Global reinsurance firm Hannover Re and broker Willis Towers Watson are representing the Insurance Development Forum (IDF) in a project to develop natural catastrophe and climate related risk transfer solutions for the City of Medellín, Colombia.
The public-private partnership project on disaster risk management and insurance for Medellín is also seen as a potential blueprint for other Colombian and Latin American cities.
The goal is to develop and implement a parametric flood and earthquake risk transfer product, as well as an indemnity landslide insurance cover, with these natural disaster risk insurance products designed to enhance the resilience of Colombia.
It’s envisioned that the city government of Medellín will be the policyholder via its Fund for Disaster Risk and Emergencies Management, which provides post-disaster funding for emergencies, rehabilitation and reconstruction in Medellín.
Should a qualifying disaster event occur and trigger the parametric earthquake or flood insurance, or the indemnity based landslide insurance product, payouts would be expected to benefit local affected communities in accordance with the municipality’s emergency response plans.
This could include food and cash disbursements, as well as fast repair of basic infrastructure.
The idea is to show what’s possible in Medellín, then use that example to encourage broader roll-out across Colombia and also the rest of Latin America.
IDF Secretary General Ekhosuehi Iyahen, explained, “The IDF is delighted to see implementation of another Tripartite project involving the insurance industry working hand in hand with a government to address the significant proportion of physical damage and financial losses often incurred as a result of a disaster; in this instance, floods, earthquakes and landslides.
“The IDF is committed to playing an influential role in supporting the development of much needed practical solutions. The Public-private partnerships which see insurance professionals working closely with public officials to bring their risk management expertise to bear enables the delivery of solutions at scale for those who are most vulnerable.”
Insurance and reinsurance specialists Hannover Re and Willis Towers Watson are working alongside international humanitarian assistance and sustainable development organisation Global Communities on the project.
It’s part of the Tripartite Agreement launched in 2019 between the German Federal Ministry for Economic Cooperation and Development (BMZ), the IDF and the United Nations Development Programme (UNDP), while funding is coming from the InsuResilience Solutions Fund (ISF).
Projects like this can provide significant benefits and a learning experience for governments, helping them to make risk transfer part of their broader disaster and emergency preparation.
With the risk being transacted via the local disaster fund, it’s possible that in future a capital markets role could also be seen in provision of insurance or reinsurance risk capital, to support the parametric and indemnity based disaster covers.
Mexico has long used its now defunct disaster fund as the interface between the government and its catastrophe bonds, something that Jamaica is planning to also do for its pending World Bank supported catastrophe bond.
Governments and municipalities that face significant natural disaster, climate and weather risks can benefit from access to efficient capital, structured to pay-out on the occurrence of catastrophe events, which can help them to provide recovery funding and rebuild, while generally enhancing their resilience.