By Alexis R. Milan
The Council of Ministers of Finance of Central America, Panama and the Dominican Republic (COSEFIN) and CCRIF SPC (Caribbean Catastrophe Risk Insurance Facility), this week, signed a memorandum of understanding enabling Central American countries to join the facility to access catastrophe risk insurance.
The new 23-nation partnership is expected to benefit both existing and new CCRIF members by providing low prices due to more efficient use of capital and insurance market instruments.
During the ceremony, CCRIF SPC and the Government of Nicaragua also signed a Participation Agreement for Nicaragua to become the first Central American country to formally join the facility. Other member nations of COSEFIN are expected to join CCRIF SPC later this year and in 2016.
The facility enhances the fiscal resilience of its member countries to catastrophes caused by natural hazard events by providing immediate financial resources in the aftermath of a disaster, allowing governments to better respond to the initial needs of their populations and continue providing critical services. Since its inception, CCRIF has made twelve payouts totaling US$35.6 million to eight member governments. All payouts were transferred within two weeks after each event.
“After exploring options for engaging in sovereign disaster risk financing, Central American countries concluded that joining the CCRIF SPC facility was the most efficient and cost-effective insurance mechanism to pool our risk”, said Martin Portillo, COSEFIN executive secretary. “This will allow us to reduce our countries’ fiscal vulnerability to the adverse effects associated with earthquakes, tropical cyclones, excess rainfall and other events.”
Nine countries in Central America and the Caribbean experienced at least one disaster with an economic impact of more than 50 percent of their annual gross domestic product (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. Climate change also represents a significant development challenge, with average annual economic losses due to weather-related disasters amounting to 1 percent or more of GDP in ten Caribbean countries and four Central American nations, including Nicaragua.
Established in 2007, CCRIF is the world’s first multi-country catastrophe risk pooling mechanism which offers sovereign insurance at affordable rates to its members against hurricanes, earthquakes and excess rainfall. Currently, 16 Caribbean countries are members of CCRIF.
CCRIF was developed under the technical leadership of the World Bank and with a grant from the Government of Japan. It was capitalized through contributions to a multi-donor Trust Fund by the Government of Canada, the European Union, the World Bank, the governments of the United Kingdom and France, the Caribbean Development Bank and the governments of Ireland and Bermuda, as well as through membership fees paid by participating governments.