Self-insurance not the way

Isaac Anthony, CEO of The Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC) believes that self-insurance is not the way for member states to grapple with disaster management.

He was speaking at the press conference facilated by the Caribbean Disaster Emergency Management Agency (CDEMA) and CCRIF entitled, ‘Reflections, Recovery, Rebuilding and Resilience’ at the CDEMA Coordinating Unit in Lower Estate.

The official explained, “CCRIF is able to provide insurance that is affordable to its members through a number of complementary mechanisms. CCRIF aggregates disaster risks across regions, achieving the kind of risk diversification and spread that its members are not able to attain on their own. By pooling’s countries’ risk into a single diversified portfolio, CCRIF is able to provide insurance at the minimum price possible as pooling makes the overall risk stable and therefore more attractive to the reinsurance market, thereby reducing the cost of reinsurance. 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….”

“Empirical evidence based on studies undertaken by the World Bank illustrates that insurance obtained through CCRIF could be as low as half the cost of coverage a member country could obtain on its own.”

However, he identified, “Some countries have in a few instances suggested that it might be cheaper to self-insure. This is not feasible or economically sound. Why? The ability of the Small Island and coastal states of the Caribbean to effect financial risk transfer through affordable Catasphrophe insurance in traditional international insurance and reinsurance markets is limited by the high transaction costs that result from the limited volume of business they could bring to these markets. Added to this is the high levels of government debt which will effectively constrain their access to credit in international capital markets and their domestic capital market lack sufficient depth to meet their needs following a catasphrophe.”

Moving forward, the CEO indicated, “We pledge to continue to be responsive to current and potential members needs in developing new products that will support specific national priorities ... We are currently in the process of developing products for drought as well as for the fisheries and agriculture sectors. The development of these new products is based on the demand of current members, the increase in drought conditions in the region and the need to bring to market in the near future a product for agriculture, another area in which members have expressed an interest . The drought product, which should be available for the 2018/19 policy year, is designed to trigger a pay out at the end of the year to any insured country that has had a significant loss of crop yield due either to a specific dry spell which causes acute crop stress or a longer but milder drought which causes a reduction of crop yield.”

The CEO noted, “The CCRIF operates as a not-for-profit company and as such on an annual basis, the Facility is able to direct profits back into serving its members, through offering premium reduction options such as premium discounts as well as implementing technical assistance programmes.” (NB)

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