A parametric insurance product for recovery from natural disasters such as hurricanes has been developed for Caribbean utilities.
The product from Caribbean segregated portfolio company CCRIF SPC is aimed to limit the financial impact of the devastating tropical storms to which the region is prone by quickly providing liquidity to enable more rapid recovery when a policy is triggered.
Parametric insurance products are insurance contracts that make payments based on the intensity of an event such as the wind speed of a hurricane or volume of rainfall. The amount of loss is calculated in a pre-agreed model caused by these events, which enables the rapid payout – in the case of CCRIF, within 14 days after a hazard event.
This differs from traditional or indemnity insurance, which requires on-the-ground assessment of individual losses after an event before a payout can be made.
“The role of electricity in the economic and social life of the region is pivotal,” says Dr Cletus Bertin, executive director of the Caribbean Electric Utility Services Corporation (CARILEC).
“This 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.”
CARILEC, the region’s electricity industry association, collaborated on the development of the product with CCRIF.
The electricity utilities product, named the Caribbean Public Utilities SP, is limited to covering direct damage to the transmission and distribution components of the power system due to the impacts of wind. An issue faced by utilities in the Caribbean with its annual threat of hurricanes is the inability to purchase traditional insurance for overhead T&D infrastructure due to limited availability and uneconomical pricing.
The first purchaser of the product is Anguilla Electricity Company (ANGLEC), which was severely impacted by Hurricane Irma in 2017.
“Almost all of the transmission and distribution network was destroyed costing the company in excess of XCD40 million ($14.8 million) to restore,” says ANGLEC acting CEO Peter Lamontagne. “At the time the company had XCD16 million in its reserves 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.”
The development of the CUP SP was supported by the government of Ireland and it is the fifth SP in the CCRIF structure.