Results Of Preparation Work On The Design Of A Caribbean Catastrophe Risk Insurance Facility

In response to the devastation caused by natural hazards in the Caribbean in 2004, the World Bank is developing a risk financing vehicle to allow Caribbean countries to pool natural disaster risks, reduce the cost of insurance, and ensure swift payment by the use of a parametric system of claims determination. The purpose of the proposed initiative is to provide participating countries with an insurance instrument that would help shelter them from natural disasters. The study shows that the instrument would function like business interruption insurance against budgetary losses caused by hurricanes and earthquakes. Because of the speed at which claim payments will be processed, the instrument will be particularly useful in financing immediate post-disaster recovery needs, while an affected government seeks funds from other sources for long-term reconstruction. The creation of this instrument would allow participating governments to channel and share risk through a Caribbean Catastrophe Risk Insurance Facility (CCRIF, or the Facility). The report explains that the Facility will provide Caribbean governments with catastrophe insurance coverage in a cost effective manner by allowing them to access the reinsurance market with a better diversified risk portfolio. The ultimate cost of coverage will depend on the extent of this risk-spreading effect, economies of scale, and the amount of initial capital available to the Facility.