94981
FIJI
Country Note
PCR AFI 2015
FIJI
February 2015
Disaster Risk Financing and Insurance
© 2015 International Bank for Reconstruction and Development /
International Development Association or
The World Bank
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/// ///
FIJI PCRAFI i
Table of Contents
01 Acknowledgments
02 Acronyms and Abbreviations
03 Executive Summary
05 Introduction
07 Economic Impact of Natural Disasters
10 Public Financial Management of Natural Disasters
11 Post-Disaster Budget Mobilization
16 Post-Disaster Budget Execution
17 Insurance of Public Assets
19 Options for Consideration
20 End Notes
21 References
22 About PCRAFI
23 Annex 1
30 Annex 2
ii PCRAFI FIJI
Table of Contents
31 Annex 3
31 Executive Summary
32 Insurance Market Overview
41 Insurance of Public Assets
42 Options for Consideration
42 End Notes
43 References
44 Glossary
45 Annex 4
FIJI PCRAFI 01
Acknowledgments
This note has been prepared by a team led (SPC) through its Applied Geoscience and
by Olivier Mahul (Disaster Risk Financing and Technology Division (SOPAC), the World Bank,
Insurance Program Manager, World Bank) and and the Asian Development Bank, with financial
comprising Samantha Cook (Financial Sector support from the government of Japan and the
Specialist) and Barry Bailey (Consultant). Global Facility for Disaster Reduction and Recovery
(GFDRR).
The team gratefully acknowledges the data,
information, and other invaluable contributions The Disaster Risk Financing and Insurance Program
made by the Pacific Island Countries. Without their is grateful for the financial support received from
skills and expertise, the compilation of this note the government of Japan and the Global Facility
would not have been possible. for Disaster Reduction and Recovery.
This note benefitted greatly from the technical
expertise of the following persons: Franz Drees-
Gross (Country Director Timore-Leste, Papua New
Guinea. and Pacific Islands, World Bank), Olivier
Mahul (Disaster Risk Financing and Insurance
Program Manager, World Bank), Denis Jordy (Senior
Environmental Specialist, World Bank), Michael
Bonte-Grapentin (Senior Disaster Risk Management
Specialist, World Bank), Paula Holland (Secretariat
of the Pacific Community), and David Abbott
(Secretariat of the Pacific Community).
Inputs and reviews from Robert Utz, David
Knight, Kim Edwards, Oscar Ishizawa, Rashmin
Gunasekera, Keren Charles, Francesca de Nicola
and Susann Tischendorf greatly enhanced the final
note. Design and layout developed by Bivee.co.
Section
The Pacific Catastrophe Risk Assessment and
Financing Initiative (PCRAFI) is a joint initiative
between the Secretariat of the Pacific Community
A
02 PCRAFI FIJI
Acronyms
and Abbreviations
DISMAC Disaster Management Council
DRFI disaster risk financing and insurance
FEA Fiji Electricity Authority
FPCL Fiji Ports Corporation Limited
F$GDP gross domestic product
GFDRR Global Facility for Disaster Reduction and Recovery
HFA Hyogo Framework for Action
IAIS International Association of Insurance Supervisors
ISR Industrial Special Risks
NDMO National Disaster Management Office
NDRFF National Disaster Relief and Rehabilitation Fund (“Prime Minister’s Fund”)
PCRAFI Pacific Catastrophe Risk Assessment and Financing Initiative
PIC Pacific Island Country
RBF Reserve Bank of Fiji
RFA Regional Framework for Action
SIDS Small Island Developing States
SOPAC Applied Geoscience and Technology Division of SPC
SPC Secretariat of the Pacific Community
SPREP Secretariat of the Pacific Regional Environment Programme
TC Tropical Cyclone
UNDP United Nations Development Programme
UNISDR United Nations International Strategy for Disaster Reduction
Currency: Fiji dollar (F$)
Average exchange rate: US$1 = F$1.86
Section
A
FIJI PCRAFI 03
Executive Summary
This note aims to build understanding of the
/// disaster budget execution. During the response
///
existing disaster risk financing and insurance to TC Evan, an internal memo was produced
(DRFI) tools in use in Fiji and to identify gaps detailing the finance procedures and processes
where potential engagement could further to be followed. This document has since been
develop financial resilience. In addition the
///
transformed into a finance manual that sets out
note aims to encourage peer exchange of regional a step-by-step process, details the structure of
knowledge, specifically by encouraging dialogue on the operation, and establishes key focal points,
past experiences, lessons learned, optimal use of processes, and procedures before and during the
these financial tools, and the effect they may have operation and the acquittal process.
on the execution of post-disaster funds.
Fiji has F$3 million (US$1.6 million) available
///
In 2012 alone Fiji experienced three major
///
in DRFI instruments to facilitate disaster
events with estimated total damage of F$146 response. It has established two sources of
///
million (US$78 million) (Government of Fiji dedicated funds, the National Disaster Relief and
2013c).These include the severe flooding in January
///
Rehabilitation Fund (NDRRF), which can release up
in the areas of Ra, Tavua, Ba, Lautoka, Nadi, to F$1 million (US$0.5 million), and the recently
Nadroga, Sigatoka, and Rewa; even more intense established Rehabilitation Fund, which receives an
flooding in these same areas in March; and Tropical
annual appropriation of F$2 million (US$1 million).
Cyclone (TC) Evan in December. The government
In any given year, there is a 57 percent chance
of Fiji estimated that damage from the 2012 floods
that Fiji will experience government emergency
was approximately F$71 million (US$38 million).
losses that exceed the F$3 million (US$1.6 million)
Fiji is expected to incur, on average over the
///
contingency provision.
long term, annual losses of F$158 million
The government of Fiji reallocated F$7 million
(US$85 million) due to earthquakes and
///
(US$3.7 million) from the national budget
tropical cyclones. In the next 50 years Fiji has a
in 2012, equivalent to approximately 0.3
///
50 percent chance of experiencing a loss exceeding
percent of the total budget (Government of
F$1,500 million (US$806 million) and a 10 percent
Fiji 2013c). This money was used to finance the
chance of a loss exceeding F$3,000 million (US$1.6
///
initial disaster response for TC Evan. Fiji’s fiscal year
billion)(PCRAFI 2011). Section
is the same as the calendar year, and given that
Fiji has a taken a proactive approach to DRFI
///
TC Evan happened in December, a further F$17
and developed a finance manual for post- million (US$9.1 million) was reallocated from the
A
04 PCRAFI FIJI
2013 budget to finance housing rehabilitation, major transportation assets such as roads and
equivalent to 0.7 percent of total expenditures. bridges. This situation could result in delays in
reconstruction following a catastrophic event.
The government of Fiji implemented tax
Some ministries and departments may insure
///
concessions to encourage donations in the
physical property assets on an individual basis.
wake of TC Evan. A 200 percent tax deduction
///
was available to those who contributed F$1,000 A number of options to support ongoing
///
(US$537) and above into the NDRRF. In addition, DRFI improvements in Fiji are presented
duty-free status was applied to goods that were for consideration: ///
donated in kind.
(a) the finance manual developed by the Ministry
The Fiji non-life (general) insurance market
/// of Finance for post-disaster procedures should
is the second-largest in the Pacific Island be finalized, and cabinet approval should be
Countries, with a total premium of F$174.5 sought;
million (US$95 million). Seven local insurers are
///
(b) an overarching disaster risk financing and
currently operating with a total premium income
insurance strategy should be developed that
of F$145.5 million (US$78 million). The balance of
includes options for risk transfer; and
F$29 million (US$16 million)—17 percent of the
market—is placed with offshore insurers by the (c) assets should be identified in order to develop
four local brokers. an insurance program for critical public assets.
