At a meeting of CARICOM Caribbean government leaders and international partners, hosted by the World Bank and International Monetary Fund (IMF), the topic of disaster resilience was high on the agenda and multi-country catastrophe bonds as well as other insurance solutions were discussed.
The recent destructive hurricanes that impacted the Caribbean were discussed, as well as the need for CARICOM countries and territories to be more prepared financially to respond to disaster impacts, to aid in resilience and recovery.
Risk finance and insurance are rising up the agenda again in the wake of hurricanes Irma and Maria’s destruction in the Caribbean.
The meeting participants recognised the need to have robust crisis preparedness in place, as well as a resilience framework and toolkit, including risk finance and one of the opportunities set to be explored is the use of multi-country risk management tools, such as catastrophe bonds and other insurance solutions.
Participants highlighted the importance of global collaboration on issues related to recovery, resilience, risk finance and insurance for exposed populations in the face of both climate and disaster risks.
It was agreed that these discussions should continue to future high level meetings in 2017.
The Caribbean has benefitted from a cat bond before, when the CCRIF accessed the capital markets in 2014 with a World bank supported $30 million cat bond, the World Bank – CCRIF 2014-1 transaction.
The Dominican Republic recently signed up to a $150 million World Bank catastrophe contingent credit facility and Jamaica has also been discussing accessing much larger amounts of risk finance in similar ways.
By clubbing together to pool the risk and transfer it to the capital markets through cat bonds, the region could benefit from efficiencies of scale and the diversification within the risk pool to make ILS solutions more affordable, with the assistance of international finance institutions.
Parametric insurance, reinsurance and ILS such as cat bonds could help the Caribbean governments to put in place risk finance that would pay out rapidly to assist with recovery should future major disasters strike.