The CCRIF issued a total of US$85 million in record time to governments and non-sovereign policyholders in the Caribbean impacted by Hurricane Beryl, marking the largest payout in the organisation’s history, and underscoring its growing role in disaster risk financing across the region, Conor Meenan from the Centre for Disaster Protection highlighted in a recent report.
The Caribbean Catastrophe Risk Insurance Facility (CCRIF) payouts were done through 12 individual parametric insurance policies across five countries.
Hurricane Beryl, which struck the Caribbean in early July, caused significant damage in Grenada and St. Vincent and the Grenadines.
Initial assessments indicated damages exceeding US$200 million in both countries. Only eight days after Beryl made landfall, CCRIF confirmed the disbursal of funds to aid in recovery efforts, including US$44 million for Grenada and US$1.8 million for St. Vincent and the Grenadines.
The final payout amounted to US$85.4 million, which included a total of US$55.6 million for Grenada, US$26.9 million for Jamaica, US$1.9 million for St. Vincent and the Grenadines, US$0.7 million for the Cayman Islands and US$0.4 million for Trinidad and Tobago.
The payouts were made possible by CCRIF’s parametric insurance policies, which trigger payments based on the intensity of an event rather than relying on lengthy damage assessments.
This allowed for the rapid disbursement of funds, providing immediate liquidity for governments to address urgent needs.
To put these CRIF payouts in perspective, a basic rule of thumb for estimating government related emergency response costs is to multiply total economic damages by around 15-25%, Meenan explained.
Grenada’s CCRIF payout likely covered a significant portion of its government response costs, while St. Vincent and the Grenadines’ payout was relatively smaller. This difference is probably due to variations in insurance policies and parametric triggers between the islands.
While both countries have other financing options, Grenada’s payout likely covered the majority of its immediate needs, whereas St. Vincent and the Grenadines had to seek additional funding.
In its report, Meenan also highlighted how these record parametric payouts underline CCRIF has adapted to the demands and needs of the Caribbean.
CCRIF was established to address the ‘liquidity gap’ faced by governments following tropical cyclones and earthquakes. Over the past 17 years, CCRIF’s offerings and the use of pre-arranged financing in the Caribbean have undergone significant evolution.
In addition to the record levels of payouts, three aspects of CCRIF’s response to Beryl stand out, Meenan noted, which include parametric payouts for cash transfers; arranging insurance for utilities and critical sectors; and managing basis risk in parametric triggers.
Regarding parametric payouts for cash transferred, Meenan explains that, while disaster risk financing often relies on ‘liquidity’ instruments that offer general budget support and it’s crucial for large-scale disasters, “there is also an opportunity for linking payouts from pre-arranged financing directly with pre-arranged response plan.”
This model for linking payouts to specific response costs was seen when WFP partnered with the Jamaican government, using payouts from a CCRIF policy to fund cash transfers to households affected by Beryl.
This approach fosters coordination between governments and agencies, ensuring funding certainty for implementation, Meenan highlighted. It also creates a clear link between payouts and benefits for affected populations.
As pre-arranged financing grows, defining and costing specific contingent liabilities becomes increasingly important to ensure that appropriate protection aligns with anticipated needs.
For its second point, arranging insurance for utilities and critical sectors, Meenan noted the $43 million that Grenada received from its sovereign insurance policies for tropical cyclone and excess rainfall,. CCRIF also made three specific payouts totaling $12.6 million for Grenada’s electric and water utility companies and for its fisheries sector.
These sector-specific policies reflect the shared risk ownership between public and private entities for critical services, Meenan stated. He noted that such policies can clarify responding roles and help ensure that services like water and electricity can be restored quickly following a disaster.
Finally, Meenan also highlighted the importance of managing basis risk in parametric triggers. These have proved vital for quick disaster financing, but they can mismatch actual losses (basis risk), he noted.
“By design, they only approximate financing needs, and so there is a possibility that the parametric index doesn’t align exactly with damages observed and associated costs on the ground, resulting in situations where parametric payouts are less or greater than what a policyholder expects given observed impacts and their understanding of the coverage provided by the insurance,” Meenan explained.
To address this issue, CCRIF’s ‘aggregate deductible cover’ (ADC) uses extra data to trigger small payouts when the main index fails, improving the accuracy of parametric insurance, as seen in Beryl’s impact on Trinidad and Tobago and the Cayman Islands.
The ADC feature from CCRIF serves as an important proof of concept which provides a potential blueprint for the development of hybrid parametric instruments globally, particularly for more complex risks, Meenan stated.
