Central America is a region that is highly exposed to natural hazards, with the effects of climate change making natural disasters an ever more common occurrence. Earthquakes, hurricanes, tropical storms, and droughts continually cause damages that are particularly acute for vulnerable low-income populations who lack an adequate safety net. According to data from the Central American System of Integration (Sistema de la Integración Centroamericana, SICA), 250 extreme events have been registered between 1930 and 2008.
Every year natural and man-made catastrophes cause a distressing loss of lives and considerable economic costs around the world. Both industrialised and developing countries are affected. Surprisingly, both are also materially underinsured.
This financing gap is borne largely by the public sector, and may create long-term fiscal instability at a time when government budgets are stretched. Furthermore rating agencies are starting to take a closer look at such contingent liabilities faced by public administrations.
Mexico has been hit by no less than seven major catastrophes since 1985. In 2005 Hurricane Wilma caused total economic damages of over USD 22 billion ‒ more than USD 8 billion of which were uninsured. Small wonder that the federal government has been an innovator in disaster risk management.
FONDEN ´excess of loss´ reinsurance structure
Declared natural disaster (eg flood, hurricane, earthquake)
Some of the world’s worst flooding takes place in Bangladesh. Prolonged and heavy rainfall creates floods that destroy lives, crush homes and wash away crops. Affected families often have to cope by taking out expensive loans or selling essential assets.
Flood insurance for non-governmental organisations (NGOs)
Pre-defined cash relief
Since 1980, nine countries in Central America and the Caribbean have had at least half of their annual gross domestic product (GDP) wiped out by a natural catastrophe. The 2010 earthquake in Haiti had an estimated impact of 120% of GDP.
Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC)
Tropical cyclone, earthquake, excess rainfall