The government of Fiji does not have a
///
property insurance program in place for
key public or infrastructure assets, including
///
FIJI PCRAFI 05
Introduction
Fiji is located in the tropical cyclone belt and
/// the need for a comprehensive approach to
experiences on average one cyclone per year. /// disaster reduction, including community
This exposure poses problems for the Government preparedness, disaster mitigation, and the
of Fiji, as the maintenance and repair of national integration of the impact of disasters into national
infrastructure following cyclones drains limited development planning.
financial resources. In addition, Fiji is located in the
The government of Fiji is seeking to develop
Pacific Ring of Fire and is exposed to geophysical
a Joint National Action Plan for Disaster Risk
hazards, such as volcanoes, earthquakes, tsunamis,
Management and Climate Change Adaptation.
and landslides. Fiji has a land area of 18,273 km2
These efforts are led by the NDMO, which is
and comprises 332 islands, of which 110 are
in discussions with the Ministry of Strategic
populated by approximately 860,000 inhabitants.1
Planning, National Development and Statistics,
The majority of the population live on the two
and the Department of the Environment, as well
main islands of Viti Levu and Vanua Levu.
the Secretariat of the Pacific Community Applied
In 2001 Fiji established the National Disaster
///
Geosciences Division (SPC-SOPAC), the Secretariat
Management Office (NDMO), which is of the Pacific Regional Environment Programme
responsible for the coordination of response (SPREP), United Nations Development Programme
to natural disasters. The NDMO operates
///
(UNDP) Pacific Centre, the United Nations
under the jurisdiction of the Natural Disaster International Strategy for Disaster Reduction
Management Act (1998), which sets out the (UNISDR), and other partners. The institutional
provisions for the government and relevant frameworks that are already in place are these:
agencies in relation to management of natural
• Hyogo Framework for Action (HFA) 2005–
disasters and related activities. The act provides
2015
the legislative basis for the Fiji National Disaster
Management Plan (1995), which outlines in some • Pacific Disaster Risk Reduction and Disaster
detail the roles, responsibilities, and procedures Management Framework for Action (Regional
relevant to the conduct of disaster preparedness Framework for Action or RFA) 2005–2015
and emergency operations (NDMO 1995).
• Sustainable Economic and Empowerment
In 2007 the Government of Fiji approved the
///
Development Strategy 2008–2010 Section
Sustainable Economic and Empowerment
Development Strategy 2008–2010, one of • Fiji National Disaster Management Plan 1995
01
///
whose goals is “reducing vulnerability to disasters
• Cyclone Support Plan 1997
and risks and promoting sustainable development”
Government of Fiji 2007). The strategy recognizes • Fiji National Disaster Management Act 1998
06 PCRAFI FIJI
is one application of the Pacific Catastrophe Risk
Disaster risk financing and insurance (DRFI) is
Assessment and Financing Initiative (PCRAFI).
///
a key activity of the HFA Priorities for Action
The Pacific DRFI Program is built upon a three-
4 and 5.2 The HFA is a result-based plan of action
tiered approach to disaster risk financing. These
///
adopted by 168 countries to reduce disaster risk
layers align to the basic principles of sound public
and vulnerability to natural hazards and to increase financial management, such as the efficient
the resilience of nations and communities to allocation of resources, access to sufficient
disasters over the period 2005–2015. In the Pacific, resources, and macroeconomic stabilization. The
the HFA formed the basis for the development of three tiers acknowledge the different financial
the Regional Framework for Action. requirements associated with different levels of
risk:
The RFA cites DRFI activities as a key national
///
and regional activity. Theme 4—“Planning for ///
(a) Self-retention, such as a contingency budget
effective preparedness, response and recovery”— and national reserves, to finance small but
has an associated key national activity, “Establish a recurrent disasters;
national disaster fund for response and recovery.”
(b) A contingent credit mechanism for less
Theme 6 of the RFA—“Reduction of underlying
frequent but more severe events; and
risk factors”—cites the development of “financial
risk-sharing mechanisms, particularly insurance, (c) Disaster risk transfer (such as insurance) to
re-insurance and other financial modalities cover major natural disasters. See figure 1.
against disasters as both a key national and
regional activity” (SOPAC 2005). These regional This note aims to build understanding of
///
the existing DRFI tools in use in Fiji and to
implementation activities align with the three-tiered
identify gaps where potential engagement
disaster risk financing strategy developed by the
could further develop financial resilience.
World Bank.
///
In addition, the note aims to encourage peer
The Pacific DRFI Program enables countries
///
exchange of regional knowledge, specifically by
to increase their financial resilience against encouraging dialogue on past experiences, lessons
natural disasters by improving their capacity ///
learned, optimal use of these financial tools, and
to meet post-disaster funding needs without the effect of these tools on the execution of post-
compromising their fiscal balance. This program disaster funds.
Figure 1 — Three-Tiered Disaster Risk Financing Strategy
Source: World Bank 2010.
International Assistance
Low Frequency/
High Severity
Risk Transfer
Sovereign Risk Transfer
(e.g. Cat Bond/Cat Swap, (re)insurance)
Insurance of Public Assets
Contingent Credit Lines Post Disaster Credit
Risk Retention
Section
High Frequency/
Low Severity
Government Reserves, Contingency Budget / Funds
01 Emergency Funding Reconstruction
FIJI PCRAFI 07
Economic Impact of
Natural Disasters
Since 2003, climate-related hazards have
Figure 2 — Land Cover and Land Use in Fiji
///
caused damage and loss in Fiji estimated
in excess of F$590 million (US$317 million) ///
(Government of Fiji 2013c). This figure includes
damage and loss from major events such as TC
Ami in 2003, which resulted in estimated damages
in excess of F$100 million (US$54 million). The
costs associated with disasters pose problems for
the government of Fiji, as the repair of national
infrastructure following floods and other hazard
events drains limited national financial resources.
In 2012 alone, Fiji experienced three major
///
events with estimated total damage of F$146
million (US$78 million) (Government of Fiji
2013c). These include severe flooding in the
///
areas of Ra, Tavua, Ba, Lautoka, Nadi, Nadroga,
Sigatoka, and Rewa in January; even more intense
flooding of the same areas in March; and TC Evan
in December. The government of Fiji estimated
that damage from the two 2012 floods was Source: PCRAFI 2011.
approximately F$71 million (US$38 million).
Total damage and loss from TC Evan in
///
December 2012 was reported in the Post-
Disaster Needs Assessment to be F$200
million (US$108 million); the recovery and
Section
reconstruction needs were estimated to be
F$135 million (US$73 million). In comparison,
///
the Initial Damage Assessment by the government
02
08 PCRAFI FIJI
Figure 3 — Direct Losses by Return Period
2000
DIRECT LOSSES (MILLION USD)
1500
TC + EQ
1000 TC
EQ
500
Source: PCRAFI 2011
0 Note: TC = tropical cyclone; EQ = earthquake.
0 100 200 300 400 500 600 700 800 900 1000
MEAN RETURN PERIOD (YEARS)
estimated damage at approximately F$75 million the largest tourism industry of any Pacific Island
(US$40 million) (NDMO 2012). TC Evan caused Country (PIC), and an estimated 24 percent of
widespread damage to property, infrastructure, its population work in tourism (Scheyvens and
and crops in northern Vanua Levu and western Russell 2010). Because it relies heavily on coastal
Viti Levu. attractions, this sector is highly vulnerable to
cyclones and their consequent storm surge, as
Agriculture and tourism are major drivers
well as disruptions to key transport links. Figure
///
of the Fiji economy, and both sectors are
2 shows Fiji’s land use/land cover. The coastal
susceptible to damage from natural hazards.
location of fields for growing Fiji’s main productive
///
Agriculture was the most heavily impacted sector
crop, sugarcane (depicted in yellow), suggests the
following TC Evan: it experienced damage and loss
extent of this crop’s exposure and vulnerability.
amounting to F$44 million (US$24 million), with
86 percent of damage occurring to the private
sector and 14 percent to the public sector. Fiji has
Figure 4 — Average Annual Loss by Area
Main Islands Labasa 180°
0 25 50 100
Kilometers
178° E 178° W
15° S
Fiji
Main
15° S
Islands
Section
0 200 400
20° S 20° S
Suva Total Average Annual 178° E 178° W
02
Loss (million USD)
0 - 0.05 0.5 - 1.0
0.05 - 0.1 1.0 - 2.5
0.1 - 0.25 2.5 - 5.0
Suva 0.25 - 0.5 5 - 10
0 1 2 4
Source: PCRAFI 2011
FIJI PCRAFI 09
Fiji is expected to incur average annual losses
///
over the long term of F$158 million (US$84
million) due to earthquakes and tropical
cyclones. In the next 50 years Fiji has a 50 percent
///
chance of experiencing a loss over F$1,500 million
(US$806 million) and a 10 percent chance of a loss
exceeding F$3 billion (US$1.6 billion) (see figure 3).
