A new parametric insurance facility is set to be launched today by the United Nations Office for Disaster Risk Reduction (UNISDR), with assistance from the world’s largest reinsurer Munich Re and reinsurance broker Willis Re.
UNISDR has joined forces with the global insurance and reinsurance industry to develop the proposed parametric disaster insurance facility, called the Philippines Risk and Insurance Scheme for Municipalities (PRISM). The facility wants to bring a new approach to disaster risk financing for the Philippines, in advance of this years typhoon season.
The Head of UNISDR, Margareta Wahlström, commented; “The Philippines is hit by over 20 typhoons every year. What is needed is a simple scheme which will provide valuable protection to people and municipalities before the next typhoon season. In order to be successful it will require mandatory take-up by local government units but it will make them masters of their own destiny when it comes to responding to relief and recovery needs in the wake of a major disaster event.”
The parametric catastrophe facility has been developed by Willis Re and Munich Re, with Willis Re providing structuring for the facility and parametric contracts and reinsurance protection being provided by Munich Re, it is assumed. The Philippines Risk and Insurance Scheme for Municipalities (PRISM), which aims to provide budgetary support in the event of disasters, will be presented today at a forum on Strengthening Disaster Risk Insurance in the Philippines.
Rowan Douglas, CEO of the Capital, Science and Policy Practice at Willis Group and a member of the UNISDR Private Sector Advisory Group, explained; “Contrary to traditional insurance the payment of claims is not based on actual losses but on a pre-agreed amount when a specific trigger is met. For example, insurance will be paid out in the event of rainfall exceeding a certain amount, or wind speed exceeding a certain threshold.”
Ernst Rauch, head of the Corporate Climate Centre of Munich Re, added; “These parametric triggers are based on industry standards and can evolve as more information becomes available. Once one trigger has been exceeded a payment will be made through the scheme manager to the local government unit and this can be used for rescue, relief, recovery or re-building depending on needs assessments. It can become a key part of broader national catastrophe risk management programme. Cover can be adjusted to reward disaster risk reduction efforts undertaken by municipalities.”
As a parametric insurance facility, with payouts based on actual weather conditions and pre-agreed payout factors, PRISM will be able to provide a level of protection to local government units in the Philippines which will enable them to recover from disaster more rapidly.
There may be more information available on this parametric insurance facility after it has launched.