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'Aims, experiences, performance and lessons learned from the Caribbean Catastrophe Risk Insurance Facility'

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Presented by Isaac Anthony, Chief Executive Officer, CCRIF SPC at the Pacific Regional Dialogue on Financial Management of Climate Risk (26-28 June 2017, Apia)

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'Aims, experiences, performance and lessons learned from the Caribbean Catastrophe Risk Insurance Facility'

  1. 1. Aims, Experiences, Performance and Lessons Learned The Caribbean Catastrophe Risk Insurance Facility Isaac Anthony, Chief Executive Officer, CCRIF SPC PACIFIC REGIONAL DIALOGUE ON FINANCIAL MANAGEMENT OF CLIMATE RISKS June 26, 2017
  2. 2. CCRIF was born 10 years ago…. 2 CCRIF is the world's first multi-country risk pool based on parametric insurance and has been providing parametric catastrophe insurance for Caribbean governments since 2007 – offering hurricane, earthquake and – since 2013 – excess rainfall coverage. We are pleased that other regions of the world have been able to adopt and adapt aspects of CCRIF’s operations and created similar facilities. The facility quickly provides financial liquidity when a country’s policy is triggered – providing payouts within 14 days after an event.
  3. 3. How CCRIF Got Started? Prompted by Hurricane Ivan which caused over 6 billion dollars’ worth of losses across 9 countries in the Caribbean Losses to Grenada and the Cayman Islands from Ivan were close to 200% of their national annual GDP Following Hurricane Ivan, CARICOM Heads of Government requested assistance from the World Bank in developing a risk transfer mechanism for Caribbean governments. Funding for CCRIF came from the Japanese Government, and was capitalized 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
  4. 4. • The Caribbean Catastrophe Risk Insurance Facility (CCRIF) was set up as a captive insurance company which is owned by a trust with the shares being held by a trustee (a legal firm in Cayman) and was approved as a Class B Licensed Insurer by the Cayman Islands Monetary Authority (CIMA) on 23 May 2007. • CCRIF was set up as a captive because of the nature of the service it provides and the insurance products that it sells, which attract risks that are priced too high by the traditional market. As such, a captive for CCRIF provides a bespoke insurance solution that effectively supports the Facility’s overall risk management strategy. • CCRIF has 17 members: 16 from the Caribbean and 1 from Central America. CCRIF Governance Framework
  5. 5. From CCRIF to CCRIF SPC In 2014, the facility was restructured into a segregated portfolio company (SPC) to facilitate offering new products (for example the excess rainfall product) and expansion into new geographic regions. We are now named CCRIF SPC. By establishing segregated portfolios, CCRIF is able to prevent the cross-subsidization of risk from one region to another, ensuring that each region’s risk will be based on the particular risk profiles of the countries in that region. We are in the process of developing 3 new products – a drought product which we expect to make available in our next policy year 2018 as well as products for the fisheries and agriculture industries. 5
  6. 6. CCRIF is a Successful Model…Receiving Worldwide Attention Since 2007 CCRIF is recognized as a best practice example of a risk transfer mechanism that can be an essential tool for disaster financing, which assumes greater significance in a changing climate. CCRIF is designed particularly to cover tail events, i.e. those that are unlikely to occur but have significant economic consequences. The value of insurance in general, and catastrophe insurance in particular, is greater the further towards the tail the covered risk is; indeed, insurance is not an efficient financial risk management mechanism for events that happen every year or two. 6
  7. 7. Why Caribbean and Central American Governments are Pursuing Catastrophe Risk Insurance? 3 Clear Reasons Governments are typically responsible for large portfolios of public infrastructure assets subject to risk To guarantee sufficient capital for emergency relief and assistance to affected households, businesses and communities. If governments lack the necessary infusion of post-disaster capital to rebuild critical infrastructure, restore homes and provide humanitarian assistance, indirect costs can greatly surpass the direct losses of a disaster Developing countries have a higher propensity for post-disaster resource deficits. Governments of developing countries typically must divert from their budgets or from already disbursed development loans to finance post-disaster expenses, also relying on new loans and donations from the international community 7
