Philippines want to emulate the Caribbean Catastrophe Risk Insurance Facility in Asia

Countries in Asia have been discussing the possibility of creating a disaster and catastrophe insurance pool for the region for a number of years. One of the leading voices has been the Philippines, as a country particularly exposed to climate, weather and natural disasters, who have been investigating possible solutions and looking into alternatives such as catastrophe bonds for some time. The issue has been highlighted again this week in comments from their finance secretary.

This article in the Philippine Star discusses the issue in more detail. Finance Secretary Caesar V. Purisima cites the Caribbean Catastrophe Risk Insurance Facility (CCRIF) as a model that Asian countries could emulate to achieve a better level of risk transfer for natural events. He commented; “We’ve proposed to the World Bank that all countries be asked to be part of a mandatory insurance pool and the insurance premium to be based on each country’s share of the carbon footprint.”

The World Bank and the Asian Development Bank have been looking at potential solutions for an Asian insurance pool along the lines of the CCRIF for some time, however the project is perhaps not getting the focus it needs. Hence the Philippine government repeatedly raising the issue to try to move the issue forwards.

The driver behind the plan to create a regional catastrophe insurance pool in Asia is to reduce the burden on governments for post-event recovery financing. In this way the CRIF parametric insurance pooled model would work well, although other instruments such as catastrophe bonds could be appropriate. Purisima says; “We are continuing to explore other financial instruments to help us deal with financial risks brought by disasters.”

The article says that work on an earthquake insurance facility is already underway in the Philippines, involving the Asian Development Bank, the Insurance Commission, private insurers and the finance department (the ADB project page is here). They have already received some funding from the ADB and aim to develop a “financially sustainable pilot earthquake catastrophe insurance pool covering middle class and mid-sized enterprise property owners”. The ADB says that this pool will enhance insurers ability to underwrite new catastrophe risk policies and better enable them to proactively manage and transfer risk to international reinsurers.

It’s encouraging to see that discussions continue to take place regarding catastrophe insurance provisions in Asia. The Philippines has been hit by a number of events this year, some of which have left thousands homeless and with no insurance cover to help them rebuild. Microinsurance use is increasing in the country, with weather index insurance pilots beginning to benefit some of the population, but without a more robust solution some insurers are hesitant to deploy too much capacity. Having a robust, internationally reinsured, catastrophe pool in place will help the development of the insurance market in Asia and enable local insurers to operate more effectively and look at alternative methods of risk transfer.