The Pacific Catastrophe Risk Insurance Pilot was renewed today for its second season, with Cook Islands newly joining five other participating Pacific island countries - Marshall Islands, Samoa, Solomon Islands, Tonga, and Vanuatu - to gain insurance coverage against earthquake, tsunami and tropical cyclone risk. The second season will run from November 1, 2013 to October 31, 2014.
The insurance scheme aims to provide a rapid injection of funds in the event of a major disaster, to help governments manage the immediate costs of recovery. Access to post-disaster finance can be especially important for Pacific island countries which endure some of the highest average annual losses from natural hazards in the world - up to 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," said 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 scheme’s expansion follows the request of countries during this year’s Forum Economic Ministers Meeting in Tonga to grow the program beyond the five pilot countries. Aggregate insurance coverage of the participating countries has increased from US$45 million to US$67 million, with further premium reductions for participating countries.
"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."
As in the first pilot season, the World Bank will act as an intermediary between Pacific island countries and a group of reinsurance companies, which were selected through a competitive bidding process - Sompo Japan Insurance, Mitsui Sumitomo Insurance, Tokio Marine & Nichido Fire Insurance and Swiss Re. AIR Worldwide provides the underlying risk modeling for the transaction.
Launched on 17 January 2013, the pilot is made possible through the collective efforts of the Government of Japan, the World Bank, and the Secretariat of the Pacific Community (SPC). It tests a risk transfer arrangement modeled on an insurance plan, and uses ‘parametric triggers’, such as cyclone intensity or earthquake magnitude to determine payouts, which enable quick disbursements. The international reinsurance market has responded positively to the scheme, and has underwritten the portfolio of Pacific catastrophe risks at competitive prices.
The Pacific Catastrophe Risk Insurance Pilot is part of the broader Pacific Disaster Risk Financing and Insurance (DRFI) program that is designed to increase the financial resilience of Pacific island countries against natural disasters by improving their capacity to meet post-disaster funding needs. Through this program advisory services are available to Pacific island countries for public financial management of natural disasters, including (i) the development of a national disaster risk financing strategy, recognizing the need for ex-ante and ex-post financial tools; (ii) post disaster budget execution, to ensure that funds can be accessed and disbursed easily post disaster; and (iii) the insurance of key public assets, to contribute to post disaster reconstruction financing.
The Pacific DRFI Program is part of the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI), a joint initiative of the World Bank, SPC, and the Asian Development Bank with financial support from the Government of Japan, the Global Facility for Disaster Reduction and Recovery (GFDRR) and the European Union. PCRAFI, launched in 2007, aims to provide the Pacific island nations with disaster risk assessment and financing tools for enhanced disaster risk management and climate change adaptation.