The Pacific Catastrophe Risk Insurance Pilot was renewed for its second season, with Cook Islands newly joining five other participating Pacific island countries - Marshall Islands, Samoa, Solomon Islands, Tonga, and Vanuatu - to gain insurance coverage against earthquake, tsunami, and/or tropical cyclone risk. The second season will run from November 1, 2013 to October 31, 2014.
The insurance scheme aims to provide a rapid injection of funds in the event of a major disaster, to help governments increase their budget flexibility and manage the immediate costs of an early response. Access to post-disaster finance can be especially important for Pacific island countries which endure some of the highest average annual losses from natural hazards in the world – up to 6.6% of GDP.
"Becoming a member of the Pacific catastrophe risk insurance program provides us with an innovative way to work with other countries in the region and transfer some of the catastrophe risk borne by Pacific island nations to the international reinsurance market. This transaction provides us with another tool towards becoming self-reliant in disaster management, response and recovery," said Mark Brown, Minister of Finance and Economic Management for the Cook Islands.
The Pacific Catastrophe Risk Insurance program has piloted several innovations. It is the first Pacific program to use parametric triggers – that is, scientific measurements (such as wind speed or earthquake magnitude) of pre-agreed hazard events (in this case, earthquakes/tsunamis and tropical cyclones) to trigger a rapid insurance payout. It is the first time that Pacific island countries are able to pool their country-specific risks into one, better-diversified portfolio. This type of risk-pooling helps lower the cost of the insurance premium. It is also the first time that the World Bank has acted as an intermediary between a group of governments and a group of reinsurance companies selected through a competitive bidding process (Sompo Japan Insurance, Mitsui Sumitomo Insurance, Tokio Marine & Nichido Fire Insurance and Swiss Re). AIR Worldwide provides the underlying risk modeling for the transaction.The international reinsurance market has responded positively to the scheme, and has underwritten the portfolio of Pacific catastrophe risks at competitive prices.
Launched on January 17, 2013, the pilot is made possible through the collective efforts of the Government of Japan, the World Bank, and the Secretariat of the Pacific Community (SPC). The pilot is part of the broader Pacific Disaster Risk Financing and Insurance (DRFI) Program that is designed to increase the financial resilience of Pacific island countries against natural disasters.
"This pilot is the result of a successful collaboration amongst various World Bank Group uniits, including East Asia and the Pacific Region (EAP), Sustainable Development Network (SDN), Financial and Private Sector Development Network (FPD), World Bank Treasury (TRE), Office of the Sr. VP & General Counsel (LEG), and IDA Resource Mobilization (CFPIR). This constitutes a new benchmark for regional sovereign disaster risk financing solutions in other regions," said Michel Noel, Manager, Non-Bank Financial Institutions, World Bank.
The Pacific DRFI Program is part of the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI), a joint initiative of the World Bank, SPC, and the Asian Development Bank with financial support from the Government of Japan, the Global Facility for Disaster Reduction and Recovery (GFDRR) and the European Union. Launched in 2007, PCRAFI aims to provide support to the Pacific region to develop a comprehensive program on disaster risk management and assessment, and financing tools for enhanced disaster risk management and climate change adaptation.