Sabrina Gordon, Business Reporter
Dr. Simon Young, chief executive officer of Caribbean Risk Managers Limited. - Contributed
Jamaica's US$4 million premium has bought it US$94.4 million (J$6.5 billion) of insurance coverage for hurricane and earthquake damage under the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the Financial Gleaner has learned.
Operators of the facility, Caribbean Risk Managers Limited (CariRM), say they have collected some US$40 million from 16 countries - US$20 million in premiums, and an equal amount in a one-off 'participatory fee' - months into its start-up, according to Dr. Simon Young, chief executive officer for CariRM.
"All have paid in full except Haiti, who are completing the necessary paperwork at the moment," said Young.
Jamaica paid a participation fee of US$400,000.
Its subscription to the regional insurance programme, which became operational in June, provides added protection against catastrophic events and serves as a buffer to the tiny Contingencies Fund which the country would normally tap for emergency spending.
In the past four years, however, the allocation for contingencies has remained at $94 million. Compared, damage from hurricanes 'Dennis' and 'Emily' in 2005 cost Jamaica $6 billion. The year before, thebill from Hurricane Ivan was $36.8 billion, according to the Planning Institute of Jamaica.
Country coverage
Now, the country's coverage negotiated under CCRIF is US$50 million (J$3.4 billion) for hurricane damage and US$44.4 million (J$3 billion) for earthquakes, the Finance Ministry said in response to Financial Gleaner queries.
Policyholders under CCRIF negotiate premiums proportionate to their risk exposure and capacity to pay. Premiums of US$200,000 to US$2 million can secure coverage between $10 million and $50 million.
By pooling their risks into one portfolio, CCRIF estimates that countries would save an average of 40 per cent on premiums.
The coverage, said Young, is similar to business interruption insurance and provides policyholders with cash after a disaster.
"The fund will provide short-term relief for governments after an impact," he said.
"Of course, there are some aid agencies that provide grants, but the governments do have a very big expenditure after an impact, with revenue dropping to almost nothing.
CariRM is an "independent" company with the CGM Group, a regional operation with interests in Jamaica, Barbados and St. Vincent. CGM's chairman is Joseph Matalon of the ICD Group.
CariRM is the result a merger of the risk insurance arm of CGM Group and GeoSY Limited.
CGM Group itself was also created by a merger between International Insurance Brokers of Jamaica and CGM Insurance Brokers Limited of Barbados. Its operations expanded to St. Vincent in 2005 when the group acquired CGM Insurance Brokers (St. Vincent) Limited.
Revenue drop after storms
Pointing to the case of Grenada in 2004, Young said governments tend to experience a drop in revenues after a big storm hits.
"The government was not able to function for three months - government employees were not paid, debts were not serviced effectively," said the CariRM CEO.
"The aim is to provide a mechanism by which the governments could pay a premium and get a payment quickly to cover short-term revenue plunges in the event of a disaster," said Young, who has a background in earth science and since 2000 has worked as a consultant on natural hazards and catastrophe risk projects.
Prior to his current appointment, he was president of GeoSY.
The regional insurance facility, the first of its kind in the world, has a layered structure.
CariRM - which is in the business of risk assessment and management, with insurance and reinsurance companies and governments numbered among its clientele - is 'facility supervisor' or operations manager under contract issued by the CCRIF's executing agency, Jamaica Social Investment Fund.
Sagicor Insurance Managers (Cayman) Limited are insurance managers, selected by CCRIF because of their presence in the Cayman Islands, an offshore jurisdiction.
"Sagicor is thus the CCRIF's liaison with the regulators in Cayman and also look after the accounting, act as corporate secretary and are the registered office of CCRIF," said Young.
The reinsurers are Benfield out of the United Kingdom.
Pledges to kickstart fund
The CCRIF was created under the umbrella of the World Bank. It became operational this year after pledges were secured from the multilateral agency and its members to kickstart the insurance fund.
To date, the fund has US$75 million - US$35 million of which is from donor pledges, while the remainder comes from premiums and fees. Another US$10 million is pending from other donors.
To claim on the fund, the policyholder is required only to advise CariRM/CCRIF that it has sustained damage. There is no obligation to itemise its losses.
"A participating country has to submit a claim at some point in the process but only to indicate that the government has suffered a loss," said Young.
"Thereafter, CCRIF does all the work and pays the claim on the basis of (its) calculations."
The policyholder, if it wishes, can verify the calculations, which are done to an agreed formula outlined in the policy, and are based on the intensity of the storm or quake.
Insurance payouts are not conditional on specific losses in a country.
"It is the actual event and not the effect that is taken into consideration in calculating the size of the payout," noted Young.
Data for the calculations are obtained from official reporting agencies such as the United States National Hurricane Center (NHC) for hurricane hazards and the U.S. Geological Survey (USGS) for earthquakes.
Payouts are made in two tranches over a two-month period: an interim calculation is done after 14 days, based on preliminary information on the storm or quake, but the payment is made two weeks later, on the 28th day after the claim is lodged.
The second and final payment is made a month after that.
It is left up to the policyholder to decide how it deploys the funds.
Claims-paying capacity
The fund has a claims-paying capacity of US$110 million from reinsurance and US$65 million in own assets.
Some US$25 million of the funds assets is held in trust by the World Bank and the remainder is invested in short-term deposit accounts, said Young.
The CCRIF managers say their estimates indicate a less than one in 10,000 chance of a big event this year, leading Young to comment that the fund's claims-paying capacity was in a comfortable position.
Initially there were 18 members in the facility, however the British Virgin Islands have recently pulled out and Montserrat, whose biggest risk is from its Mount Souffriere volcano, requires special arrangement.
Young said negotiations are ongoing with Guyana and Suriname to sign onto the insurance scheme.
sabrina.gordon@gleanerjm.com
