When the 2010 earthquake struck Haiti, the Caribbean Catastrophe Risk Insurance Facility’s (CCRIF) was the first institution able to mobilize emergency funds within the first two weeks of the disaster to respond to the immediate needs of the Government.
CCRIF, supported by the Global Facility for Disaster Reduction and Recovery (GFDRR), is designed to offer insurance at affordable rates. Since its creation seven years ago, CCRIF has made eight payouts amounting to US$32 million to help countries manage budget volatility in the aftermath of recent natural hazards. This mechanism has successfully leveraged capital and insurance market capacity to strengthen climate resilience in these countries.
As individuals, we are used to paying relatively small premiums to protect our families in case our houses were threatened by natural events. Small island states in the Caribbean have been applying a similar model to protect themselves against far more likely and more devastating risks caused by tropical storms and earthquakes.
Nine countries in Central America and the Caribbean experienced a disaster which had an economic impact above 50 percent of their annual GDP since 1980. The impact of Haiti’s earthquake was estimated at 120 percent of GDP. The same year, tropical cyclone Agatha, in Guatemala, had devastating consequences and poverty rates increased by 5.5 percent. One year after the shock, food expenditures were 10 to 13 percent lower and school enrollment fell by 4 percent amongst children age 7 to 11 in rural areas.
For the first time, Ministers of Finance of the Caribbean and Central American countries met during the World Bank Group and IMF Spring Meetings to draw lessons from the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and see how this mechanism could be leveraged and opened up to Central American countries to cover tropical storms, earthquakes and other risks, including excess rainfall.
Nicaragua and Honduras were the first countries from Central America to announce they will be joining the facility. Other Central American countries including Panama, Costa Rica, Guatemala and El Salvador also have expressed strong interest in becoming members of the CCRIF.
During the meeting, the US Treasury and Mexico announced that they would support the initiative and provide US$10 million each, in addition to the approximately US$ 15 Million contribution already provided by Canada. Leonard Martinez- Diaz, Deputy Assistant Secretary, Environment and Energy, US Department of Treasury called on other donors present during the meeting to contribute. “We need to introduce a culture of insurance,” said Leonard Martinez. “As a donor, it is very exciting to see a useful application in the area of climate adaptation that is really sustainable”.