Fiji signs up to Cat-in-a-Circle parametric cyclone insurance with PCRIC
Fiji has signed a committent letter with the Pacific Catastrophe Risk Insurance Company (PCRIC) to take-up its parametric cyclone insurance product, on the sidelines of the World Bank Group and International Monetary Fund Annual Meetings in Morocco yesterday.
Fiji has been a Foundation Member of the Pacific Catastrophe Risk Insurance Company (PCRIC) for some time, but had never taken up a parametric insurance policy from the risk pool until this agreement.
The parametric insurance arrangement has been tailored to met Fiji’s needs and will be in-force for the cyclone season this year.
It’s the first sovereign parametric disaster insurance policy that Fiji has secured, a significant move for the island nation that is particularly exposed to tropical cyclones, flooding and climate related disaster events.
The Fiji parametric tropical cyclone insurance product has been structured as a Cat-in-a-Circle, meaning payouts would be triggered based on cyclones of a certain intensity or above entering a defined parametric circle layout.
Reports suggest that Category 3 and above cyclones will be covered, but with the trigger concentrated only on certain coastal areas of particular exposure.
The parametric trigger has been designed with a focus on the coastal areas of Viti Levu and Vanua Levu, with both trigger zones having a 40km buffer into the ocean to capture major storms that pass close by, as well as the coastal areas of Yasawas and Kadavu, with these having a 15km buffer around them into the ocean.
A payout would come due if a Category 3 or above cyclone enters these parametric trigger zones, the circles that the cat (catastrophe) needs to move into.
Fiji expects to have between US $9 million and US $10.5 million in coverage available under the parametric cyclone insurance from PCRIC, dependent on reinsurance support for the product.
The total premium to be paid is estimated to be US $1.5 million, although that will likely only be confirmed once the reinsurance support is finalised.
Deputy Prime Minister and Minister for Finance of Fiji, Hon Prof. Biman Prasad, explained that cyclones and other climate disasters cause significant impacts to the country each year, imposing “substantial financial bearing on Government’s balance sheet.”
He said, “The reality is that we now must fork out more money from Government’s coffers towards responding in times of emergencies, building climate resilient infrastructure and relocation of population affected by rising sea levels and loss of arable lands.”
Fiji has been actively building out its disaster risk financing and resilience support, with standby loans contingent on the declaration of disasters, as well as signing up recently for the World Bank’s Catastrophe Deferred Drawdown Option (CAT DDO) product.
The Deputy Prime Minister noted that adding sovereign parametric insurance to Fiji’s catastrophe response toolkit is aligned with its goals of safeguarding its people, building resilience and increasing the financial stability of the Pacific island nation in the wake of disasters.
Fiji joins the Cook Islands, Samoa and Tonga as parametric insurance policyholders under the Pacific Catastrophe Risk Insurance Company (PCRIC), adding a new country to the risk pool and enlarging the pool of risk that will be transferred to international reinsurance markets.
