The Cayman Islands will be in a better position to deal with future natural disasters thanks to a new World Bank program, Leader of Government Business Kurt Tibbetts announced last week.
Participation in the Bank’s new Catastrophe Risk Insurance Facility will allow the Cayman Islands to gain access to insurance coverage against natural disaster risk that is more affordable and more effective, he said.
Mr. Tibbetts told the Legislature Thursday that the high transaction costs of conventional insurance force small nation states like the Cayman Islands to rely on financing from international donors to cover their post-disaster needs
Stung by the 2004 season, the CARICOM governments approached the World Bank assistance in finding a better solution to their insurance needs, and this new programme is a result.
Cayman is fortunate to be in the pilot group as the programme is being launched in the Caribbean. Once established, the Facility is intended to extend to other regions including the Pacific and Indian Oceans. Extending the pool allows for better risk diversification, and the hope is that this will further lower the premiums the Cayman Islands will pay.
Similar to a captive insurance pool, the programme may successfully provide Grand Cayman with much needed coverage if it proceeds as planned.
Mr Tibbetts outlined the benefits of participating in the programme, which include:
• Immediate liquidity if hit by an adverse natural event, which will fill any gap in the range of available sources of funds, and allow immediate claims payments to the treasury
• Assistance from donor countries which would contribute to initial capitalization.
• Access to additional risk capital through multi-year reinsurance.
• Claims payments depending on parametric trigger.
• The ability to pay annual premiums based on Cayman’s individual exposure.
By combining the funding capacity of donor countries and global reinsurance markets, regional and global fund pools will partially shield the Cayman Islands from the high variability of international reinsurance markets.
The project is well under way as the preparation phase has already been presented at the project’s launch conference in April of this year. Another conference will be convened this summer to receive pledges from donor countries and commitments from participant countries.
Another benefit of the programme for the Cayman Islands in particular is that the country is the second largest domicile for this type of insurance, making it a strong candidate to be the host domicile once the program is launched on January 1, 2007.
Financial details of the programme regarding premiums and fees have yet to be outlined.