The devastating earthquake that struck the Caribbean nation of Haiti on August 14th is only expected to drive insurance industry losses of around US $250 million, while we’re hearing some parametric contracts are exposed.
Catastrophe risk modeller Karen Clark & Company (KCC) has said that economic losses from the magnitude 7.2 earthquake are expected to be around US $1.7 billion, while the insurance and reinsurance market will only bear a sliver of the financial burden.
Insurance penetration remains very low in Haiti, however KCC’s estimate for losses implies as much as 14% of the catastrophe loss could be covered by insurance, which seems very high to us. KCC’s estimate is based on the output of its Caribbean Earthquake Reference Model.
That would be higher than the percentage covered in recent catastrophe events in China, for example, where although insurance penetration is low still, it is clearly higher than in Haiti.
One area of uncertainty over the eventual amount could be in parametric exposure, as we are hearing that the quake may trigger a number of products.
First is the CCRIF’s coverage that Haiti’s government buys, as it has parametric earthquake and cyclone protection from the facility.
We understand there is a strong chance that the quake on the 14th August has triggered Haiti’s CCRIF parametric insurance policy, at the very least the deductible cover related to it, but more likely a fuller payout of the limit of coverage, we’re told.
In addition, there are number of parametric insurance schemes, largely microinsurance, operating in Haiti and covering earthquake risk, with some of these also likely to be triggered, we’re told.
The impact of the quake has been significant in the affected region, while tropical depression Grace has also made recovery and response more challenging due to its torrential rainfall.
Country’s like Haiti struggle to recover from major natural disasters and often the end-result is more donor funding and debt for the government.
Hence, any contribution from parametric insurance can provide a rapid injection of vital liquidity to help in response, rebuilding and recovery efforts, so if the CCRIF cover is triggered it will be a welcome cash addition.
The earthquake has killed more than 1,400 people, with many thousands more injured and made homeless by the damage from the shaking.