Figure 4 shows the average annual loss by area,
with red indicating high levels of average annual
losses—those with a range of US$5 million to
US$10 million. The full risk profile for Fiji can be
found in annex 4.
10 PCRAFI FIJI
Public Financial
Management of
Natural Disasters
By relocating members of staff to the NDMO
/// a step-by-step process, details the structure of
to facilitate rapid execution of funds, the the operation, and establishes key focal points,
Ministry of Finance plays an integral role in processes, and procedures before and during the
disaster response. This practice has thus far been
///
operation and the acquittal process.
carried out on a goodwill basis, however, and is not
Effective post-disaster financial response relies on
formally documented or required. There is a risk
two fundamental capabilities:
that this could lapse should key individuals leave
the department. (a) The ability to rapidly mobilize funds post-
disaster; and
Fiji has a taken a proactive approach to DRFI
///
and developed a finance manual for Disaster (b) The ability to execute funds in a timely,
Management Council (DISMAC) operations. ///
transparent, and accountable fashion.
During TC Evan, an internal memo was produced This section discusses the existing procedures for
that detailed disaster-related finance procedures post-disaster budget mobilization and execution
and processes. This document has since been and where possible provides examples of their use.
transformed into a finance manual that sets out
FIJI PCRAFI 11
Post-Disaster Clauses 32 and 33 of the Finance Instructions
///
2010 detail the process for emergency
Budget Mobilization purchases and immediate relief assistance,
respectively.3 They stipulate that when procuring
The government of Fiji utilizes ex-ante
///
goods and services, existing contracts with
///
financial instruments and combines these with
suppliers must be utilized; should a new supplier
innovative ex-post financial tools such as tax
be needed, the normal legal purchase order
incentives to finance the costs of disasters.
process is waived and immediate payment is made
///
Fiji has established the National Disaster Relief and
to suppliers. Approval of the minister of finance is
Rehabilitation Fund (NDRRF), also known as the
needed before emergency procurement operations
Prime Minister’s Fund, as well as the Rehabilitation
can commence. Any such emergency expenditure
Fund, which is an annual appropriation to the
should then be acquitted in a report back to the
NDMO. To complement these ex-ante tools, the
Ministry of Finance. The procedures for ongoing
government implements ex-post financial tools,
relief assistance and rehabilitation are set out in
such as flash fund appeals and tax incentives to
Clause 34 and include a transition phase back
encourage donations from the private sector as
toward business-as-usual procedures.
well as members of the public. Budget reallocation
reportedly takes between one and three months, While a member of staff from the Ministry
///
but additional budget support, if required, can be of Finance is generally relocated to NDMO as
provided to ensure the response effort continues part of the DISMAC to assist with emergency
(see Table 1).
Table 1— Sources of Funds Available
SHORT TERM MEDIUM TERM LONG TERM
(1-3 MONTHS) (3-9 MONTHS) (OVER 9 MONTHS)
Ex-post Financing
Donor Assistance (relief)
Budget Reallocation
Domestic Credit
External Credit
Capital Budget Realignment
Donor Assistance (reconstruction)
Tax Increase
Flash Appeal
Ex-ante Financing
Emergency Fund
Contingency Budget
Contingent Credit
Sovereign (parametric) Catastrophe
Section
Risk Insurance
Traditional Disaster Insurance
Source: Government of Fiji; World Bank.
03
12 PCRAFI FIJI
operations after a disaster, this transfer is not Those sections highlighted in gray are for generic
documented as a requirement. It is required,
/// instruments that to date have not been used in Fiji.
however, that a team leader from the Ministry of
Finance be appointed and assume responsibility Ex-Ante Practices and Arrangements
for verification of purchases before handover to
The uncertainty surrounding international
DISMAC. The finance procedures and processes
assistance has put pressure on countries to
for DISMAC contain the authorization process
establish domestic sources of finance for post-
and signatories for expenditures, a template
disaster relief, such as the establishment of
for acquittals, and a process to begin seeking
national reserves or the transfer of risk to the
additional assistance once expenditures exceed 67
international insurance market. Fiji’s ex-ante
percent of the emergency budget.
practices and arrangements include budgetary
The various ex-ante and ex-post financial tools
///
appropriation, the NDRFF, a contingency budget,
used in Fiji take significantly different lengths and external debt.
of time to mobilize and execute. Building on the
Budgetary appropriation
///
World Bank disaster risk financing and insurance
framework (see annex 1), table 1 shows the ex- Since 2012 the National Disaster Management
///
ante and ex-post financial tools available, indicates Office has received an annual budget of
Section
those utilized by Fiji, and gives indicative timings. F$2 million (US$1 million) for rehabilitation
The tools utilized by Fiji are highlighted in blue. work. When these funds were rapidly exhausted
03
///
FIJI PCRAFI 13
following TC Evan, the NDMO requested a F$3 in the housing sector, F$1 million (US$0.5 million)
million (US$1.6 million) contingency fund to was allocated from the NDRRF.
help with response. The NDMO would also like
dedicated funds to be established at the provincial Contingency budget
level to reduce the time lag for procuring urgent
In 2014 a general reserve allocation of
///
relief supplies.
F$$5.3 million (US$2.9 million) was made for
National Disaster Relief and Rehabilitation Fund unforeseen and unavoidable expenditures. ///
While some of this might be used to facilitate
In 2004 the National Disaster Relief and
///
disaster response, it is unlikely that the whole
Rehabilitation Fund, also known as the Prime amount would be available, given that the general
Minister’s Fund, was approved by the cabinet. ///
reserves are drawn down from the beginning of
The NDRRF is held and managed by the Prime the financial year.
Minister’s office, and monies from this account
can be released when necessary in the wake of External debt
an event. It is utilized following a Statement of
In 2012 the ratio of debt to gross domestic
Natural Disaster and for response purposes only.
///
product (GDP) in Fiji was 51.1 percent (IMF
It receives an annual contribution of F$1 million
2013), down from a ratio of 53.0 percent in
(US$540,000F$) from the government of Fiji. It
2011 (Government of Fiji 2013b). One-quarter
is also possible for individuals and private sector
///
of the stock of debt was attributable to external
entities to deposit funds into the account, which
sources.
happens frequently throughout the year. This fund
is able to accrue and the balance was F$2.2 million Fiji’s level of external debt is set to decline
///
(US$1.17 million) as of October 1, 2013. significantly in 2016 if full settlement of its
///
F$465 million (US$250 million) global bond is
Following TC Evan, additional donations from
achieved; in 2013 the government’s external
///
the private sector, members of the public, and
debt sinking fund had a balance of F$238 million
international partners totaled F$0.5 million
(US$128 million). The government still faces
(US$0.27 million). To assist with reconstruction
the challenge of a heavy maturity program of
///
Table 2— Fiscal Year 2013 Composition of Operating Payments
FISCAL YEAR 2013 FISCAL YEAR 2013
% OF TOTAL BUDGET
(F$ MILLION) (US$ MILLION)
Personnel 674 362 39.8
Commitments a
724 389 42.8
Operationsb 294 158 17.3
Total budget 1,692 910 100%
Source: Government of Fiji; World Bank.
Note:
Section
a. “Commitments” refers to the sum of transfer payments and interest.
03
b. “Operations” refers to the sum of supplies and consumables, purchase of outputs, and other operational costs.
14 PCRAFI FIJI
domestic debt in the next five years (Government In 2012, the floods resulted in reallocation
///
of Fiji 2013b). of almost 2 percent of the total budget. This ///
equated to F$36.1 million (US$19.4 million). The
Most of the budget deficit has been financed
majority of this money was to meet the flood
by domestic bonds, with the remainder being
rehabilitation and reconstruction requirements,
the drawdown of external loans. Economic and
which amounted to F$29.4 million (US$16 million),
political uncertainties have constrained investment,
and a further F$6.7 million (US$3.6 million) went
including private sector and foreign direct
for other unbudgeted commitments.
investment, which averaged around 15 percent
of GDP between 1996 and 2012 (IMF 2013). A maximum of F$294 million (US$158 million),
///
The successful conclusion of the 2014 election, or 17.3 percent of operating payments, could
however, is expected to boost investment as policy potentially be reallocated following a disaster. ///
uncertainty is reduced. The remainder of operating payments cannot be
reallocated because it comprises personnel costs
Ex-Post Practices and Arrangements
and commitments (see table 2).
