An abundance of scientific climate research and recent events clearly indicate that many Pacific Island Countries (PICs) are vulnerable to natural hazards. The economic impacts of cyclones, droughts and tsunamis show why governments need disaster risk finance and insurance strategies to protect against fiscal shocks.
Take Palau as an example. Typhoon Marie struck in 1976 causing more than $4 million in damages, but then the Island remained unscathed for more than a generation. That all changed in November 2012, when Typhoon Bopha hit, causing an estimated $15-20 million in damages. A year later Typhoon Haiyan landed on Palau’s northern island of Kayangel, wiping out housing and crop yields. And in 2016, a severe drought forced the government to reduce public water access to an hour a day in most parts of Koror, where about 65% of the country’s population resides.
Fortunately today, technical and financial solutions are now available to help PIC governments to reduce the fiscal impact and underlying climate and disaster risks.
At the 2015 Forum Economic Ministers Meeting (FEMM), Pacific Islands’ ministers of finance agreed to form a regional risk pool that gives governments access to affordable, catastrophic insurance to cover against climate and seismic hazards. Last year, the region’s first catastrophe insurance platform was established – the Pacific Catastrophe Risk Insurance Company (PCRIC) – and is owned and directed by its subscribing members: Cook Islands, Marshall Islands, Samoa, Tonga and Vanuatu.
PCRIC policies are designed to payout within 10 days of a triggered event. Payouts provide an immediate injection of money for emergency costs and cushion the fiscal shock to the national budget. To date, two payouts to Tonga and Vanuatu paid out more than $3.2 million. The $1.9 million paid to Vanuatu totaled eight times the emergency budget provision.
Currently, PCRIC members and other countries are looking to expand insurance cover for additional climate hazards like drought and excess rainfall.
Parallel efforts by governments are enhancing financial and economic planning for climate risks. The public and private sectors are partnering to improve building codes. For example, Fiji is revising its housing codes as a direct response to Tropical Cyclone Winston that affected 60% of its population.
Local databases such as the Pacific Catastrophe Risk Information System (PacRIS) and similar historical weather databases forecast financial losses and damages to assets. The information is available, as is the opportunity for governments to take financial decisions. According to a regional study, annual direct losses caused by natural disasters in the Pacific are more than $250 million annually, not to mention the huge toll on human life.
The Pacific island region entered a new tropical cyclone season last month. The start of the season serves as a reminder that governments need to take on financial solutions, like PCRIC, to protect their people and economies against climate and disaster risk
Post created by Rhinehart Silas, Advisor to the Executive Director of the World Bank