There are questions being asked in Jamaica about the risk model that underpins the regional catastrophe insurance policies issued by the CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility), after torrential rainfall and resulting flooding in May failed to trigger the countries parametric coverage.
According to reports from the island nation the government estimates that the flooding has caused an economic impact of as much as J$5 billion, in terms of projected rebuilding costs, but that the CCRIF risk model loss only amounted to US $100m (J$1.3 billion).
The parametric trigger, based on a modelled loss calculation, for Jamaica’s coverage is set to US $200m, so no payout was due.
This is from an excess rainfall policy that the CCRIF provides, as the facility does not offer specific flood coverage, and that may be the reason for the lack of a payout, as it appears that the damage was largely due to the flooding impacts, not simply due to rainfall itself.
The CCRIF faces a tough job in the region, and over the years a number of questions have been asked about why policies have not paid out despite the fact that damage to countries has been significant.
The facility launched its excess rainfall coverage product as a response to some of these queries, as tropical storms had been failing to trigger the hurricane policies that were in place, but these weaker storms often cause significant damage from rainfall.
Now it seems the CCRIF would benefit from some way to quantify and cover flooding risk, but of course a modelled loss approach to flood coverage and deriving the necessary parametric triggers is much harder, as the built environment can have such an impact, along with land-use, agricultural impacts to land coverage, among other factors.
That makes it extremely difficult to cover every eventuality, and unfortunately this is another case of the CCRIF coming under fire, despite its best efforts to provide affordable coverage in the region.
Lawmakers in Jamaica are calling for a review of the countries use of the CCRIF for coverage, it currently pays US $6 million per year for its coverage but has never received a payout to-date.
In this case the CCRIF has confirmed the occurrence of an excess rainfall event between May 15th – 19th 2017, but as the risk model did not view the event as causing sufficient modelled loss no payout was forthcoming.
Apparently there is going to be a review of the parameters set for Jamaica, but it is possible that the type of flooding just cannot be modelled within the current construct of an excess rainfall policy.
The CCRIF does an extremely valuable job in the region, offering catastrophe insurance policies to the countries at costs that could not be achieved in the private market.
By pooling the regions risks and making use of efficient reinsurance capital to back the pool, the CCRIF is able to offer countries coverage at more efficient rates.
The policies sadly cannot cover every eventuality though, and here the CCRIF suffers certain criticism which is really unwarrented, as it is doing its best to ensure coverage is as comprehensive as possible.
No insurance policy pays out every single time a policyholder believes it should have, and parametric disaster insurance is not any different in this respect.
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