Because disasters generally exceed a country’s
Donor funds for relief
capacity to cope with them, there will always be a
and reconstruction
need for ex-post practices and arrangements. An
optimal strategy for DRFI relies on a combination While donor funds will always be required,
///
of ex-ante and ex-post financial instruments. there will often be an element of uncertainty
Ex-post arrangements benefit from being able surrounding how much will be provided, ///
to establish the extent of the disaster and what will be provided, and when funds will
prioritize the response needs. As a result these arrive in country. Consequently, overdependence
arrangements take longer to implement than ex- on international relief as a source of post-
ante arrangements, but they can often mobilize disaster financing can create delays in the
larger amounts of finance. This section discusses provision of initial relief and can inhibit ex-ante
the ex-post practices and arrangements that have contingency planning. Development partners,
been made by Fiji. international organizations, local nongovernmental
organizations, businesses, and individuals
Budget reallocation contribute in the form of cash grants and aid in
kind. The provision of aid in kind, while vital, can
The Financial Management Act 2004 under
///
affect the costs borne by governments for the
section 22 sets out the process for the
distribution these goods.
redeployment4 of funds. The minister of
///
finance, subject to the approval of the cabinet, Following TC Evan, the government of Fiji
///
can reallocate funds in the Annual Appropriation received approximately F$9 million from
Act. The reallocation should be laid out in a bill international organizations, nongovernmental
to be submitted for cabinet approval and is often organizations, development agencies, local
based on the quarterly expenditure review. Given businesses, and individuals. Of this amount,
///
the reporting requirements, it is estimated that the 60 percent was provided as aid in kind, while the
Section redeployment of funds takes two to three weeks, remainder was provided in the form of conditional
although it reportedly took two to three months cash grants (Government of Fiji 2013c).
03
following TC Evan.
FIJI PCRAFI 15
Tax incentives (US$1 million). There is a 57 percent chance that
Fiji will experience government emergency losses
The government of Fiji implemented tax
///
of F$3 million (US$1.6 million) or greater in any
concessions to encourage donations in the given year.
wake of TC Evan. A 200 percent tax deduction of
///
the donation amount was available to those who While Fiji has established some dedicated
///
contributed F$1,000 (US$540) and above into the reserves, the funds are limited and will be
NDRRF. In addition, duty-free status was applied to exhausted quickly. To avoid any funding gap that
///
goods donated in kind. could impede disaster response, it is recommended
that Fiji consider the use of other ex-ante financial
Total Response Funds Available
tools such as contingent credit. Fiji has expressed
interest in participating in the Pacific Catastrophe
Fiji has F$3 million (US$1.6 million) available
Risk Insurance Pilot, but it could also benefit from
///
in ex-ante instruments to facilitate disaster
insuring its critical public assets.
response. Fiji has established two sources of
///
dedicated, yet limited, funds: the NDRRF, which
can release up to F$1 million (US$0.54), and the
recently established Rehabilitation Fund, which
receives an annual appropriation of F$2 million Section
03
16 PCRAFI FIJI
Post-Disaster was reallocated from the 2013 budget, equivalent
to 0.7 percent of total expenditures.
Budget Execution
In September 2013, the government of Fiji,
///
The Ministry of Finance developed a finance
///
with support from the World Bank, conducted
manual for the NDMO to help ensure that post-disaster needs assessment training in
staff are aware of the correct post-disaster Suva, Lautoka, and Labasa. A total of 119
///
finance procedures. However, this document
///
government staff have now been trained in this
does not stipulate the need to reallocate staff internationally recognized methodology—an
from the Ministry of Finance to the NDMO and achievement that demonstrates the dynamic
has not been approved by the cabinet. The environment that exists within Fiji for ongoing
document should be reviewed and approved by improvement in disaster response. Adopting a
the cabinet in order to embed the good practices standardized approach to the post-disaster needs
already established. assessment will make it possible to produce these
assessments more quickly and expedite access to
The government of Fiji reallocated F$7 million
additional donor support through the associated
///
(US$3.7 million) from the national budget in
recovery and rehabilitation framework.
2012, equivalent to approximately 0.3 percent
of the total budget (Government of Fiji 2013c). ///
This money was used to finance the initial disaster
response for TC Evan. Fiji’s fiscal year is the same as
the calendar year, and since the event happened in
December, a further F$17 million (US$9.1 million)
Figure 5 — Amount of Ex-Ante Funds Available for Immediate Response
Section
Source: World Bank.
03
FIJI PCRAFI 17
Insurance of
Public Assets
The Fiji non-life (general) insurance market
/// Fiji is exposed to the catastrophic perils of
///
is the second-largest in the PICs, with a total cyclones and earthquakes. Fiji is in the Southern
///
premium of F$174.5 million (USD$93 million). ///
Hemisphere tropical cyclone zone. Earthquakes
Seven local insurers are currently operating with are known to have occurred in Fiji. The last major
a total premium income of F$145.5 million. The earthquake in a built-up area (Suva) was in 1953
balance of F$29 million (US$16 million) is equal
and was large enough to trigger a tsunami.
to 17 percent of the market and is placed with
offshore insurers by the four local brokers. The total general insurance market, in the
///
context of the size of the Fijian economy and
Fiji has legislation in place—the Insurance
///
population, suggests relatively high insurance
Act (1998) and regulations—to regulate the
insurance industry. The Reserve Bank of Fiji penetration. The country’s non-life premium is
///
(RBF) is the regulator. The RBF undertakes
///
approximately F$206 (USD$111) per capita, which
reviews to ensure that solvency margins are met, is high for PICs. The commercial sector is the major
that there is adequate reinsurance protection contributor to this apparently high penetration,
in place for insured catastrophe risks, and that based on premium volume. Households remain
property and other accumulations are monitored. largely uninsured.
Offshore insurance placements must be approved
by RBF before premium is remitted overseas.
18 PCRAFI FIJI
Insurance for catastrophe insurance perils
/// bridges, are uninsured, which could result in delays
of earthquake and cyclone are available in in reconstruction following a catastrophic event.
the market and can be included in property Some ministries and departments may insure
insurance products. Cyclone insurance is
/// physical property assets on an individual basis.
available only as an extension to property policies
Government-owned commercial companies
once an engineer’s certification of compliance
///
and statutory authorities arrange their
with the building code has been received. Storm
own insurance programs, including property
surge caused by cyclones is normally excluded.
///
insurance for key assets. Each public authority
Earthquake is underwritten by insurers on differing
must make its own arrangements for property
bases. Tsunami is included as an earthquake peril
insurance. Most of these programs insure
by some insurers but excluded by others. Property
earthquake, but the cyclone insurance extension is
insurance rates for the cyclone peril are around
not always taken.
the Pacific average (0.30 percent); rates for the
earthquake peril (0.08 percent) are lower than in Please refer to annex 3 for the full market
most other Pacific countries. insurance review that was conducted in Fiji.
The government of Fiji does not have a
///
property insurance program in place for key
public or infrastructure assets. This means that
///
major transportation assets, such as roads and Photo Credit
/// ///
Maarten Danial
FIJI PCRAFI 19
Options for
Consideration
The government has well-documented processes Recommendation 2: Develop an overarching
///
and procedures for DRFI and has taken steps disaster risk financing strategy aligned to
to improve the post-disaster budget execution existing processes. Fiji has taken a proactive
///
procedures for the next event. To assist with ex-ante approach to DRFI. The funds available
the continuous improvement underway in Fiji, are limited, however, and options for risk transfer
the following recommendations are suggested should be considered. It is proposed that an
for consideration. overarching DRFI strategy be developed and
endorsed by the cabinet. This would create a single
Recommendation 1: Finalize the existing
///
document to articulate the available financing
finance manual for the NDMO and seek options and the associated policies behind these
cabinet approval. Good progress has been made
///
tools. An action plan for implementation activities
to develop and document current procedures. is also recommended.
Some procedures, however, such as the relocation
Recommendation 3: Identify assets to be
///
of staff from the Ministry of Finance to the NDMO
included in an insurance program for critical
during the initial response phase, are not currently public assets. This process would investigate
///
included and should be added. It is important that existing insurance coverage provided in country
staff know and understand the correct procedures and develop a table detailing coverage options by
to follow in the event of a disaster. A manual that provider to assist with decisions about which assets
brings together all relevant procedures in a single to include and what appropriate coverage would
document and that has been approved by the be. Barriers to accessing catastrophe insurance
cabinet would institutionalize current processes, would be identified, and solutions developed for
and it would guard against the risk of lapse even if facilitating appropriate coverage of critical public
key staff members were to leave their positions. assets. This work would build on the annual
insurance report produced by the RBF.
