.png)
Regional Hurricane Catastrophic Windstorm Insurance Pool
A few weeks ago, I penned an article on reimagining and retransforming the Caribbean Disaster Management Agency (CDEMA). One of the suggested recommendations in the article was to: Establish a regional windstorm/emergency disaster insurance pool to help fund individuals and businesses losses. As such, the purpose of this article is to wax briefly about the value and benefits of a catastrophic windstorm insurance pool.
Disaster Proneness & Vulnerabilities
The Caribbean region, including the [British] Virgin Islands (VI), is one of the world's most disaster-prone areas. The region is vulnerable and susceptible to hurricanes, floods, tsunamis, and man-made disasters. St Vincent and The Grenadines is currently dealing with the active eruption of the La Soufriere volcano.
Hurricane Preparedness & Readiness
The VI people, government, NGOs, institutions, social organisations……etc. cannot take any prisoners in preparing and readying to protect life and property against the devastating effects of hurricanes to the maximum extent practical and possible. Residents must resist the temptation of being wedded to complacency, having escaped a few cycles of not being hit by a hurricane. Complacency can be deadly and destructive. September 2017 is a black-letter day/month in the annals of the VI hurricane experience. Monster category 5 hurricanes Irma and Maria ravaged the VI on September 06 and 17, 2017, respectively. The VI experienced estimated damages at $1.7B, not including revenue and other losses. Residents that rode out and experienced the storms will long remember the demoralising and devastating experience.
Hurricane Season
The Caribbean/CARICOM region lies in the Atlantic hurricane belt. Hurricane season traditionally and officially started on June 1 and ran through November 30 annually. Nonetheless, due to the increasing pace and impact of global warming/climate change, hurricanes and other tropical weather systems occur more frequently, more severely, and running later than customary. Consequently, hurricane season start is poised to shift to an earlier date; though unofficial, hurricane season is currently underway. Colorado State University hurricane scholars predict a more dangerous and active, and above-average hurricane season with 17 named storms and 8 of which will be hurricanes, with 4 becoming major hurricanes.
Hurricane Impact
The region/CARICOM hit by a hurricane is not a matter of if but when. One island or more will typically experience damages and significant loss during the Atlantic hurricane season due to hurricane-force winds, heavy rains, and floods. Most regional countries are resource-poor with fragile economies, i.e., tourism, and limited capability and capacity to rebound quickly after a hurricane. Hurricanes are a risk and pose a peril to the health, safety, and economic well-being of the VI and other small island developing states (SIDS) and residents. The impact of hurricane damages changes lives, livelihoods, and circumstances, imposing severe hardships on island residents living on the margin. Many regional residents may lack the resources to recover from catastrophic hurricane damages quickly. A catastrophic hurricane windstorm insurance pool can go a long way in making residents whole.
Catastrophic Windstorm Insurance Pool
Regional governments and disaster management personnel cannot remove the risk or the hazards that contribute to the perils of hurricanes; however, they can take action to mitigate the impacts of hurricanes. One mechanism that can help mitigate the devastating effects of hurricanes is a regional catastrophic insurance pool to address fortuitous losses incurred by regional residents. A catastrophic regional insurance pool can offer at least three benefits.
First, it transfers risks from the insured to insurers, which indemnifies the losses incurred by the insured. Insurers are typically in a better financial position to address losses than the insured.
Second, insurance pooling spreads the losses of a few to the many in a group, allowing average loss to substitute for actual loss. The value of pooling can best, perhaps, be demonstrated by a simplified example. Assuming 1,000 property owners in the eastern area of the VI, including Virgin Gorda and Anegada, owned individual properties value at $150,000 each. All 1,000 property owners agree to be part of an insurance pool, sharing all losses. If one property suffers a total loss from a hurricane, the average loss ($150,000/1000) of $150.00 will substitute for the actual loss of $150,000. The much lower average loss is a result of the benefit and value of pooling. CARICOM population of 18,000.000 plus, if it were in an insurance pool, can effectively lower the cost of individuals and businesses insurance, spreading widely over a large base. There is a high probability that the whole region will not be devastated at once. Setting up a catastrophic hurricane windstorm insurance pool will require planning, programming, creating policies, budgeting, and executing effort, but it is doable. It will need some working capital/seed money.
Moreover, the third benefit of the pool is that insurers can use the law of large numbers to predict the future of losses with some accuracy. Further, residents can benefit from pooling in other insurance areas, i.e., non-catastrophic property losses, health, disability, life, long-term care. auto, marine, casualty……etc. Further, it is important to note that insurance companies operating in small locales with small customer bases may have to charge higher fees to stay solvent to meet customer needs and expectations.
The region pooled resources to enhance access to a higher level of education through the University of the West Indies (UWI), i.e., to train doctors, lawyers, engineers, pharmacists, architects, surveyors, business, IT, teachers, nurses………etc. Additionally, the region pools talent to put a world-class and competitive West Indies Cricket team on the pitch. Thus, it can pool regional resources to craft and execute a catastrophic hurricane windstorm insurance pool to fund damages from hurricanes, boosting resiliency. The region has the opportunity and an obligation to work cooperatively, collaboratively, and competently to maximise its limited resources to benefit the most regional people. The future and well-being of the region lie in regional integration and sharing and maximising resources. The region would have been farther along and more progressive if residents had demanded that leaders put aside insularity and give the short-lived West Indies Federation (1958-1962) a fighting chance to succeed. The new math of "one from ten leaves nought." was prophetic. Nonetheless, the region can rebound from the ashes like the phoenix. Unity is strength; political unity works relatively for the US, Canada, EU, and Australia.
_(1)1.png)
.png)
_-_Made_with_PosterMyWall.jpg)
4.png)
_01.png)
Follow Us On
8 Responses to “Regional Hurricane Catastrophic Windstorm Insurance Pool”
Further, some coastal states in the US have special windstorm(Hurricane) insurance, ie, Texas. Catastrophes are difficult to manage with cost being difficult to predict and can quickly bankrupt an insurance company(s). They also can quickly create financial hardships that many residents cannot bear/meet. Thus, the cost is best spread across the whole and wider community. This approach lower the cost and impact for individuals and businesses and is in the national interest, ie, building and improving a country’s resiliency.
Thus, collectively spreading the cost of catastrophes across the whole CARICOM community make sense. Why has this issue not addressed at the regional level? Another casualty of every little dot in the Caribbean Sea trying to go it alone. The region needs to stop the separatist madness; it is a huge opportunity cost for regional people.