The Pacific Catastrophe Risk Insurance Company (PCRIC), a parametric catastrophe insurance facility for the Pacific Islands which is supported by the World Bank and others, has made its largest ever payout of $3.5 million to Tonga after the impact of Cyclone Gita.
The Pacific Catastrophe Risk Insurance Company (PCRIC) is a parametric disaster and catastrophe insurance captive insurer for the Pacific Island Countries, managing a $45 million pool of disaster risk that is backed by reinsurance.
The PCRIC provides its member countries with a mechanism to secure insurance coverage against tropical cyclones, earthquakes and tsunamis, all structured on a parametric trigger basis and with backing from the global reinsurance markets.
This means rapid payouts are possible when disaster strike and with Cyclone Gita fresh in the memory of Tongans, a payout to the government of Tonga of $3.5 million has already been made within seven days of the cyclone hitting the island nation.
The rapid payout provides the government of Tonga with a source of financing for its post-disaster relief efforts, reconstruction and rebuilding costs.
The seven-day payout, possible thanks to the use of a parametric trigger, means that financing is disbursed much more quickly than more typical sources of relief aid would enter the country.
Cyclone Gita reached a Category 4 level before striking Tonga just over a week ago, with the 230 km/h winds said to be among the strongest the island has experienced in 60 years.
Damage to properties was widespread, while crops, moorings, boats and other assets have also been severely damaged in many cases.
CEO of the PCRIC David Traill commented, “Despite the tragic circumstances, we are proud to have been able to provide rapid funding to the Tongan government within seven days of Gita making landfall which will provide immediate support for the Tongan government to meet the needs of local communities.
“Cyclone Gita has reinforced the critical importance of a coordinated disaster management capability across the Pacific, and PCRIC stands as a critical support in ensuring governments can act quickly following disasters.”
“It is clear from the record size of the payout to Tonga that the increased level of coverage provided to Pacific Island countries through the establishment and capitalisation of PCRIC by our donor partners has made a positive impact on the support we are able to deliver to the Pacific Islands region,” he explained.
Tonga is one of five Pacific Island nations that benefits from parametric disaster insurance through the PCRIC, alongside Cook Islands, Marshall Islands, Samoa and Vanuatu. Currently they all benefit from cyclone, earthquake and tsunami insurance coverage.
The facility wants to expand its range of coverages to include other parametric insurance products that can help to protect Pacific Island governments and their people against climate and catastrophe risks, including drought, excess rainfall and other seismic hazard protection.
As well as expanding the levels of protection provided also need to increase, to provide more meaningful amounts of recovery financing when disaster strikes. Of course that requires more meaningful premiums to be paid, which is likely to mean that the role of donors remains key as this parametric disaster insurance facility scales up.