20 PCRAFI FIJI
End Notes
1 Figure is based on the 2012 projections by the Fiji Bureau
of Statistics
2 Priority for Action 4—“Reduce the Underlying Risk Factors”—
has an associated key activity of financial risk-sharing mecha-
nisms, such as insurance, while Priority for Action 5—“Strengthen
disaster preparedness for effective response at all levels”—in-
cludes the establishment of emergency funds such as contingency
budget, national reserves, and annual budgetary allocations. See
UNISDR (2005).
3 The Finance Instructions 2010 are available on the Ministry of
Finance website at http://www.finance.gov.fj/legislation.html.
Section
05
FIJI PCRAFI 21
References
GFDRR (Global Facility for Disaster Reduction and Recovery) SOPAC (Pacific Islands Applied Geoscience Commission). 2005.
2012 The Sendai Report: Managing Disaster Risks for Resilient
Pacific Disaster Risk Reduction and Disaster Management
Future, Washington D.C., U.S.A.
Framework for Action (Regional Framework for Action or RFA)
Government of Fiji. 2007. “Sustainable Economic and Empower- 2005–2015. SOPAC, Suva, Fiji.
ment Development Strategy 2008–2010.” Ministry of Finance,
National Planning and Sugar Industry, Suva, Fiji. November.
SPC (Secretariat of the Pacific Community) 2011 Cook Islands:
www.planning.gov.fj.
Investment in DRM, Suva, Fiji
———. 2013b. “Government Debt Report Fiscal Year 2012.”
Government of Fiji, Suva, Fiji. SPC (Secretariat of the Pacific Community) 2011 Fiji: Investment
in DRM, Suva, Fiji
———. 2013c. “Post-Disaster Needs Assessment: Tropical Cyclone
Evan 17th December 2012.” Government of Fiji, Suva, Fiji.
SPC (Secretariat of the Pacific Community) 2011 Republic of
IMF (International Monetary Fund). 2011. “Fiji 2011 Article IV Marshall Islands: Investment in DRM, Suva, Fiji
Consultation.” IMF, Washington, DC.
SPC (Secretariat of the Pacific Community) 2011 Vanuatu: Invest-
———. 2013. “Fiji 2013 Article IV Consultation.” IMF, Washing-
ton, DC. ment in DRM, Suva, Fiji
NDMO (National Disaster Management Office). 1995. “Fiji Disas-
SPC (Secretariat of the Pacific Community) 2012 Papua New
ter Management Plan 1995.” Government of Fiji, Suva, Fiji.
http://www.ndmo.gov.fj/ndmo-legislature/ndmo-plan. Guinea: Investment in DRM, Suva, Fiji
———. 1998. National Disaster Management Act 1998. Govern- SPC 2012 “Investment in DRM—Cook Islands.” Secretariat of the
ment of Fiji, Suva, Fiji. http://www.ndmo.gov.fj/ndmo-legisla-
Pacific Community, Suva, Fiji.
ture/ndm-act.
———.2012. “TC Evan Initial Damage Assessments.” Govern- UNISDR (United Nations International Strategy for Disaster
ment of Fiji, Suva, Fiji. Reduction). 2005. Hyogo Framework for Action 2005–2015:
Building the Resilience of Nations and Communities to Disas-
PCRAFI (Pacific Catastrophe Risk Assessment and Financing
Initiative). 2011. “Country Risk Profile: Fiji.” September. www. ters. UNISDR, Hyogo, Japan.
pacris.sopac.org. Section
World Bank 2010 Financial Protection of the State against Natural
Scheyvens, R., and M. Russell. 2010. “Sharing the Riches of
05
Disasters; A Primer, Washington D.C., U.S.A.
Tourism: Summary Report—Fiji.” March. NZAID. https://www.
aid.govt.nz/webfmsend/314.
22 PCRAFI FIJI
About PCRAFI
The Pacific Catastrophe Risk Assessment and disaster risk financing strategy and focus on three
Financing Initiative (PCRAFI) is a joint initiative core aspects:
between the Secretariat of the Pacific Community
• the development of a public financial
through its Applied Geoscience and Technology
management strategy for natural disasters,
Division (SPC-SOPAC), the World Bank, and the
recognizing the need for ex-ante and ex-post
Asian Development Bank, with financial support
financial tools;
from the government of Japan, the Global Facility
for Disaster Reduction and Recovery (GFDRR), and • the post-disaster budget execution process,
the European Union, and with technical support to ensure that funds can be accessed and
from Air Worldwide, New Zealand GNS Science, disbursed easily post-disaster; and
and Geoscience Australia.
• the insurance of key public assets, to resource
The initiative aims to provide the Pacific Island the much larger funding requirements of
Countries (PICs) with disaster risk modeling recovery and reconstruction needs.
and assessment tools for enhanced disaster risk The PICs involved in PCRAFI are the Cook Islands,
management, and to engage PICs in a dialogue the Federated States of Micronesia, Fiji, Kiribati,
on integrated financial solutions to increase their the Marshall Islands, Nauru, Niue, Palau, Papua
financial resilience to natural disasters and climate New Guinea, Samoa, the Solomon Islands, Timor-
change. The initiative is part of the broader agenda Leste, Tonga, Tuvalu, and Vanuatu.
on disaster risk management and climate change
For further information, please visit
adaptation in the Pacific region.
http://pacrisk.sopac.org or contact PCRAFI@spc.int.
The Pacific Disaster Risk Financing and Insurance
(DRFI) Program is one of the many applications
of PCRAFI. It is designed to increase the financial
resilience of PICs by improving their capacity
to meet post-disaster financing needs without
compromising their fiscal balance. Through DRFI,
technical assistance is available to PICs to build
Section
capacity in the public financial management of
natural disasters. The technical assistance will build
06 on the underlying principles of the three-tiered
23 PCRAFI FIJI
Annex 1
World Bank Framework for Disaster Risk Financing
and Insurance
Major disasters increase public spending development projects (see figure A.2). This layer
requirements and reduce revenues, placing further uses tools such as contingency budgets and
strain on limited national budgets. The immediate national reserves. The aim is to finance small
and long-term fiscal consequences of a disaster but high-frequency disasters. The second layer is
depend on the sources of revenue available to aimed at less frequent but more severe events that
the government versus its public expenditure are too costly to pre-finance through retention
commitments. Investment in disaster risk financing mechanisms. Here, liquidity mechanisms—such as
instruments can help prevent the diversion of funds contingent credit, which can mobilize additional
from key development projects and significantly funds immediately following an event—become
reduce the time needed to activate an initial cost-effective.
response. Financial protection is a core component
of any comprehensive disaster risk management The third layer, disaster risk transfer (such as
strategy, and should be implemented alongside insurance), focuses on mobilizing large volumes
the pillars of risk identification, risk reduction, of funds for large but infrequent natural disasters.
preparedness, and post-disaster reconstruction (see For events of this type, risk transfer instruments—
figure A.1). such as insurance or catastrophe swaps and
bonds—become cost-effective in averting a
The World Bank framework for disaster risk liquidity crunch.
financing and insurance advocates a three-tiered
approach for the development of financing There is a clear time dimension to post-disaster
arrangements to cover the residual disaster risk funding needs and the various phases of relief,
that cannot be mitigated. These layers align to recovery, and reconstruction. Some financing
the basic principles of sound public financial instruments can be activated rapidly. Others
management, such as the efficient allocation may take longer to activate but can generate
of resources, access to sufficient resources, and substantial funding. The disaster risk financing
macroeconomic stabilization. The first layer, strategy needs to reflect both time and cost
Section
retention, relates to countries’ development of dimensions, ensuring that the volume of funding
an internal layer of protection against natural available at different stages in the response efforts
07 disasters to prevent the diversion of funds from matches actual needs in a cost-efficient manner.
