CCRIF targets private sector risk with parametric utilities cover

The CCRIF SPC (formerly known as the Caribbean Catastrophe Risk Insurance Facility) is expanding its appetite to include private sector risk, with the launch of a parametric insurance product for the electric utility sector in the Caribbean.

Adding risk from the private sector to its already growing pool of largely sovereign catastrophe risk will help the CCRIF to recognise and benefit from more in the way of reinsurance synergies, to the benefit of its client-base.

It also adds a new competitor for parametric insurance and risk transfer operators in the Caribbean and given the CCRIF’s focus on driving efficiencies to the benefits of its sovereign Caribbean and Central American client countries, its offering to private sector entities could be very competitively priced, we’d imagine.

CCRIF CEO, Mr. Isaac Anthony commented, “The development of this product is part of the scaling-up plans of CCRIF, which has as one area of focus the expansion of the Facility’s product offerings, an example of which is to address the needs of the electric utility sector in the Caribbean.”

The insurer said the move marks a “bold step to grow and diversify its portfolio and membership.”

The Government of Ireland assisted the CCRIF with grant funding to support the development of the parametric risk transfer product for electrical utilities in the Caribbean region.

Executive Director of the Caribbean Electric Utility Services Corporation (CARILEC), Dr. Cletus Bertin, said that, “The role of electricity in the economic and social life of the region is pivotal. This product is not just for the electric utilities sector. It is for the development of the region in terms of the economic and social life of the people, who are dependent on tourism as well as agri-business, light manufacturing, etc., which are all reliant on the steady supply of electricity. The product speaks to a broader agenda: our ability to bounce back quickly after a disaster and generate economic activity through the provision of electricity to the industrial and commercial sector.”

The CCRIF’s new parametric insurance product for electrical utilities has already been purchased by the Anguilla Electricity Company Limited (ANGLEC).

CCRIF said it is working with other electric utilities in the Caribbean who are also expected to join.

As a segregated portfolio company (SPC), the CCRIF can set up segregated portfolios (SPs), or cells, that allow for total segregation of risk and risk management operations (pricing, policy formats etc.) among each cell.

Using this structure of SPs, CCRIF can also deliver cost benefits through the sharing of operational functions, helping to make the products it offers cost much less than if each member were to approach the reinsurance market directly and on their own.

The cell established for public utilities is called the Caribbean Public Utilities SP (CPU SP) and joins 4 other SPs in the CCRIF structure, the Facility explained.

The product covers electrical utilities against tropical cyclone risks, aiming to deliver rapid paying parametric insurance coverage, backed by the global reinsurance markets.

The parametric trigger is calibrated to enable the product to cover direct damage to the transmission and distribution (T&D) components of the electric power system due to impacts of wind, the CCRIF said.

An issue faced by many electric utilities in the Caribbean is the inability to purchase traditional indemnity insurance to cover overhead T&D systems, because of limited availability of capacity and uneconomical pricing, the Facility continued.

CEO of CCRIF Anthony further explained, “The close relationship between wind speed and overhead T&D system damage created the opportunity for CCRIF to develop a new and innovative parametric insurance product which could be priced much more competitively in the marketplace than traditional indemnity insurance and would present lower basis risk to the insured utilities.”

Acting CEO of ANGLEC, the first buyer of the new parametric insurance, Peter Lamontagne added, “ANGLEC was severely impacted by Hurricane Irma in 2017 and almost all of its transmission and distribution network was destroyed costing the company in excess of XCD40 million to restore. At the time the company had XCD16 million in its reserves (a self-insurance fund) and needless to say, all the reserves were used up. There was an urgent need to find an alternative mechanism because of the active hurricane seasons that we are experiencing.”

The utilities parametric insurance product was developed in collaboration with CARILEC, an association of electric utilities, suppliers, manufacturers and other stakeholders in the electricity industry.

The association counts 35 of its members as electric utilities and its Executive Director Dr. Bertin said the organisation “intends to promote the product as a proof of concept so that other utilities can assess the mechanism. The CARILEC Secretariat will continue to work with CCRIF as it continues to reach out to other utilities of CARILEC – both government-owned and investor-owned – to encourage them to sign on to this very useful insurance package.”

CCRIF will be aiming to make any payouts from its first private sector parametric risk transfer product within 14 days, as it does with all its other products for sovereign buyers.

We’d imagine the CCRIF will take its learnings from this product to roll-out other parametric insurance initiatives for industries in the private sector.

Growing the risk pool further can only serve to benefit the CCRIF, make its use of reinsurance more efficient and also increase the chances of it tapping the capital markets or ILS funds for support in years to come.