CCRIF expands cover and introduces new risk model for tropical cyclones and earthquakes
The Caribbean Catastrophe Risk Insurance Facility (CCRIF) has expanded its cover and brought in a new risk model for tropical cyclones and earthquakes as member governments in the region renewed and extended their policies for 2019/20.
CCRIF offers parametric insurance products for hurricanes, earthquakes and excess rainfall in the Caribbean and Central America. Nine governments increased their level of cover for at least one of their policies and one country bought cover for an additional peril (tropical cyclone) that it did not have the year before.
The innovative multi-country risk pool welcomed the decision by governments in the region to boost their cover, adding that this was key to its “scaling-up strategy”. The facility aims to build membership further in the Caribbean and Central America, and will offer new parametric products to reduce post-disaster resource deficits and budget volatility, as well as closing the protection gap.
There are currently 21 membership countries (19 in the Caribbean and two in Central America).
CCRIF has also added two policy features for members at no extra cost for 2019/20: the Aggregate Deductible Cover (ADC); and Reinstatement of Sum Insured Cover (RSIC).
First offered in 2017, ADC and RSIC are for tropical cyclone and earthquake policies. ADC can provide a minimum payment for events that are objectively not sufficient to trigger a CCRIF policy because the modelled loss is below the attachment point or deductible.
While RSIC allows governments to access cover during a policy year even after the maximum cover limit has been reached. It is designed to prevent a situation where a country is left exposed because the insurance cover was exhausted early in the policy year but it is still months until the renewal date of 1 June the following year.
The facility has brought in a new model for its tropical cyclone and earthquake policies for 2019/20. The model, called SPHERA (System for Probabilistic Hazard Evaluation and Risk Assessment), has replaced the MPRES model, which had been used since 2011. SPHERA uses the latest scientific findings and hazard datasets to model risk and includes ground motion, wind and storm surge models, as well as a larger and more detailed stochastic catalogue of events. The model also boasts a more detailed exposure database, including infrastructure and facilities, and updated vulnerability functions.
The model behind excess rainfall policies has also been upgraded from the XSR 2.1 model, used in 2018, to XSR 2.5. The upgrade has new features to reduce basis risk and improve its results, such as greater consideration and weight given to short intense events, the inclusion of soil saturation in loss estimates, and the use of assimilated observed weather data.
The facility has launched new parametric products for drought and fisheries/aquaculture for selected countries in 2019/20 and is developing products for agriculture and public utilities. CCRIF decided to scale-up its strategy after the devastating hurricane season in 2017.
The US National Oceanic and Atmospheric Administration has predicted a “near-normal” hurricane season this year. However, this still means there is a likelihood of 9-15 named storms, and 4-8 of them could become hurricanes, including 2-4 major hurricanes (category 3, 4 or 5) occurring in the Atlantic this year.
Speaking at the World Bank’s Understanding Risk Caribbean Conference, held in May in Barbados, Cointha Thomas, permanent secretary, finance for Saint Lucia, said: “It is good to know that CCRIF is alongside you” when a country is dealing with a natural disaster.
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