President Barack Obama of the United States has pledged $30 million of U.S. funding to support the expansion of the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the Pacific Catastrophic Risk Assessment and Financing Initiative (PCRAFI) and the African Risk Capacity (ARC).
This follows on from his statement yesterday (November 30th 2015) on the opening day of the Paris COP21 climate negotiations, when President Obama said that an announcement would be made today (December 1st 2015) regarding “New contributions to risk insurance initiatives that help vulnerable populations rebuild stronger after climate-related disasters.”
During a meeting with leaders of small island nations, which are some of the most exposed to climate change and a warming planet, President Obama announced that the U.S. would be contributing $30 million to climate risk insurance initiatives in the Pacific, Central America, and Africa.
The contribution aims to “increase climate risk insurance coverage to help respond to severe climate-related impacts” according to a statement. It comes alongside other initiatives such as providing climate data, tools and services to assist vulnerable populations to strengthen their climate resilience.
The U.S. contribution will be focused on supporting and expanding perhaps the three best known risk pooling and catastrophe insurance initiatives the Pacific Catastrophic Risk Assessment and Financing Initiative (PCRAFI), the Caribbean Catastrophic Risk Insurance Facility (CCRIF) and the African Risk Capacity (ARC).
The contribution aims to support PCRAFI as it progresses its insurance initiatives for the region, help the CCRIF with its expansion into Central America, a process which began this year with the addition of Nicaragua as a member and support the ARC program as it looks to expand in terms of coverage offered and countries involved.
During a press conference President Obama highlighted the importance of insurance and reinsurance companies and their ability to put a price on risk in the climate talks at COP21, once again underscoring the important role that re/insurance capacity plays in these discussions and the world’s goal to put in place an agreement that works.
The financing will help to support the growth ambitions of all three risk pooling and transfer initiatives, ultimately increasing the availability of sovereign level catastrophe risk transfer, which supports the growth of local insurance markets and penetration.
These three risk pooling initiatives, the PCRAFI, CCRIF and ARC, all need to access sources of reinsurance capacity, with CCRIF also tapping the capital markets through a catastrophe bond. As they grow, supported by the increased funding that is required as the world grapples with climate change, their reinsurance needs will grow too and the capital markets and ILS may have a greater role to play.
Read our series of articles focused on the insurance protection gap – under-insurance in emerging and developing economies, the gap between economic and insurance losses, and transferring risk from public sector to private – the opportunity that is on every reinsurance CEO’s lips and which presents the largest opportunity to put excess risk transfer capital to use, requiring both traditional and capital markets support.