The Pacific Catastrophe Risk Insurance Pilot, a disaster insurance facility which provides parametric insurance cover for tropical cyclone (typhoon) and earthquake, including tsunami, risks to a group of Pacific Islands, has renewed from November and added one new island member.
This will be the second season that the Pacific Catastrophe Risk Insurance Pilot will have been providing its parametric catastrophe insurance to the group of Pacific islands. For the next year the Cook Islands has joined the other five Pacific island countries – Marshall Islands, Samoa, Solomon Islands, Tonga, and Vanuatu.
Being parametric in nature the scheme aims to provide rapid payouts to the governments of each island country should a catastrophe event occur which breaches pre-defined parametric triggers. This would provide a much-needed source of post-disaster financing for any member country affected. The Pacific islands are some of the most exposed to natural catastrophes with average annual losses from disasters as high as 6.6% of GDP.
“Becoming a member of the Pacific catastrophe risk insurance program provides us with an innovative way to work with other countries in the region and transfer some of the catastrophe risk borne by Pacific island nations to the international reinsurance market,” commented Mark Brown, Minister of Finance and Economic Management for the Cook Islands. “This transaction provides us with another tool towards becoming self-reliant in disaster management, response and recovery.”
The existing five members of the scheme had requested that the pilot was expanded to include more countries. As a result of the inclusion of the Cook Islands, the aggregate insurance coverage of the participating countries has increased from US$45 million to US$67 million, with further premium reductions for the participating countries as well.
“The expansion of the insurance pilot in the Pacific is a positive sign towards the long-term sustainability of the program,” said Franz Drees-Gross, Country Director for the Pacific Islands at the World Bank. “Rapid access to emergency funds can be crucial for governments in the wake of a disaster when time is of the essence, and catastrophe insurance could play an important part in this process.”
The World Bank continues to act as an intermediary between the group of Pacific countries and a panel of reinsurance companies, which were selected though a competitive bidding process. Sompo Japan Insurance, Mitsui Sumitomo Insurance, Tokio Marine & Nichido Fire Insurance and Swiss Re are all providing capacity to the pilot scheme, while AIR Worldwide is providing risk modelling.
The World Bank is pleased with the response to the Pacific scheme, saying that the reinsurance market has responded positively, underwriting the portfolio of Pacific catastrophe risks at competitive prices.
The success of the pilot, allowing it to be renewed for another year and expanded, shows that regions of the world which were once unmodelled can be analysed and risks can be priced competitively by reinsurers as a result. This is one example of how the global insurance and reinsurance market can penetrate these harder to price regions and perils of the world, with the use of parametric covers again demonstrating their value as a way to provide disaster risk financing.
More details on the Pacific pilot scheme can be found in our article on its launch.