Eight Caribbean government members of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) have become the first to purchase the new parametric excess rainfall insurance product developed by the CCRIF and global reinsurance firm Swiss Re.
Anguilla, Haiti, Barbados, Dominica, Grenada, St. Kitts & Nevis, St. Vincent & the Grenadines and Saint Lucia have all purchases an excess rainfall policy for the 2014/15 policy year from the CCRIF, seeking protection for the extreme heavy rainfall events that can affect the Caribbean both during tropical storm season or not.
The parametric trigger excess rainfall product is designed to protect policyholders from extreme high rainfall events of short duration (a few hours to a few days), whether they happen during a tropical cyclone (hurricane) or not.
The parametric rainfall insurance policy estimates the impacts of heavy rainfall using satellite rainfall data from the Tropical Rainfall Measurement Mission (TRMM), a research initiative undertaken by the US National Aeronautics and Space Agency (NASA) and the Japan Aerospace Exploration Agency (JAXA), and exposure data from CCRIF’s risk estimation database, to define whether a payout is due.
The parametric nature of the excess rainfall policies allows for quick payouts, without the need to wait for costly and time-consuming damage assessments on the ground. This enables the Caribbean government to receive a contingent payment at the time it is of most use for disaster recovery.
Isaac Anthony, the CEO of CCRIF, commented; “The new excess rainfall product has been eagerly awaited by Caribbean governments as we all realize that considerable damage in the region is caused by rainfall and flooding. This product complements CCRIF’s hurricane coverage which determines losses based on wind and storm surge. We commend our eight members for taking the initiative and purchasing this ground-breaking product and hope that other countries in the region will follow.”
Martyn Parker, Chairman, Global Partnerships at Swiss Re, added; “Securing excess rainfall insurance protection demonstrates that Caribbean countries are taking a proactive approach to manage the contingent risks posed by climate change. Swiss Re is proud to support them in their efforts to ensure fiscal stability after a disaster.”
The excess rainfall policy was designed initially to cover a gap in the hurricane cover that CCRIF provides. The hurricane and tropical storm cover is triggered based on wind and storm surge losses, which meant that weaker tropical systems which caused extensive damage from rainfall were not covered.
The parametric excess rainfall insurance cover will work alongside the hurricane cover now, meaning that if a Caribbean nation is struck by a severe storm which triggers both policies, then both will payout and the country will receive more funds for immediate disaster recovery. Of course the rainfall product will also cover extreme rain events throughout the year, outside of the tropical cyclone season.
Also of note, for the 2014-2015 policy year, the CCRIF offered its members two one-off premium discount options, as it has now been three years successively where none of the policies held by member countries were triggered by an event. The two discounts available were: a 25% discount on tropical cyclone and earthquake policy premium if no excess rainfall policy is purchased; and up to a 50% discount if applied to an excess rainfall policy.
Also for 2014/2015 policies, the CCRIF allowed 50% of the total premium to be held as paid-in Participation Fee (the one-time fee paid when a country joins the Facility), with the excess therefore being available to co-fund premium, providing an opportunity to further reduce current expenditure on policy premiums.
Member countries have also been given the option to reduce their attachment point to a 10-year return period for tropical storms, allowing them to secure coverage for catastrophe events that occur more frequently, thus increasing their protection.