The Caribbean CWUIC Steps

The problem

The Caribbean is in the tropical cyclone belt and every year one or more of the countries experiences the impact of a tropical storm or hurricane. These impacts can be devastating, ripping away roofs, bringing down power lines and washing away water pipelines. And with climate change hurricanes are set to increase in strength and ferocity bringing with them even more destruction. Each year as the region takes two steps forward in its development, natural disasters knock it back, creating a downward cycle of impoverishment. But the Region is working to break that cycle.

Fighting back

In 2004 the Region was hit by several catastrophic hurricane events. This was a wake-up call for governments and for the first time we saw Heads of Government coming together to say enough was enough and that the region had to be more proactive in addressing the aftermath of natural disasters. A decision was made to approach the World Bank to design and develop a disaster risk financing mechanism. At the same time, utilities were taking practical but ad hoc steps in providing assistance such as personnel and equipment in the immediate aftermath of disasters. However, it was soon realised that anything approaching a disaster fund though would be quicky depleted so steps being taken in that direction came to a halt.

As consideration was given to how a disaster risk financing mechanism might work, the World Bank  and other parties decided to embark on the development of a disaster risk insurance facility. But this was to be something different from normal risk insurance, it was to be parametric insurance, structured around pooled risk across countries.

Caribbean Catastrophic Risk Insurance Facility (CCRIF)

CCRIF was established in 2007 based on partnerships between governments in the region, the international financing, and the donor communities. This was critical to mobilise the scale of support needed, and initially some US$67 million was raised to capitalise the Facility. The reinsurance market also had to come on board, something they were not initially comfortable with, and it took something of a leap of faith on their part to support the initiative. CCRIF was the very first multi-country risk pool insurance facility with economies of scale enabling it to share and keep costs down. And, unlike traditional insurers, any profits are ploughed back into the Facility. It has been so successful that it has been replicated in other parts of the world such as Africa, Asia and the Pacific regions.

CCRIF provides parametric insurance, this is based on regionally developed risk models whereby once an event meets predetermined parameters it triggers payment. It does not rely on post event damage assessments, the payouts from which can take months to make. It means that once the trigger parameters are confirmed, payouts can be made, usually within no more than 14 days after an event. In other words, it addresses one of the critical post disaster needs; access to financial liquidity to pay for supplies and resources.

The Facility started out with 17 participating Caribbean countries, but it has expanded to include countries in Central America and now covers 24 countries. By segregating its portfolio it has been able not only to expand coverage but also to develop new parametric insurance products. At present though the Facility supports governments and payments are channelled to them.

Caribbean Water Utilities Insurance Collective (CWUIC)

Small Island Developing States (SIDS) are extremely susceptible to disasters, resulting in water loss and water scarcity. Loss of water can lead to health, safety, and sanitation issues in affected countries, and it is imperative that water services be restored as soon as possible. At the same time there is an urgent need to expand and rehabilitate water and sanitation infrastructure to reach those who are increasingly vulnerable to climate change impacts.

Hence, utilities need more and better insurance to increase their resilience to natural disasters, to access funds to restore services quickly, improve their systems’ resilience and prioritise loss reduction measures. While utilities can obtain insurance to cover damage to buildings there is no similar facility to cover damages and losses arising from natural disasters.

A study in 2019, endorsed by Caribbean Ministers, recommended that CWUIC be established to help enable water utilities to access affordable insurance, that parametric insurance be offered to help facilitate rapid payouts based on triggers, and that the payouts be made directly to the utilities. The new facility builds on the expertise developed by CCRIF and is part of the portfolio of parametric insurance products offered by them. The intention is that CWUIC will become the water sector’s centre of excellence for disaster risk management and financing. It is divided into three components: the Response Programme which provides emergency response which provides coordination and support for early recovery assistance, affordable parametric insurance and quick liquidity after a qualifying natural hazard event, and resilience building programme to facilitate access to funding for priority resilience projects.

Are we there yet?

All this sounds admirable but is it a reality. The answer is, not yet but getting there.

Participants at the HLF-Water were given an update on progress. The key points were:

• There’s a wide range of interest in funding and supporting the initiative.
• The collection of asset information required for input into the individual country risk models was proceeding and completed in a number of countries enabling policy options to be offered.
• The process of gathering asset information for the country risk models has revealed the poor state of record keeping.
• Out of the 16 countries that have expressed an interest, nine have not provided the asset information to enable risk modelling to be undertaken.
• It is hoped that the facility will be launched in 2024.

The water sector has a tendency to be conservative in its approach and there may be challenges in persuading utility board members to sign on to a novel product. This to me the greatest hurdle and is evidenced by the slow progress and uptake to date. There is still some way to go before CWUIC becomes a feature of the Caribbean water sector landscape. But when it does – and I hope it will - it has the potential to be a game changer. Especially if it reaches all of the 35 water utilities in the Region. And it will do so in the same way that CCRIF has led the way globally in establishing parametric disaster insurance for governments. But whether the region’s water utilities are ready for it, we’ll have to wait and see.

About Adrian Cashman