues worrying the local communities.