Both India and Jamaica have been having discussions on disaster risk financing and risk transfer solutions, including ILS, with the World Bank and other international organisations, as the two countries look to put in place measures to ensure funding is quickly available when the most impactful natural disasters strike.
It’s no secret that Jamaica has been looking at how better to protect itself against the frequent tropical storms, hurricanes and also extreme rainfall threats that it faces.
With natural disasters across 2001 to 2010 having cost Jamaica more than $1.2 billion and a single hurricane having the potential to drive hundreds of millions of economic costs to the island nation, having sufficient risk financing, insurance and risk transfer in place is key.
Jamaica has been in discussions with the World Bank and other entities including the Inter-American Development Bank as it looks to put in place a formal National Disaster Risk Financing Policy by late 2019, when its current financing arrangement with the International Monetary Fund (IMF) expires.
The Policy is expected to feature pre and post-disaster risk financing and transfer measures and of course insurance, reinsurance and capital markets solutions have been on the agenda at recent discussions, we understand.
Jamaica has been discussing catastrophe bonds, as a way to tap sources of efficient insurance or reinsurance capital, for some years now, but the discussion appears to be moving forwards with the assistance of the World Bank and other entities.
Including this week at a conference at which Inter-American Development Bank (IDB) spokespeople highlighted the potential roles of risk pooling, catastrophe bonds and other insurance or reinsurance related solutions.
Meanwhile in India, the 15th Finance Commission explored disaster risk financing at a two-day workshop recently, with attendance from the World Bank and the United Nations Development Programme (UNDP).
Here, the officials discussed the full range of disaster risk financing and transfer options, from credit facilities such as the World Bank’s CAT DDO, to catastrophe bonds and other insurance or reinsurance like solutions, as well as other uses of parametric insurance for protection and catastrophe risk pooling at both national and regional levels.
India is considering how to secure financing specifically to finance disaster relief, one of the prime use-cases for parametric catastrophe bonds and other capital markets backed reinsurance solutions.
We understand India has also discussed how forecast-based solutions could pay-out even before extreme weather conditions have occurred.
For India, like Jamaica, it could take a year for any recommendations to be finalised, with the Finance Commission looking to provide the government with its recommendations for a five-year disaster plan which would run from 2020, next year.
Of course, discussions like these are ongoing all the time now, with entities like the World Bank, UNDP and others including the Inter-American Development Bank (which is hiring for an ILS expert right now), all pushing the theory of insurance-linked solutions to trasnfer and financing of disaster risk backed by the capital markets and ILS capital.
Having robust mechanisms in place to secure funding when catastrophes strike is vital to protecting the economic development of local regions and countries, putting catastrophe bonds, parametric insurance and other solutions front and centre of the efforts to increase climate resilience in both developing and developed economies.