Parametric triggers let CCRIF pay $29.2m in 14 days post-Matthew

by Artemis on October 21, 2016

Parametric catastrophe insurance facility CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) has once again demonstrated the vital role that the parametric trigger can play in disaster insurance as it pays out all $29.2m of hurricane Matthew claims in less than 14 days.

The CCRIF SPC aims to pay out any claims that are due to countries which suffer a catastrophe or weather event that breaches their pre-defined parametric trigger within 14 days of the end of the specific hazard event and to-date has achieved that goal.

In the wake of hurricane Matthew’s path of destruction through the Caribbean, the CCRIF has paid out just over $29.2 million in total to Haiti, Barbados, Saint Lucia and St. Vincent & the Grenadines, after their tropical cyclone (Haiti and Barbados) and/or excess rainfall policies were triggered, with all payments made by the 17th October.

Since the launch of the CCRIF in 2007, the facility has made a total of 21 payouts to 10 member governments totalling almost $68 million in claims paid.

Members of the CCRIF consistently state that the rapid payouts made under parametric disaster insurance policies are invaluable. CCRIF is able to inform countries if their policies were triggered immediately after an event occurs and if so, what the approximate payout amount will be.

That allows governments to prepare and plan for the cash infusion from payout within the next two weeks, providing a vital addition of liquidity and capital at a time when the countries are in need of support. The actual payouts within two weeks are critical for immediate repair and recovery activities and have often been among the first capital to enter a country after an event, even beating international aid donations.

It’s not just government or sovereign level risk transfer that benefits from the use of a parametric trigger either, as the micro-insurance Livelihood Protection Policies (LPPs), which was developed under the Climate Risk Adaptation and Insurance in the Caribbean Project implemented by the Munich Climate Insurance Initiative (MCII) in collaboration with CCRIF, MicroEnsure and Munich Re, have also paid out.

Thirty-one individuals, such as small-holder farmers, in Saint Lucia received payouts totalling $102,000 on their Livelihood Protection Policies (LPPs) after hurricane Matthew. The policies cover extreme weather such as wind and rainfall and are parametric like the CCRIF’s government policies.

Again, all of these LPP payouts were made within 14 days, testament to the value of a parametric trigger enabling rapid (often automated) assessment of insurance claims and payment amounts due.

The LPP products is also available in Jamaica and Grenada and the partners behind it plan to expand access to other countries in the region from early 2017. The CCRIF said that its parametric sovereign insurance is “effectively complemented by microinsurance at the individual level, which supports people whose livelihoods can be affected by natural hazard events without them having to wait for help from other sources like the Government.”

This layering of disaster insurance protection, at the sovereign and individual level is vital to enable more rapid recovery after events in order to protect lives and livelihoods.

Parametric insurance triggers are also applicable to commercial insurance buyers, again providing a way for them to secure financing rapidly after events occur that damage their property, or their ability to continue to operate without interruption.

That’s another layer of the risk financing puzzle where parametrics could be put to good use, if commercial and even residential property insurance buyers were educated on the benefits of adding a slice pf parametric protection, alongside their typical indemnity insurance cover, to provide a rapid paying capital source for disaster recovery.

It almost seems like traditional residential and commercial property insurance could be sold with a parametric add-on, which would be a useful way to provide immediate risk financing. There’s no reason reinsurance couldn’t also be structured with a parametric layer as well.

As parametric triggers gain in popularity and the techniques and data behind them improve, their uptake is likely to increase and we’d envision that in the future reinsurance towers may be restructured to include elements of parametric or index triggers more frequently.

On receiving his countries payout cheque for just over $3.78 million, Saint Lucia Prime Minister Honourable Allen Chastanet commented; “This cheque will be going directly to strengthening and rebuilding our agriculture sector and to paying for some of the costs that we have.”

That quick deployment of capital directly into the countries affected by catastrophes and weather disasters is vital to their ability to bounce back. Parametric insurance triggers enable that rapid payout and as adoption increases could help personal and commercial insurance or reinsurance customers increasingly in the future.

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