  8. 8. CCRIF is a Successful Model…Receiving Worldwide Attention Since 2007 The World Bank conservatively estimates that insurance obtained through CCRIF is about half the cost of coverage a member country could obtain on its own. 8 The Facility aggregates disaster risks across the Caribbean as well as disaster risks across Central America using segregated portfolios, achieving the kind of risk diversification and spreading that its members would not be able to attain on their own. By pooling countries’ risks into these segregated portfolios, CCRIF is able to provide insurance at the minimum price possible. CCRIF also brings economies of scale for administration and purchase of reinsurance, and its capital enables CCRIF to retain some risk, thus reducing the reinsurance burden.
  9. 9. Uniqueness of CCRIF Policies • Unlike indemnity insurance, CCRIF’s parametric insurance products are insurance contracts that make payments based on the intensity of an event (for example, hurricane wind speed, earthquake intensity, and volume of rainfall) and the amount of loss calculated in a pre-agreed model caused by these events. • Parametric insurance enables payouts to be made very quickly after a hazard event. • CCRIF therefore represents a cost- effective way to pre-finance short-term liquidity to begin recovery efforts for an individual government after a catastrophic event, thereby filling the gap between immediate response aid and long-term redevelopment.
  10. 10. 10 Since its inception in 2007, CCRIF has now made a total of 22 payouts to 10 member governments totalling US$69 million, all within 14 days of the event.
  11. 11. Uses of CCRIF Payouts Governments have used CCRIF funds to: • “Keep the wheels of government turning” (e.g. cover the salaries of key emergency personnel) • Repair critical infrastructure, e.g. roads, bridges • Build back critical infrastructure e.g. drainage • Institute mitigation measures e.g. install meteorological data collection equipment • Provide general budget support • Provide medicines and other care • Support the agriculture sector • Provide roofs and temporary homes to vulnerable persons 11
  12. 12. Lessons Learned over the 10 years 2007 - 2017
  13. 13. 13 Lessons Learned Much of the success of CCRIF has not been by chance. We have based our operation on learning lessons and on a culture of continuous improvement as well as projecting needs and recognizing the dynamic and ever-changing global environment of which we are part. There have been many lessons learned that countries, organizations and donors should take into account in pursuance of a similar facility. I will share the main lessons with you.
  14. 14. Lessons Learned over the 10 years 2007 - 2017 Lesson 1 Consultations aid project development and underpin continuous improvement Lesson 2 Donor support is invaluable Lesson 3 Success depends heavily on the relevant knowledge and experience of decision makers Lesson 4 Stakeholders’ interests must be represented Lesson 5 Stakeholder engagement is a continuing objective Lesson 6 Minimize non-essential bureaucracy to lower overhead costs and product price Lesson 7 Third-party monitoring and evaluation can help to broaden or streamline organizational focus as necessary Lesson 8 Know your limitations
  15. 15. Final Words on Lessons Learned • Financial mechanisms such as CCRIF must therefore not be seen as a panacea but rather a complementary tool in addressing the much broader issue of disaster management within the state. • An important theme in the sustainability of such an innovative tool for risk management is the avoidance of complacency and stagnation. Constant communication, accountability, evaluation and evolution are necessary to maintain the relevance and reliability of the mechanism. Decision makers must remain creative in their desire to grow and expand the worth of the tool to stakeholders while remembering its initial mission and purpose. 15
  16. 16. 16 Final Words… CCRIF represents a truly innovative risk pooling scheme that represents a paradigm shift in the way governments manage risk. The CCRIF Story is a powerful way to demonstrate the linkages between country disaster risk management strategies and risk transfer and the linkages between risk transfer, poverty reduction and economic growth. We share the UN 2030 goals for sustainable development and the importance of “leaving no one behind” in development. • We effectively support the goals of promoting sustainable economic growth, ensuring environmental, social and fiscal sustainability and reducing poverty – as evidenced by CCRIF’s mission statement: “A resilient Caribbean region and beyond with optimised disaster risk management and climate change adaptation practices supporting long-term sustainable development”.
  17. 17. Thank You CCRIF SPC pr@ccrif.org www.ccrif.org Follow @ ccrif_pr CCRIF_SPC 17

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