Caribbean, Central America in partnership for catastrophe risk insurance
The Council of Ministers of Finance of Central America, Panama and the Dominican Republic (COSEFIN) and CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) signed a memorandum.
During the ceremony, CCRIF SPC and the Government of Nicaragua also signed a Participation Agreement for Nicaragua to become the first Central American country to formally join the facility. Other member nations of COSEFIN are expected to join CCRIF SPC later this year and in 2016.
Nine countries in Central America and the Caribbean experienced at least one disaster with an economic impact of more than 50 percent of their annual gross domestic product (GDP) since 1980. The impact of Haiti’s earthquake was estimated at 120 percent of GDP.
The same year, tropical cyclone Agatha, in Guatemala, had devastating consequences and poverty rates increased by 5.5 percent. Climate change also represents a significant development challenge, with average annual economic losses due to weather-related disasters amounting to 1 percent or more of GDP in ten Caribbean countries and four Central American nations, including Nicaragua.
Established in 2007, CCRIF is the world’s first multi-country catastrophe risk pooling mechanism which offers sovereign insurance at affordable rates to its members against hurricanes, earthquakes and excess rainfall. Currently, 16 Caribbean countries are members of CCRIF.
The facility enhances the fiscal resilience of its member countries to catastrophes caused by natural hazard events by providing immediate financial resources in the aftermath of a disaster, allowing governments to better respond to the initial needs of their populations and continue providing critical services.
Since its inception, CCRIF has made twelve payouts totaling $35.6 million to eight member governments. All payouts were transferred within two weeks after each event.
This new 23-nation partnership will benefit both existing and new CCRIF members, providing low prices due to more efficient use of capital and insurance market instruments.
New members will be able to take advantage of CCRIF’s low premium costs and existing members could realize premium reductions due to the increased size of the CCRIF portfolio. This partnership between Caribbean and Central American countries could strengthen economic engagement throughout the greater Caribbean Basin.
The World Bank provided the initial finance and technical advisory services to establish CCRIF in 2007 and in 2014 the Bank supplied resources to finance entrance fees to CCRIF for Honduras and Nicaragua, as well as annual insurance premiums for four years. ■