Some details have emerged, via the Japanese press, of a much discussed Asia disaster insurance facility which has been widely expected to emerge for over a year. The Japanese government say that they plan to work with the World Bank and Asian Development Bank to establish a disaster insurance facility for the Asia-Pacific region to assist developing countries hit by events such as earthquakes, typhoons and other weather disasters.
The Japanese newspaper Yomiuri Shimbun has published this article discussing the planned facility. The scheme will be funded by premiums from countries taking advantage of the coverage on offer along with contributions from Japan and other developed countries, with Australia, New Zealand and some European countries considering assisting.
The plans currently seem to be aiming for a two-tier facility, with one part of its function providing cover for South Pacific countries and the other for the Southeast Asian region. The article suggests that they will follow a similar model to the Caribbean Catastrophe Risk Insurance Facility, something we discussed as a possibility for the South Pacific back in August 2010 here.
It would make perfect sense to model an Asia-Pacific disaster facility on the CCRIF, which has proved its worth in the Caribbean region by using parametric insurance products to provide cover to countries which would help them recover quickly from disasters after they struck. That is what this Asian facility seeks to offer, a swift payout which can be used for immediate disaster recovery purposes.
The Asia-Pacific facility will have a maximum payout limit, similar to the way the CCRIF is structured according to the article. Apparently it’s expected that the scheme will ultimately be underwritten by the reinsurance market. If the facility does indeed use parametric triggers for the insurance coverage it is possible that it could be underwritten by cleverly structured catastrophe bonds.
The Asia-Pacific facility is not expected to be operational until after November 2012 for the South Pacific and at some time during 2015 for the Southeast Asia region. More news on the plans for this facility are expected to emerge during 2012 as the project becomes formalised. We’ll update you as and when we hear further details.