A new, regional disaster risk financing project that supports and builds on the experience of the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) has been launched in Fiji, significantly expanding regional collaboration and financial resilience.
The $29.7 million project, titled ‘PCRAFI: Furthering Disaster Risk Finance in the Pacific,’ will provide Pacific Island countries with improved access to catastrophe insurance, and builds on eight years of experience and local collaboration via the PCRAFI, says the World Bank in a recent press release.
The new project “significantly scales-up regional collaboration to increase financial resilience” says the World Bank, and includes two very important elements. First, the $29.7 million project supports the PCRAFI and second, it offers technical support designed to aid regional finance ministries in developing their catastrophe risk financing strategies.
“The evolution of PCRAFI is a major advancement in the region to mitigate against the financial impacts caused by extreme climate, weather related and geological hazards.
“Countries have full ownership of the PCRAFI Facility, putting finance ministers in the driving seat for product development and for designing financial instruments that fit national disaster risk financing strategies,” said Dame Meg Taylor, Secretary-General of the Pacific Islands Forum.
As well as the PCRAFI Facility, the new project also draws on the experience of other parametric catastrophe risk pools around the world, such as the African Risk Capacity (ARC) and the CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility).
ARC and the CCRIF SPC, like the PCRAFI, are good examples of how parametric insurance solutions and public-private partnerships can increase insurance penetration to the world’s most vulnerable, and support financial security and disaster resilience post-event.
ARC, the CCRIF SPC, and the PCRAFI have all been triggered in recent years and in response have provided rapid payout post-event, helping member countries recovery much faster via the use of a parametric insurance structure.
Tropical cyclone Pam was the event that led to a $1.9 million payout to Vanuatu in 2015 via the PCRAFI, with the country receiving the funds within just one week of the storm, and was discussed by the Vanuatu Minister of Finance and Economic Management, Gaetan Pikioune.
“In the Pacific we are extremely vulnerable to natural disasters. The PCRAFI Facility will enable us to receive fast cash injections for emergency responses and to sustain essential services in times of crisis.
“Following the devastation Cyclone Pam wreaked on Vanuatu in 2015, we are actually aware of the value insurance programs like this bring in supporting our ability to respond quickly to disasters,” said Pikioune.
Initiatives like this show how insurers, reinsurers, and increasingly insurance-linked securities (ILS) markets can collaborate to boost insurance penetration and disaster resilience across the world, providing the private sector with new revenue streams while helping vulnerable, and poorer economies manage and recover post-event.
As the PCRAFI facility scales up it will require increasing amounts of reinsurance support, with the potential for parametric cat bonds to play a role in future given the World Bank’s ability to facilitate such a transaction.
“The PCRAFI Facility is just one example of multiple governments and development partners working together to deliver a program that will deliver real benefits for the people of the Pacific,” commented Michel Kerf, World Bank Country Director for Timor-Leste, Papua New Guinea, and the Pacific Islands.
The continued evolution of the PCRAFI unit, helped by the new $29.7 million project, shows the commitment of the World Bank to scaling these types of schemes up and building them out to reach more and more countries and regions of the world, ultimately ensuring more people are protected against the world’s perils.
Colin Tukuitonga, Pacific Community Director-General, said; “We are happy to be supporting the PCRAFI Program to assist countries in using PAcRIS – a regional database of hazard and exposure data.
“Quality data is essential in multiple sectors, including disaster risk management, infrastructure design and in stimulating domestic insurance markets.”