FIJI PCRAFI 24
Figure A .1 — Disaster Risk Management Framework
PILLAR 1: RISK IDENTIFICATION Improved identification and understanding of disaster
risks through building capacity for assessments and
analysis
PILLAR 2: RISK REDUCTION Avoided creation of new risks and reduced risks in
society through greater disaster risk consideration in
policy and investment
PILLAR 3: PREPAREDNESS Improved capacity to manage crises through developing
forecasting and disaster management capacities
PILLAR 4: FINANCIAL PROTECTION Increased financial resilience of governments, private
sector and households through financial protection
strategies
PILLAR 5: RESILIENT RECOVERY Quicker, more resilient recovery through support for
reconstruction planning
Figure A .2 — Three-Tiered Disaster Risk Financing Strategy
International Assistance
Low Frequency/
High Severity
Risk Transfer
Sovereign Risk Transfer
(e.g. Cat Bond/Cat Swap, (re)insurance)
Insurance of Public Assets
Contingent Credit Lines Post Disaster Credit
Risk Retention
High Frequency/
Low Severity
Government Reserves, Contingency Budget / Funds
Section
07
Emergency Funding Reconstruction
25 PCRAFI FIJI
The initial relief phase requires a quick injection the funds for this phase can therefore be raised
of liquidity from day 0 but does not need to be via post-disaster budget reallocation and the
sustained for a long period of time (see figure realignment of national investment priorities.
A.3). Rapid budget mobilization and execution However, the opportunity cost for these options
are key for financing initial disaster response, and is high, given that they can lead to reduced
governments should develop appropriate policies expenditure on other key investment areas, such as
and procedures for procurement and acquittals
health and education. Consequently, governments
to facilitate them. Initial relief should be met via
may also choose to utilize development partner
annual budget allocations and the establishment
contingent credit arrangements.
of dedicated reserves for disaster response that
can be accessed immediately; major catastrophes In contrast, the reconstruction phase has much
will exhaust these funds quickly. The residual risk larger financing requirements needed over a
associated with higher-cost events should be much longer period of time (see figure A.3).
transferred to third parties via a mixture of more Given the large funding requirements associated
expensive (re)insurance tools and catastrophe
with reconstruction, this phase often requires
bonds and, for the most extreme events,
post-disaster reconstruction loans to complement
international assistance.
traditional disaster insurance. Governments
The recovery phase requires additional funds may also introduce temporary post-disaster tax
but not immediately (see figure A.3). Some of increases aligned to budget restructuring.
Figure A .3 — Post-Disaster Phases: Funding Requirements and Duration`
Section
07
FIJI PCRAFI 26
If adequate and timely funding arrangements are innovative nature of the work in this area and the
not in place, the adverse socioeconomic impact number of products under development, this list is
of a disaster can be significantly exacerbated, at not exhaustive.
both the macroeconomic and household levels.
Ex-post financing vehicles are those that become
An optimal disaster risk financing and insurance
available in the wake of an event. The most
strategy aims to combine ex-ante and ex-post
familiar form of ex-post disaster financing is
financial instruments to secure adequate and
donor assistance for relief. There are two forms
timely funding at lower cost for the successive
this finance can take, cash grants and aid in kind,
post-disaster phases. The optimal mix of finance
and both play an important role in response. The
instruments will be unique to each country based
provision of aid in kind, while vital, can affect the
upon its associated hazard and exposure. Table
distribution costs for these goods. While donor
A.1 lists potential finance instruments that can be
funds will always be required, there can often be
used to address disasters. Those that are shaded in
an element of uncertainty surrounding how much
blue indicate the generic timelines for mobilizing
will be provided, what will be provided, and when
and executing these funds, though each country
funds will arrive in country.
may be slightly faster or slower depending on its
internal processes. The table can be adapted by Budget reallocation often plays a key role for the
countries to reflect these differences according to continuation of relief and the initial stages of the
the financial instruments they have utilized and the recovery program. Generally, this process takes
time it takes to mobilize these funds. Given the time, as the reallocation of funds will need to be
Table A .1— Availability of Financial Instruments Over Time
SHORT TERM MEDIUM TERM LONG TERM
(1-3 MONTHS) (3-9 MONTHS) (OVER 9 MONTHS)
Ex-ante Financing
Donor Assistance (relief)
Budget Reallocation
Domestic Credit
External Credit
Capital Budget Realignment
Donor Assistance (reconstruction)
Tax Increase
Flash Appeal
Ex-ante Financing
Emergency Fund
Contingency Budget
Contingent Credit
Sovereign (parametric) Catastrophe
Risk Insurance
Traditional Disaster Insurance Section
Source: World Bank 2013.
07
27 PCRAFI FIJI
agreed upon by the cabinet and across ministries. Donor assistance for reconstruction can be
Budget reallocation can sometimes divert funds delivered as a form of direct budget support,
from key development projects and hence seriously grant, or a post-disaster reconstruction loan.
harm the long-term growth prospects of the The form of finance used here will depend on
country. The same issues are relevant to capital the size of the event, the development status of
budget realignment, although the timelines for a country (for example, low-income countries
that process are typically significantly longer. may have access to concessional loans and have
more access to grants), and the debt-servicing
Domestic credit, such as the issuance of
ratio of a country. Typically, this form of finance
government bonds, can be used to raise additional
is conditional and requires sufficient lead time for
revenue to fund post-disaster expenditures. Again,
aligning the priorities of countries and donors to
due to the processes involved, domestic credit will
meet reconstruction and recovery needs.
take some time to operationalize and is best suited
to financing recovery and reconstruction activities. Tax increases will help redress the increase in public
External credit will likewise take time to be expenditure following a disaster by generating
agreed upon with providers and will require clear additional revenue. Although higher taxes could
articulation of the activities it is to finance. Both of be politically unfavorable, they create a sustainable
Section
these forms of credit will have an impact on the source of finance for reconstruction activities.
debt-servicing ratio of a country and may not be a Conversely, some governments have applied tax
07 viable option for heavily indebted countries. incentives to encourage donations to response
FIJI PCRAFI 28
funds from both the private sector and members of Parametric insurance uses hazard triggers, linking
the public. This approach can be popular when tax immediate post-disaster insurance payouts
credits are written off on annual tax returns. to specific hazard events. Unlike traditional
insurance settlements that require an assessment
Ex-ante financing provides an element of financial
of individual losses on the ground, parametric
certainty during a disaster, because governments
policies do not pay based on actual losses incurred.
have established these sources of finance in
Instead, the payout disbursements are triggered
advance. These funds can be quickly disbursed
by specific physical parameters for the disaster
following an event so that essential relief work
(e.g., wind speed and earthquake ground motion).
commences immediately. A reserve fund provides
The payouts provide a rapid, yet limited, injection
a dedicated amount of funding for response
of liquidity that can be a valuable boost to
and if properly managed can accrue over time to
relief funds.
increase the level of funding available. However,
the opportunity cost of holding money in a Traditional disaster insurance offers indemnity
dedicated fund is high, as it diverts funds from coverage. Receipt of funds may take longer than
the operational budget. Careful analysis should be with parametric insurance, as a detailed damage
undertaken to identify the optimal level of reserves assessment is required. However, as payouts
that a country should hold and maintain. are directly linked to the damage experienced,
the payout will better match the needs of the
Contingent credit is a relatively new instrument,
insured party.
with current forms offering disbursement following
an event whose magnitude has been agreed upon Public financial management in the Pacific is
in advance. It can be fungible or conditional by dictated by the fact that many PICs are classified
design. As with other sources of credit, the amount as Small Island Developing States (SIDS). Typically,
available will depend on the development status countries in this classification have a narrow
of the country and the debt-servicing ratio. The revenue base, are net importers, and have a
advantage of contingent credit is that a drawdown consequential reliance on aid as an income stream.
can be made within a 24-hour period. These characteristics can limit the options available
for post-disaster finance. It is unlikely that a SIDS
government could afford to reallocate the capital
29 PCRAFI FIJI
budget, and a tax increase could make many items in post-disaster budget reallocation and build
unaffordable and hence be detrimental to citizens’ a case for establishing national reserves. While
quality of life. Given these constraints on the international assistance will always play a valuable
national budget, alternatives such as contingent role, overdependence on such assistance as a
credit and risk transfer options should be used to source of financing carries limitations; international
reduce the drain on limited public funds. aid can be uncertain, which inhibits contingency
planning, and can be slow to materialize.
