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New insurance product targets water utility

Regional insurance facility CCRIF SPC has expanded its portfolio to incorporate coverage for water utilities, a facility backed by the Foreign Commonwealth & Development Office, FDCO, based in the United Kingdom.

FCDO has provided US$25 million to capitalise the Caribbean Water Utility Insurance Collective, CWUIC, which CCRIF says will operate as a segregated portfolio.

CCRIF, which provides parametric insurance for governments of the Caribbean and Central America, says CWUIC will provide premium subsidies for the insurance coverage to water utilities in six of the facility’s member or policyholder countries, namely, Belize, Dominican Republic, Guyana, Haiti, Jamaica and Suriname.

The regional insurer, led by current CEO Isaac Anthony, was once known as the Caribbean Catastrophe Risk Insurance Facility but contracted its name after adding Central American countries to its list of policyholders.

“The Government of Jamaica currently has CCRIF parametric insurance policies for tropical cyclones, earthquakes, and excess rainfall. A CWUIC policy would be purchased by the country’s water utility and the level of coverage would be selected by the utility,” the insurance facility told the Financial Gleaner.

Jamaica’s state-owned water utility National Water Commission, NWC, handles its insurance needs through brokers. Its last tender was in December 2022, out of which it was to issue a three-year contract ending 2026 for general insurance coverage related to property all risk, sabotage and damage to its network, loss of money, public liability, commercial and private vehicle insurance, among a number of other policies.

The facility now being offered by CCRIF will provide coverage for recovery from disasters.

A formal response to the development was not forthcoming from National Water Commission up to press time; however, it’s understood that the matter will likely first be assessed by the commission’s internal auditors and others prior to a decision on its efficacy.

The Jamaican government’s current policy with CCRIF offers it coverage of US$81 million against hurricanes, US$125 million against earthquakes, and US$31 million against excess rainfall. In local currency terms, the coverage adds up to about $37 billion.

CCRIF explained that the new product will offer protection against extreme weather events such as hurricanes, tropical storms, and excess rainfall events for water utilities. It was developed by CCRIF in collaboration with three partners: Inter-American Development Bank, which provide technical and financial support for the structuring of CWUIC; FCDO; and the Caribbean Development Bank.

The facility will support emergency response planning and restoration and recovery efforts post-disaster; provide insurance payments to finance recovery efforts; and provide advisory services and technical assistance to strengthen the resilience of water and wastewater utilities to natural hazards.

As a segregated portfolio company, CCRIF’s services are divided into cells as a risk management strategy. Under this structure, there is the sharing of operational functions and costs, thereby allowing the regional insurer “to offer products that cost much less than if each member were to approach the reinsurance market individually”, it said.

Water utilities is CCRIF’s sixth parametric insurance product segment, the other five being tropical cyclones, excess rainfall, earthquakes, coverage for the fisheries sector, and the electric utilities sector for transmission and distribution.

Payouts to policyholders are generally triggered when certain preset conditions are met relating to the intensity of disaster events and the size of the losses incurred.

CCRIF makes payouts within 14 days after a member’s policy is triggered. Since its inception in 2007, the regional facility has 60 payouts totalling US$261.8 million to 16 of its member governments.

Currently, its membership stands at 19 Caribbean governments, four Central American governments, and three Caribbean electric utilities.

The US$25-million FDCO financing to CCRIF is interest-free, with repayment after a 20-year period.

National Water Commission’s current budget for disaster recovery is unknown.

The Jamaican government has a contingency fund for natural disasters set at $10 billion. It has a US$285-million Contingent Credit Claim agreement with the IDB that disburses in the event of a hurricane catastrophe, and, two years ago, Jamaica also issued a US$185-million catastrophe bond in the global capital markets through the World Bank.

Cat bonds are themselves considered to be a form of parametric insurance. Grants from the governments of the United Kingdom, Germany, and the United States pay the entire premium for the cat bond over the three hurricane cycles it covers.

CCRIF itself was also developed with the support of the World Bank.

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