Caribbean Catastrophe Risk Insurance Facility last week announced the introduction of a new parametric insurance product that will benefit players in the region’s electric utility sector.
“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,” CCRIF CEO, Isaac Anthony, explained.
With the launch of the new product, the CCRIF has expanded the reach of its insurance coverage to non-sovereign and private sector entities, and has therefore moved closer to diversifying its portfolio and membership.
Up until last week, the facility only provided parametric insurance coverage for tropical cyclones, earthquakes, and excess rainfall to the fisheries sector and 19 governments across the Caribbean and Central America.
However, by launching the new insurance product, CCRIF is aiming to reduce the devastating financial impact that natural disasters have on regional electric utility suppliers. By triggering their policies, the companies will have access to funding that will assist in their recovery efforts.
“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, Executive Director of the Caribbean Electric Utility Services Corporation (CARILEC) Dr Cletus Bertin stated.
“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.
Notwithstanding, CCRIF explained that utility companies can only claim coverage for direct damage to the transmission and distribution (T&D) components of electric power supply systems due to the impact of winds. The facility notes, too, the significance of this provision since most Caribbean electric utility providers find it difficult to secure indemnity insurance for overhead T&D systems, due unavailibility and affordability.
Anthony pointed out, therefore, the uniqueness of developing the parametric insurance solution given the types of natural disasters that affect the Caribbean.
“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,” he said.
So far, the launch of the product has attracted the attention of the c (ANGLEC) — with other regional electric utility providers waiting to sign on.
In fact, Acting CEO of ANGLEC Peter Lamontagne understands too well the effects of natural disasters on Caribbean electric utility providers, given the region’s location in the hurricane belt and along fault lines. Even more, he understands the urgency of having adequate insurance.
“ANGLEC 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 XCD40 million to restore. At the time the company had XCD16 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 related.
Now he is more confident that the economic losses, particularly to transmission and distribution systems, after disasters won’t overburden his company’s coffers. Moreover, the company will not have to pass on the costs to its customers through electricity bills.
Again highlighting the convenience of the product, CCRIF said that due to the urgency of needs following a catastrophic event, it can make payouts 14 days after.
“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,”Dr Cletus Bertin , executive director — Caribbean Electric Utility Services Corporation
“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 (for example, hurricane wind speed, earthquake intensity, volume of rainfall) and the amount of loss calculated in a pre-agreed model caused by these events,” the facility stated.
Still, CCRIF doesn’t take all the credit for conceptualising the new insurance product. Its CEO, Anthony, thanked the Government of Ireland for providing grant funding to develop the product. In addition, the facility pointed out that the development process was undertaken in close collaboration with CARILEC.
Bertin, speaking on behalf of CARILEC, said his organisation “… intends to promote the product as a proof of concept so that other utilities can assess the mechanism.
“The CARILEC Secretariat will continue to work with CCRIF as it continues to reach out to other utilities of CARILEC — both government-owned and investor-owned — to encourage them to sign on to this very useful insurance package,” he added.