With co-financing from a Multi-Donor Trust Fund (MDTF) administered by the World Bank, the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) provides sovereign insurance against earthquakes, tropical cyclones and excessive rainfall to countries of the Caribbean and Central America. Currently, 19 countries in the Caribbean and 3 in Central America have memberships, which over the years have resulted in 54 disbursements totaling $245 million, benefiting over 3.5 million people.
The region comprising Central America and the Caribbean is characterized by great cultural and environmental diversity and is also vulnerable to natural hazards, including earthquakes, hurricanes and floods. Recent disasters that have affected the region include the record-breaking hurricane season of 2017, with two Category 5 storms, as well as the devastating earthquakes that struck Haiti in 2010 and 2021. The human and economic losses caused by such disasters hinder the sustainability of development processes in the region. As a result, many governments face growing funding shortfalls to respond to disasters; this may require additional borrowing to meet emergency response demands, increasing their financial exposure and limiting support to already overstretched emergency systems.
To address this challenge, a World Bank project sought to improve the accessibility of high-quality sovereign transfer of disaster risk associated with earthquakes and climate-related events for countries participating in the CCRIF SPC. Supporting climate risk insurance products is critical to the World Bank’s priorities for climate finance innovations that promote adaptation and resilience at the sovereign level. Through the project’s innovative insurance mechanism, rapid disbursements help member countries finance their initial disaster response, alleviating the short-term cash flow problems that developing economies suffer after major disasters and helping member countries maintain basic government functions after a catastrophic event.
The profitability of CCRIF SPC products is enhanced by the pooling of risks between member countries in order to optimize their access to shared reserves and diversified coverage of the international reinsurance market.
In the context of the COVID-19 pandemic, the expansion of donor support through the World Bank has enabled CCRIF SPC to increase premium discounts for members while ensuring the long-term sustainability of the insurance mechanism.
Since 2007, CCRIF has paid out 54 installments to 16 of its members for approximately $245 million paid out within 14 days of the disaster.
Since 2007, CCRIF disbursements have benefited more than 3.5 million people in the Caribbean and Central America. The use of payments over the years has included providing food, shelter and medicine to those affected; stabilization of drinking water plants; providing building materials to people to repair their homes; repair critical infrastructure such as roads, bridges, hospitals and schools; payment of government salaries; and agricultural support, among other uses, as shown in the table below.
The 2020 Atlantic hurricane season was the most active hurricane season on record and CCRIF made 6 payments totaling US$21.9 million – all within 14 days of the event. Four disbursements were made to Central American countries (Nicaragua and Panama) and 2 disbursements to Caribbean countries (Jamaica and Trinidad and Tobago).
The largest payout in CCRIF history was paid to Haiti in August 2021 for nearly $40 million following the $7.2 million earthquake.
Bank Group Contribution
The World Bank, through the CCRIF MDTF, has provided grants totaling $23,750,000 to help fund this project. CCRIF’s MDTF channels grant resources from the European Union, Canada, the United States and the Federal Republic of Germany. The Global Facility for Disaster Reduction and Recovery (GFDRR) also provided grants channeled through the European Union. Between 2015 and 2021, approximately $46.7 million has been provided to the CCRIF SPC through recipient-executed grants and with complementary bank-executed technical assistance to build technical capacity in the region. Currently, CCRIF SPC provides its members with over $500 million in pooled reserves and claims-paying capacity backed by international reinsurance.
The CCRIF member was developed under the technical direction of the World Bank and with a grant from the Government of Japan. It was funded through contributions to a Multi-Donor Trust Fund (MDTF) by the Government of Canada, the European Union, the World Bank, the governments of the United Kingdom and France, the Caribbean Development Bank and the governments of Ireland and Bermuda, as well as membership fees paid by participating governments. In 2014, a second MDTF was created by the World Bank to support the development of new CCRIF SPC products for current and potential members and to facilitate the entry of Central American and other Caribbean countries. The MDTF currently channels funds from various donors, including Canada, through Global Affairs Canada; the United States, through the Treasury Department; the European Union, through the European Commission, and Germany, through the Federal Ministry for Economic Cooperation and Development and KfW. Additional funding was provided by the Caribbean Development Bank, with resources provided by Mexico; the Irish government; and the European Union through its Regional Resilience Building Facility managed by the Global Facility for Disaster Reduction and Recovery (GFDRR) and the World Bank.
Inspired by the example of the CCRIF SPC, the World Bank has helped countries in Southeast Asia and the Pacific establish sovereign disaster risk pools that have evolved into regional coordination mechanisms through which governments can transfer the risks to the financial markets more effectively. Governments rely on the World Bank’s knowledge of its member countries, its in-house expertise in disaster risk management, and its reputation for impartiality in international capital and reinsurance markets. Long-term sustainability is fostered by CCRIF SPC’s drive to innovate with the development of new industry-specific products for Central America and the Caribbean, including unique coverages to support fisheries and utilities.
1. The sustainability of the project relies both on the continued operation of the CCRIF SPC and on the ability of the participating countries to pay the annual premiums for the insurance coverage. The financial stability of CCRIF SPC depends on its ability to cover payments to its members for eligible disasters without depleting its financial reserves, and its ability to attract new members and sustain business. In addition, countries’ willingness to continue to purchase insurance coverage each year after project closure depends on their understanding of the parametric insurance instrument, the added value it brings to their DRFI strategies, as well as as the quality-price ratio of the products offered. Due to the COVID-19 pandemic, all CCRIF SPC member countries are facing budgetary constraints, so the deeper discounts on risk transfer products provided by CCRIF SPC are essential to maintain and expand the coverage levels in the region, subject to the consistency of such discounts. with the financial survivability and long-term viability of CCRIF SPC.
“CCRIF SPC provides parametric insurance coverage to Caribbean and Central American governments to limit the financial impact of tropical cyclones, excessive rainfall and earthquakes when a country’s policy is triggered. The insurance parametric CCRIF is designed to pre-finance short-term liquidity or fill the protection gap, allowing countries to begin recovery efforts immediately after a catastrophic event and provide support to the most vulnerable of their populations. he Atlantic 2020 is the most active hurricane season on record and CCRIF has so far made 6 payments totaling US$21.9 million – all within 14 days of the event. to Central American countries. Isaac Anthony, Managing Director CCRIF SPC (formerly Caribbean Catastrophe Risk Insurance Facility)