The World Bank has launched the Pacific Resilience Program (PREP), a group of projects aiming to strengthen Pacific Island countries’ resilience to natural disasters and climate change, including through the use of parametric insurance coverage.
Under the new name of Pacific Resilience Program (PREP) the existing parametric insurance pooling facility created during the Pacific Disaster Risk Financing Initiative (DRFI), which was piloted under the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI), will now continue under the PREP.
“PREP allows us to work together with our Pacific neighbors, to take a pro-active approach to managing natural disasters in the region,” explained Siaosi Sovaleni, Deputy Prime Minister of Tonga. “We are committed to strengthening Tonga against future natural disasters and being a partner in this initiative is an important part of that strategy.”
PREP is a partnership between Tonga, Samoa, Marshall Islands, Vanuatu, the Pacific Community (SPC), the Pacific Islands Forum Secretariat (PIFS) and the World Bank. Through the bundling of projects and the PCRAFI parametric insurance work under a single banner, the hope is that this regional approach to disaster risk management can increase the economies of scale and result in shared learning and expertise.
For the PCRAFI parametric triggered risk pool (under the Pacific Catastrophe Risk Insurance Pilot), the benefit of economies of scale are clear and the more Pacific Island nations that can be encouraged to join the better for the overall diversification of the risk pool and therefore its ability to acquire reinsurance in the global markets.
“History has unfortunately shown just how devastating disasters can be for Pacific Island countries and territories,” added Colin Tukuitonga, Director-General of the Pacific Community. “As the region’s principal scientific organization, we understand how valuable it is to share knowledge and tools to better manage disasters and reduce their impact. We’re proud to be a part of this initiative with the World Bank and others, and to further support our region to withstand disasters.”
Alongside scientific projects and initiatives such as disaster early warning systems, PREP has taken the PCRAFI parametric disaster risk insurance initiative under its wing, with the goal to “deliver quick injections of cash to governments immediately after eligible disasters.”
Denis Jordy, Senior Environmental Specialist at the World Bank, explained that it is vital to ensure that “the proper mechanisms are in place to forecast and prepare for disasters and climate change, insuring assets, and most importantly, protecting the lives and livelihoods of people.”
Disaster risk insurance is an important component of this work, with the parametric trigger and risk pooling able to bring a diverse group of emerging economies to the global reinsurance market in such a way that pricing can be kept more reasonable and the risk can be transferred outside of the region.
As the PCRAFI disaster risk insurance initiative grows, adds new countries and expands its risk pool, the global reinsurance markets will be keen to support it, as will the insurance-linked securities (ILS) and catastrophe bond investment sector.
There are certain economies of scale that will need to be reached for the Pacific disaster risk pool to become a viable contender for a catastrophe bond issuance, along the lines of the World Bank supported ILS issuance for the Caribbean Catastrophe Risk Insurance Facility (CCRIF) in 2014, the $30m World Bank – CCRIF 2014-1 cat bond.
So any formalisation of the ongoing development and scaling out of the PCRAFI parametric disaster risk insurance products and the underlying risk pool could help to bring us nearer to the point where meaningful reinsurance capital is required to back it, and the capital markets becomes a participant via ILS and catastrophe bonds.