Rainfall from a weather trough system that impacted Barbados in November has resulted in another payout from the CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) as it triggered the parametric excess rainfall policy.
The CCRIF SPC, or CCRIF Segregated Portfolio Company, as it is now known, provides parametric weather and catastrophe insurance cover to Caribbean nations, with the excess rainfall policy the newest product in the range. Aside from rainfall, the CCRIF SPC offers tropical cyclone and earthquake protection and itself uses capital markets products and capacity for its reinsurance needs, in the form of a catastrophe bond.
This payout of $1.28m was made to Barbados under its CCRIF SPC excess rainfall insurance policy, which was triggered by rains from the trough system that hit the Eastern Caribbean on November 21st and 22nd 2014. Barbados was the only CCRIF member country with an excess rainfall policy in place that was affected by this trough system, so the only one to receive the payout.
The Barbados Meteorological Services recorded approximately 152mm of rainfall at the Grantley Adams International Airport in the south of the island from the November 21st and 22nd weather event. The rainfall measurement from satellite data used as an input to the Caribbean Rainfall Model over the same period in the corresponding area was 160mm. However, for this period, the Rainfall Model produced maximum accumulated rainfall of 261mm in the northern parishes of Barbados. These values were well over the threshold rainfall value of 75mm, where anything above that is considered “significant”.
CCRIF Board member Mrs. Desirée Cherebin commented on the payout which was welcomed by Barbados; “We are pleased that CCRIF was able this year to offer its members parametric insurance coverage for excess rainfall in addition to its coverage for earthquakes and tropical cyclones.”
Mr. Martin Cox, Director of Finance and Economic Affairs of the Barbados government, stressed the importance of the payout and the coverage that CCRIF provides, saying; “This contribution to the Treasury comes at a good time and will no doubt help us recover from the impacts of these rains. The funds will go into the Consolidated Fund but we will arrange for the Ministry of Public Works to be able to use the resources for necessary repair work.”
CCRIF’s parametric excess rainfall insurance product was developed in partnership with global reinsurance firm Swiss Re and utilises a Caribbean Rainfall Model created by risk modelling and analysis firm Kinetic Analysis Corporation.
The excess rainfall product is designed to cover 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 rainfall insurance product is beginning to prove its value already, having been triggered a number of times this year.
This is the fourth payout made by CCRIF on excess rainfall policies that have been triggered this year, with those payments now totalling approximately $3.4m. Anguilla has received two payouts, for Tropical Cyclone Gonzalo and a trough system that occurred on November 7th, while St. Kitts & Nevis also received a payment for the November 7th trough.
Eight CCRIF member countries, Anguilla, Barbados, Dominica, Grenada, Haiti, Saint Lucia, St. Kitts & Nevis and St. Vincent & the Grenadines, have purchased excess rainfall policies for the first time for the 2014/2015 policy year.
This is the second payout received by Barbados since the launch of CCRIF in 2007. The Government received a payment in 2010 of over $8.5m on its parametric tropical cyclone policy after the passage of Hurricane Tomas.
Mrs. Cherebin acknowledged that; “In purchasing CCRIF insurance as part of its disaster management, Barbados has shown that it is taking a proactive approach to disaster management thereby minimising the effects of natural disasters on its growth prospects.”
She urged regional governments to ensure “That they have in place comprehensive disaster management policies and plans and have adequate allocations in their budgets for disaster management and recovery to reduce their vulnerabilities to natural hazards.
Mr. Cox agreed, adding that; “The Government of Barbados will continue to contribute to CCRIF so that when events such as this occur, the country can potentially receive payments for recovery efforts.”
The example set by CCRIF SPC with the use of parametric trigger design, insurance risk pooling techniques and support from the international reinsurance and catastrophe bond market, to create a disaster insurance facility with payouts that are predictable, quick and that meet a disaster recovery need, is likely to be an insurance paradigm that becomes increasingly popular.
Where indemnity does not exist in the insurance chain and hence basis risk not an issue, the use of parametric triggers is in fact often the best solution to meet the needs of sovereign entities. Parametric trigger solutions can be designed to closely meet the needs of the cedent and to respond to the actual weather or catastrophe conditions that really need protection and post-event financing, something that one day may also be adopted by corporate insurance buyers for certain areas of their insurance programs, as these techniques are equally valid there as well.