Covering Climate Risk in the Caribbean
January 13th, 2024
By Jeanette G. Awai
Over the last 30 years, flood and tropical storm damage in the Caribbean has affected 1.5 million persons directly and caused over US$5 billion in damage. Extreme weather events in the region are increasing in frequency and intensity. Therefore, there is a growing need to explore options for managing and transferring risks associated with climate change.
Caribbean countries face a range of natural hazards including hurricanes, storms, excess rainfall, flooding and landslides. In Small Island Developing States (SIDS), a single catastrophe can have a disproportionate effect on the economy, with hurricanes reported to have caused damage ranging from 6% to 200% of gross domestic product (GDP). A single disaster can cause losses to a large proportion of clients, and the need to pay lots of claims all at once can be disastrous for any insurance company.
Innovating in insurance
The Caribbean has been at the forefront of developing new tools to address climate change risk. In the region, climate risk insurance covers calamities at the macro level through governments and insurance pools such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC), which “limits the financial impact of catastrophic events to Caribbean and Central American governments by quickly providing short-term liquidity.” Similarly, the Munich Climate Insurance Initiative (MCII) is leading the Climate Risk Adaptation and Insurance in the Caribbean (CRAIC) project, which seeks to address climate change, adaptation and vulnerability by promoting weather-index based insurance as a risk management instrument. The project has developed two parametric weather-index based risk insurance products aimed at low-income individuals and lending institutions exposed to climate stressors: the Livelihood Protection Policy and the Loan Portfolio Cover.
Building insurance resilience for all
Caribbean microinsurance for climate risk is on the rise. In 2022, CCRIF SPC signed a Memorandum of Understanding with Guardian General Insurance Limited, which is headquartered in Trinidad and Tobago, to “offer individuals and organisations… the ability to protect themselves against economic losses that result from extreme weather associated with wind and rain. Guardian General Insurance Limited will provide access to the Livelihood Protection Policy (LPP) – a parametric microinsurance product designed to help protect the livelihoods of low-income and vulnerable persons such as small farmers, seasonal tourism workers, fishers, market and food vendors, musicians, day labourers, and small entrepreneurs, by providing quick cash payouts following extreme weather events (specifically, high winds and heavy rainfall).” Through transformative collaboration, the regional and local insurance industry is responding to the fight against climate change by developing innovative solutions to cover all.