PIC governments face critical challenges for
Increasingly, PICs such as the Cook Islands are
financial resilience to natural disasters. Most PICs
establishing national reserves for funding initial
have restricted options for securing immediate
response.
liquidity for swift post-disaster emergency response
without compromising their long-term fiscal The World Bank, SPC, and their partners, with
balance. In addition, PICs are constrained by their grant funding from the government of Japan, have
size, borrowing capacity, and limited access to implemented the Pacific Disaster Risk Financing
international insurance markets. In the absence of and Insurance Program to help the PICs increase
easy access to debt and well-functioning insurance their financial resilience to natural disasters and
markets, a large portion of the economic losses improve their financial response capacity in the
stemming from adverse natural events is borne by aftermath of natural disasters. This program is part
governments and households, with support from of the Pacific Catastrophe Risk Assessment and
development partners. Financing Initiative (PCRAFI).
The Pacific has seen several recent cases that show
the need for immediate liquidity post-disaster. In
the Cook Islands, in the immediate aftermath of
TC Pat in 2010, a delay in the receipt of travel
funds meant that key government personnel could
not immediately commence the initial damage
assessment. Following TC Vania in 2010, Vanuatu
had to reallocate a significant amount of the
national budget. Similarly, Fiji and Samoa had to
reallocate budgetary funds in the wake of TC Evan
in 2012 and 2013; and the Santa Cruz earthquake
in the Solomon Islands in February2013 drained
the annual budget for the National Disaster
Management Office and used the majority of the
national contingency budget.
Lacking contingency reserves and access to short-
term loan funds, PICs have limited post-disaster
budget flexibility and rely heavily on post-disaster
Section donor assistance. Studies by SPC (2011 and 2012)
that look at the fiscal impact of past disasters in
selected PICs demonstrate the financial constraints
07
FIJI PCRAFI 30
Annex 2
G lossary
Attachment point. The attachment point (deductible) amount is essentially the excess payable before any
/// ///
payout is made under a policy. That is, anything under this value will be borne by the policy holder.
Catastrophe swap. A catastrophe swap, also known as a cat swap, is a financial tool used to transfer some
/// ///
of the risk that the covered party faces from catastrophes to the international reinsurance or capital markets.
In the case of the Pacific Catastrophe Risk Insurance Pilot, tropical cyclone and/or earthquake risk is passed
to the financial markets.
Coverage limit. This indicates the maximum payout as defined under the policy.
/// ///
Emergency losses. Emergency losses in the context of the Pacific Catastrophe Risk Insurance Pilot are
/// ///
calculated by using a percentage of the estimated ground-up losses.
Exhaustion point. The exhaustion point indicates the loss level at which the payout under a policy reaches
/// ///
its maximum point.
Ground-up losses. Ground-up losses in this context refer to estimated total damage to buildings,
/// ///
infrastructure, and cash crops.
Payout. A payout refers to the amount of cash that countries will receive following an eligible event.
/// ///
Premium. The premium is the cost that an insured party will pay for a given level of coverage: the more
/// ///
that is included in the coverage provided, the higher the premium will be. Premiums are determined by the
amount of coverage a country chooses, the event attachment point (deductible) and exhaustion point (limit)
of that coverage, and the risk profile of the country.
Risk pool. A risk pool is a group of people, institutions, or countries that collaborate to manage risk
/// ///
financially as a single group.
Section
07
FIJI PCRAFI 31
Annex 3
Insurance Market Review, February 2014
Executive Summary insurance penetration. The country’s non-life
premium is approximately F$206 (US$111) per
The Fiji non-life (general) insurance market
///
capita, which is high for PICs. The commercial
///
is the second-largest in the Pacific Island sector is the major contributor to this apparently
Countries (PICs), with a total premium of high penetration, based on premium volume.
F$174.5 million (US$94 million). Seven local
///
Households remain largely uninsured.
insurers are currently operating with a premium
income of F$145.5 million (US$78 million). The Insurance for catastrophe insurance perils
///
balance of F$29 million (US$15.6 million) is equal of earthquake and cyclone is available in
to 17 percent of the market and is placed with the market and can be included in property
offshore insurers by the four local brokers. insurance products. Cyclone insurance is
available only as an extension to property
Fiji has legislation in place—the Insurance
///
policies once an engineer’s certification of
Act (1998) and regulations—to regulate the compliance with the building code has been
insurance industry. The Reserve Bank of Fiji
received. Sea surge caused by cyclones is normally
///
(RBF) is the regulator. The RBF undertakes
excluded. Earthquake is underwritten by insurers
///
reviews to ensure that solvency margins are met,
on differing bases. Tsunami is included as an
that there is adequate reinsurance protection
earthquake peril by some insurers but excluded
in place for insured catastrophe risks, and that
by others. Property insurance rates for the cyclone
property and other accumulations are monitored.
peril are around the Pacific average (0.30 percent);
Offshore insurance placements must be approved
rates for the earthquake peril (0.08 percent) are
by RBF before premium is remitted overseas.
lower than most other Pacific countries.
Fiji is exposed to the catastrophe perils of
The government of Fiji does not have
///
cyclones and earthquakes. Fiji is in the Southern
///
property insurance programs in place for key
///
Hemisphere tropical cyclone zone. Earthquakes
public or infrastructure assets. This means
are known to have occurred in Fiji. The last major
///
that major transportation assets such as roads
earthquake in a built-up area (Suva) was in 1953
and bridges are not insured, which could result in
and was large enough to trigger a tsunami.
delays in reconstruction following a catastrophic
Section
The total general insurance market, in the
///
event. Some ministries and departments may
context of the size of the Fijian economy insure physical property assets on an individual
and population, suggests relatively high basis.
08
32 PCRAFI FIJI
Government-owned commercial companies
/// The general insurance market has a total
///
and statutory authorities arrange their own premium of F$174.5 million (US$94 million),
insurance programs, including property which in the context of the size of the Fijian
insurance for key assets. Public authorities’
/// economy and population suggests relatively
property insurance is arranged by each individual high insurance penetration(RBF 2012).
///
public authority. Most of these programs insure However, examination of industry data indicates
earthquake, but the cyclone insurance extension is that the commercial sector is the major contributor
not always taken. to this apparently high penetration. Viewed on a
premium volume basis, households remain largely
uninsured. The seven local insurers currently have
Insurance Market Overview
a combined premium income of F$145.5 million
(US$78 million). The balance of F$29 million
There are eight registered non-life (general)
///
(US$15.6 million) is placed with offshore insurers
insurers in Fiji, with seven currently operating
///
by the four local insurance brokers.
and one in run-off. These seven insurers and
their company status are detailed in table 1. Of The New India Assurance Company Limited is
the seven insurers, QBE, New India, and Tower registered in India and has a branch in Fiji. Its
were reported to be the most active in the Fire financial strength rating, issued by A. M. Best
(property) insurance class, which includes the on January 16, 2013, is A- (excellent). Concern
catastrophe perils of earthquake and cyclone when was expressed by a source outside the insurance
underwritten. General insurers suffered significant industry that New India (Fiji) was slow in paying
losses in the Fire class in 2009 and 2012 due to major claims, possibly due to its branch status and
cyclone and flood events.
Table A .1— Non-life (General) Insurers Operating in Fiji 2012
COUNTRY OF COUNTRY OF
COMPANY STATUS FINANCIAL SECURITY
INCORPORATION OWNERSHIP
BSP Health Care (Fiji)
Fiji Papua New Guinea Subsidiary Local solvency
Ltd.
Dominion Insurance
Fiji Fiji Local co. Local solvency
Co. Ltd.
Fiji Care Insurance Co.
Fiji Australia Subsidiary Local solvency
Ltd.
New India Assurance A. M. Best “A-” (excellent) & local
India India Branch
Co. Ltd. solvency
Sun Insurance Co. Ltd. Fiji Fiji Local co. Local solvency
QBE Insurance (Fiji) Ltd. Fiji Australia Subsidiary Local solvency
Section Tower Insurance (Fiji)
Fiji New Zealand Subsidiary Local solvency
Ltd.
08
Source: RBF 2012; World Bank.
