CCRIF expands coverage to the private sector, launches new products for C’bean utilities
GRAND CAYMAN, Cayman Islands (CMC) — The Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC) says it has launched a new parametric insurance product which has been developed for the electric utility sector in the Caribbean.
“The development of this product is part of the scaling-up plans of CCRIF, which has as one area of focus the expansion of the facility’s product offerings, an example of which is to address the needs of the electric utility sector in the Caribbean,” said CCRIF CEO Isaac Anthony.
CCRIF said that by launching the new product it has expanded coverage to non-sovereigns and to the private sector. It currently provides parametric insurance coverage for tropical cyclones, earthquakes, excess rainfall, and the fisheries sector to 19 governments in the Caribbean and three in Central America.
CCRIF was developed under the technical leadership of the World Bank and with a grant from Japan. It was capitalised through contributions to a multi-donor trust fund (MDTF) 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.
Executive director of the Caribbean Electric Utility Services Corporation (CARILEC) Dr Cletus Bertin, in welcoming the new product, said: “The role of electricity in the economic and social life of the region is pivotal.
“This product is not just for the electric utilities sector. It is for the development of the region in terms of the economic and social life of the people, who are dependent on tourism as well as agri-business, light manufacturing, etc, which are all reliant on the steady supply of electricity.
“The product speaks to a broader agenda; our ability to bounce back quickly after a disaster and generate economic activity through the provision of electricity to the industrial and commercial sector,” he added.
CCRIF said that the parametric insurance product for electric utilities has been first purchased by the Anguilla Electricity Company Limited (ANGLEC) and it is working with other electric utilities in the Caribbean to join the facility.
“The electric utilities product aims to limit the financial impact of devastating tropical cyclones by quickly providing financial liquidity to electric utility companies when a policy is triggered.
“The product will be limited to covering direct damage to the transmission and distribution (T&D) components of the electric power system due to impacts of wind. One of the issues faced by most electric utilities in the Caribbean is the inability to purchase traditional indemnity insurance for overhead T&D systems because of the very limited availability and uneconomical pricing,” the CCRIF said in a statement.
It said developing a parametric insurance solution for the electric utilities sector is particularly important because of the natural catastrophe risks faced by many Caribbean territories.
T&D systems are particularly exposed to wind damage from tropical cyclones such as storms and hurricanes.
“The close relationship between wind speed and overhead T&D system damage created the opportunity for CCRIF to develop a new and innovative parametric insurance product which could be priced much more competitively in the marketplace than traditional indemnity insurance and would present lower basis risk to the insured utilities,” said Anthony.
ANGLEC acting CEO Peter Lamontagne said that the utility company was severely impacted by Hurricane Irma in 2017 and almost all of its transmission and distribution network was destroyed costing the company in excess of EC$40 million to restore. “At the time, the company had EC$16 million in its reserves (a self-insurance fund) and, needless to say, all the reserves were used up. There was an urgent need to find an alternative mechanism because of the active hurricane seasons that we are experiencing,” he added.
CCRIF said economic losses of utility sectors, particularly transmission and distribution systems, after these events also are high, with citizens oftentimes bearing the brunt of the costs through their electricity bills.
“The ability to provide quick liquidity is an important feature of parametric insurance considering the urgent need for liquidity after a catastrophe. Parametric insurance products are insurance contracts that make payments based on the intensity of an event and the amount of loss calculated in a preagreed model caused by these events,” the CCRIF added.