Caribbean Catastrophe Risk Insurance Facility (CCRIF)

Submitted by katharina on 28 October 2011 - 11:15am

CCRIF is a risk pooling facility registered in, and owned and operated by the Caribbean for Caribbean governments. It is the world’s first and, to date, only regional fund utilising parametric insurance, giving Caribbean governments the unique opportunity to purchase earthquake and hurricane catastrophe coverage with lowest-possible pricing. It is designed to limit the financial impact of catastrophic hurricanes and earthquakes to Caribbean governments by quickly providing short-term liquidity when a policy is triggered. CCRIF represents a paradigm shift in the way governments treat risk, with Caribbean governments leading the way in pre-disaster planning. CCRIF was developed through funding from the Japanese Government, and was capitalised through contributions to a multi-donor Trust Fund by the Government of Canada, the European Union, the World Bank, the governments of the UK and France, the Caribbean Development Bank and the governments of Ireland and Bermuda, as well as through membership fees paid by participating governments.

CCRIF provides a working model of an innovative risk management mechanism that provides cost-effective risk transfer as part of a holistic disaster risk management framework within the Caribbean.

As a parametric facility, payouts can be calculated and made very quickly because loss adjusters do not have to be relied for estimating damage after a catastrophe event, which can take months or years. Governments do not have to provide detailed asset values and other information prior to the insurance programme commencing, and have just one form to sign during the entire claims process. As a result, calculation of payouts is totally objective, based on a few simple input parameters published widely in the public domain from the globally-mandated body responsible for estimating those particular parameters; and the risk that drives policy pricing is uniformly defined (i.e. there is no subjectivity in the definition of the risk).

Key Information
28 October 2011
Timeframe: 
2006 - present
Case Study
Background: 

The idea of CCRIF was prompted by Hurricane Ivan in 2004, which caused billions of dollars of losses across the Caribbean. CARICOM resolved to take action and approached the World Bank for assistance to design and implement a cost-effective risk transfer programme for member governments. This marked the beginning of what would become the Caribbean Catastrophe Risk Insurance Facility.

The mission of CCRIF is to serve Caribbean governments and their communities in reducing the economic impact of natural catastrophes. The Facility provides immediate liquidity through a range of affordable insurance products in a way that is financially responsible and responsive to the governments’ needs.

CCRIF functions similarly to a mutual insurance company which is controlled by its participating governments. It was initially capitalised by the participating countries themselves, with support from donor partners. CCRIF combines the benefits of pooled reserves from participating countries with the financial capacity of the international financial markets. It retains some of the risk transferred by the participating countries and transfers the remainder of the risk to reinsurance markets when it is cost-effective to do so. This structure results in a particularly efficient risk financing instrument that provides participating countries with insurance policies at approximately half the price they could obtain if they approached the reinsurance industry on their own. The use of a parametric insurance mechanism to control payouts from the pool ensures that each country gets an equivalent proportion of funds out of the pool as it has paid in over the long term.

Results Achieved: 

CCRIF has, in its first three years of operation from 2007, offered separate hurricane (wind) and earthquake policies. Caribbean governments may purchase coverage which triggers for a ‘once-in-15-year’ hurricane and a ‘once-in-20-year’ earthquake, with maximum coverage of US$100M available for each peril. The cost of coverage is a direct function of the amount of risk being transferred, ensuring no cross-subsidisation of premiums and a level playing field for all participants.

CCRIF has made four payouts to governments to date. In 2007, CCRIF paid out almost US$1 Million to the Dominican and St Lucian governments after the 29 November earthquake in the eastern Caribbean, and in 2008, CCRIF paid out US$6.3 Million to the Turks & Caicos Islands after Hurricane Ike made a direct hit on Grand Turk. Most recently, Haiti received a payment of US$7.75M (approximately 20 times their premium for earthquake coverage of US$385,500) 14 days after being struck by a devastating earthquake of magnitude 7.0 on 12 January 2010. It is estimated that the CCRIF funds received by the Government of Haiti accounted for approximately 50% of the TOTAL aid received in the first 10 weeks in the form of direct liquidity by Haiti, inclusive of all international and regional pledges made.

Main Activities: 

CCRIF’s main activities are to provide hurricane (wind) and earthquake policies to Caribbean Governments.

The Facility also is engaged in other activities described below:
• CCRIF provides its members with real-time hurricane hazard and impact information for the annual hurricane season through TAOS RTFS (‘The Arbiter of Storms’ Real-Time Impact Forecasting System).
• CCRIF is preparing an excess rainfall product that will be offered by the end of 2010.
• CCRIF is currently working in collaboration with the Caribbean Institute of Meteorology and Hydrology (CIMH) to assist with the long-term recovery and reconstruction efforts in Haiti following the January 12 earthquake.
• CCRIF has recently launched a technical assistance programme to help Caribbean countries to: deepen their understanding of natural hazards and the potential impacts of climate change on the region; develop adaptation strategies; and build regional climate change resilience through improved risk management. Under this programme, CCRIF and partner organisations are conducting a study for the Caribbean region based on the Economics of Climate Adaptation (ECA) methodology to provide facts and tools to develop quantitative adaptation strategies and business cases that can be incorporated into national development plans and claims for adaptation assistance.
• CCRIF participates in regional discussions on climate change adaptation and was an integral part of the Caribbean region’s preparation for the 2009 UN Climate Change Conference in Copenhagen.

Future Replicability
Lessons Learned: 

Lessons learned from the first three years of operation of CCRIF include:
• Annual evaluation must be conducted of the products offered to members. Before each annual renewal period, CCRIF engages in discussions with clients presenting complete risk profiles, updating the “adequacy analysis” of clients’ current coverage, and presenting quotes for alternative coverage characteristics and premium levels (either in total or a change in distribution between earthquake and hurricane) to help clients determine the best policy options.
• Existing products must be continuously assessed and improved. CCRIF’s 2010/11 hurricane and earthquake policies are based on a new second generation loss model which better represents the actual levels of hurricane and earthquake risks faced in the Caribbean region.
• Respond to client (and potential client) needs. To supplement the existing wind-based hurricane and earthquake coverage, CCRIF developed the excess rainfall product in response to demands from countries in the region.
• It is critical to develop partnerships with local and regional organisations in order to increase acceptability within the region and to take advantage of regional knowledge and expertise. Formal partnerships (MoUs) exist between CCRIF and a number of organisations (Caribbean Disaster and Emergency Management Agency - CDEMA, Caribbean Institute for Meteorology and Hydrology - CIMH, UN Economic Commission for Latin America and the Caribbean - ECLAC) and others are being pursued.
• Leaders in the fields of disaster management, insurance & finance, environmental management, and meteorology should be part of the decision-making process with regard to CCRIF products and catastrophe insurance.

Key to Success for Future Replicability: 

Factors that are key to replicate this facility in other regions include:
• Develop partnerships and alliances with local/regional institutions.
• Base product development on local/regional data obtained through current research.
• Implement public awareness programmes that target decision makers in the arenas of disaster management, insurance & finance, environmental management, and meteorology within all countries in the region, as well as key stakeholders and the media.

Contacts: 

Focal point(s) in lead country/organization
Mr. Milo Pearson
Chairman, CCRIF
milopearson@sbcglobal.net
Dr. Simon Young
CEO, Caribbean Risk Managers Ltd
Facility Supervisor, CCRIF
syoung@ccrif.org

Focal point(s) in other participating countries
Each CCRIF member country has a nominated focal point.