Page 18 - IB April 2021

Insurance Insurance

The headmaster of Central School dries out books after Cyclone Pam in Port Vila. Photo: Reuters
SAVING FOR A RAINY (CYCLONIC,

DROUGHT-STRICKEN, STORM-SURGE) DAY

By Samantha Magick enterprises, who are disproportionately affected by natural
disasters, as well as vulnerable sectors such as agriculture,
It is well understood that the Pacific Islands is one of the fisheries, retail and tourism.
least insured regions in the world, with some estimates put- Reports produced by the Program looked at the situation
ting the penetration rate at just 3.6%. in several island nations, finding that in Tonga, “most people
These figures are particularly sobering given our collective and businesses have no insurance protection, coverage against
vulnerability to climate change impacts. The cost of damage natural hazards is difficult to obtain and expensive, and the
from cyclones to governments can be debilitating, particularly national regulatory framework is inadequate.”
if they come on top of another pressure, such as the coronavi- The Programme reports that non-life insurance penetration
rus pandemic. Cyclone Winston in 2016 cost Fiji an estimated in Tonga was only 0.9%, well below the average for the Pacific
US$470 million. Cyclone Pam a year earlier cost, Vanuatu in region. Only 13% of adults report having any form of insurance
the region of US$450 million. Tonga, Vanuatu and Fiji suffered (mostly life and health cover), while 22% report that they are
significant financial tolls as a result of Cyclone Harold last unfamiliar with what insurance is, according to the National
year. Reserve Bank of Tonga.
However there has been some incremental progress in the Similarly in Vanuatu after Tropical Cyclone Pam in 2015,
climate change financing space in recent times. “many business owners who had not procured cyclone insur-
Last December the Governor of the Reserve Bank of Fiji, ance folded in the aftermath of the storm, unable to reinvest
Ariff Ali, launched the Pacific Insurance and Climate Adapta- sufficient savings in their businesses or to tap sources of
tion Programme. The initiative is designed to provide “agile credit” according to the World Trade Organisation.
and immediate post-disaster financing through market led di- Back in 2013 the Pacific Catastrophe Risk Insurance Com-
saster risk financing instruments,” he said. The development, pany (PCRIC) launched a pilot parametric insurance product to
piloting and scaling of market-based parametric insurance provide short term liquidity to governments in the immediate
solutions will be part of the Programme’s work. aftermath of disasters caused by cyclones, earthquakes and
It is a project of the UN Capital Development Fund, United tsunami. Last year under this arrangement, Tonga received
Nations University, and United Nations Development Program, US$4.5 million from PCRIC following Tropical Cyclone Harold.
and will be focused on women, youth and medium and small PCRIC is a captive insurance company, allowing members

18 Islands Business, April 2021