FIJI PCRAFI 33
the need to refer any major loss events to the head the solvency requirements of the Insurance Act.
office in India. Tower Insurance (Fiji) Limited does not have its
own financial security rating. The parent, Tower
QBE Insurance (Fiji) Limited is a wholly owned
Insurance Limited, has a security rating of A-
subsidiary of QBE Insurance Group Limited, an
(excellent) from A. M. Best dated July 26, 2013,
Australian company listed on the Australian stock
in accordance with the New Zealand Insurance
exchange. As QBE (Fiji) is a subsidiary, it has no
Prudential Supervision Act (2010).
additional financial security in place beyond that
provided under the solvency requirements of the All other local insurers are locally registered or
Insurance Act. QBE (Fiji) does not have its own subsidiaries with no financial security ratings,
financial security rating. The ultimate parent, QBE though all are in compliance with local insurance
Insurance Group Limited, has a security rating of A- solvency regulation.
from Standard & Poor’s dated May 22, 2013, and
an A+ rating for core operating entities. Offshore market
Tower Insurance (Fiji) Limited is a wholly owned The main offshore insurers used for placement
subsidiary of Tower Insurance Limited, a New of Fiji risks are Lloyds and the associated London
Zealand registered company listed on the New market. Placement is arranged by local brokers
Zealand and Australian stock exchanges. As Tower Aon, Marsh, and Insurance Holdings (a member Section
(Fiji) is a subsidiary, it has no additional financial of the Willis global network), all of which have
international connections. The RBF must approve
08
security in place, other than that provided under
34 PCRAFI FIJI
Table A .2— Pacific Non-life Insurance Premium per Capita 2012 (US$)
MARKET PREMIUM PER
MARKET GDP MILLIONS POPULATION GDP PER CAPITA
PREMIUM CAPITA
Cook Islands $305 19,300 $15,823 $6,600,000 $342
Fiji $3,908 874,700 $4,467 $97,500,000 $111
Marshall Islands $182 52,560 $3,470 $3,000,000 $57
Samoa $683 188,900 $3,619 $17,000,000 $90
Solomon Islands $1,008 549,600 $1,130 $13,000,000 $24
Tonga $471 104,900 $4,495 $4,400,000 $42
Vanuatu $781 247,300 $3,182 $16,500,000 $67
Source: World 2014
all offshore placements and keeps comprehensive Agents
records of them. For the Fire (property) insurance
class, the number and value of offshore placements There are 129 licensed general insurance agents,
of Fiji between 2010 and 2012 were as follows: including banks (RBF 2012). Most of these
in 2010, 64 offshore placements valued at F$14.8 agents are individual salespeople and act for
million (US$8 million); in 2011, 72 valued at F$11 specific insurers.
million (US$6 million); and in 2012, 71 valued at FJ
Bancassurance
$14.6 million (US$8 million) (RBF 2012).
Three trading banks have agency licenses under
Market penetration per capita
the Insurance Act: ANZ Banking Group Limited,
The non-life insurance industry contributes
///
Bank South Pacific, and Westpac Banking
around 2.34 percent to the local GDP, and Corporation. All three have specific agency
general insurance premium penetration was arrangements with Tower (Fiji).
approximately US$111 per capita in 2012
Brokers
///
(RBF 2012; World Bank 2012). A comparison to
other Pacific Island countries is shown in table 2. There are four licensed insurance brokers: Aon
These figures suggest relatively high insurance (Fiji) Limited, Marsh (Fiji) Limited, Unity Insurance
penetration in the Pacific context, although Brokers (Fiji) Limited, and Insurance Holdings Fiji
further information on number of household Limited. Aon, Marsh, and Insurance Holdings are
policies indicates that the commercial sector all majority-owned by or have links with major
(notably tourism) is driving these figures, and that international insurance brokering firms. The RBF
household insurance penetration remains very low. (2012) records that F$137 million (US$74 million)
of insurance premium is managed by brokers,
Distribution channels which equates to 78 percent of the market.
There is a wide variety of distribution channels Insurance brokers therefore dominate the industry
Section distribution channels on a premium basis.
available to market general insurance products in
Fiji. These are discussed below.
08
FIJI PCRAFI 35
Direct The main catastrophe hazard in Fiji is tropical
///
cyclone. Insurers are aware of the exposure and
///
A number of the general insurers in Fiji offer insure only those properties that meet the cyclone
insurance products on a direct basis for domestic standard set out in the building code. In order to
household and motor vehicle insurance products. better underwrite the cyclone peril, local insurers
There are no online insurance services available require that buildings be inspected and certified
in Fiji. by local structural engineers as complying with
the cyclone code. This certification is then valid
Catastrophe Risk Exposure and
for seven years. Cyclone insurance is available
Capacity
only as an extension to property policies once the
Catastrophe risk insurance represents a
///
engineer’s certification has been received. The
particular challenge to insurers’ exposure average premium rate for cyclone extension is 0.30
management, since unlike other types of percent of the total insured value, with deductibles
insurance, it presents the possibility of ranging between 10 percent to 20 percent of the
large correlated losses. Insurers need to use
///
loss and a maximum based on the asset value. Sea
a combination of reinsurance, reserves, and surge caused by cyclones is normally an excluded
diversification within their portfolios to ensure peril, even when the cyclone extension is given,
that they can withstand large disaster shock losses but limited sub-limit coverage for sea surge is Section
without threatening their solvency. available for some major commercial accounts.
08
36 PCRAFI FIJI
Earthquake as a peril is underwritten by
/// profile asset counts give counts of 240,958 for
the insurers on differing bases. Some offer it
/// residential and 25,178 for public and commercial.
as an automatic peril with full sum insured, and Comparing the policy numbers and profile asset
others offer it with a peril-specific limit (sub-limit) count is not comparing like for like, but still
applied to restrict the insurer’s exposure. The provides some general guidance into insurance
average premium rate for the earthquake peril market penetration.
was 0.08 percent of total insured value, although
On the basis of this comparison, the approximate
this rate varies if a sub-limit is used. Deductible
residential property insurance penetration is
for earthquake was generally 10 percent of sum
around 6 percent and the public/commercial
insured, with a minimum of F$2,000. Tsunami is
penetration 17 percent. This finding suggests that
included as an earthquake peril by some insurers
the majority of houses in Fiji are not insured for
but excluded by others.
catastrophe events. Anecdotal evidence would
Properties are insured on either a replacement
/// suggest that the cost of premiums is the main
or indemnity value basis. Policies are subject to
/// factor in residents’ decision not to insure their
underinsurance where the value declared as sum homes. Insurance penetration is better in the
insured is less than 80 percent of the correct value. commercial sector, but is still low, with the majority
To avoid underinsurance, insured entities should of businesses uninsured based on this analysis.
obtain replacement valuations and have these
updated every three to five years. Market capacity
The local market has no major limitations on
Access to catastrophe insurance
property and catastrophe capacity. Three major
By comparing the consolidated data in the RBF property insurers, QBE, Tower, and New India,
Insurance Annual Report (RBV 2012) to the data offer high acceptance limits, and other insurers
in the Fiji risk profile (PCRAFI 2011), it is possible offer lower property capacity for smaller accounts.
to determine insurance market penetration. The There is additional capacity available by way of
insurance report indicates that 14,792 household offshore placements if needed. Industry sources
policies were issued along with 4,192 Fire advised that most of these are property offshore
(commercial property) policies. The country risk placements for large commercial and outer island
FIJI PCRAFI 37
Box 1— Reinsurance Programs
New India Assurance Company Limited in Fiji operates as a branch. predominant catastrophe exposures are cyclones and earthquakes, with
According to the company 2012 annual report, each of the company’s the main accumulation on the main island of Viti Levu. The Tower Group
overseas branches makes its own reinsurance arrangements. The report also advised that reinsurance costs have increased in the 2011/12 financial
indicates that there is additional excess of loss (reinsurance) protection for period (Tower Insurance Ltd 2012). Tower Group also confirmed that it has
the company as a whole (New India Assurance Limited 2012). risk management procedures in place to identify natural hazard exposures
and where necessary purchases reinsurance to protect against the potential
QBE (Fiji) is reinsured for catastrophe events under the QBE Group catastrophe financial exposures.
reinsurance program. QBE Group has a detailed risk management
process (QBE Insurance Group Limited 2012) that includes monitoring of Public information is not available on the reinsurance arrangements of
catastrophe claims concentration and reinsurance protection to mitigate the other general insurers in the Fiji market—that is, BSP Health Care (Fiji)
the exposures. Limited, Dominion Insurance Company Limited, Fiji Care Insurance Limited,
and Sun Insurance (Fiji) Limited. The 2012 Key Disclosure Statements for
Tower (Fiji) is reinsured for catastrophe events under the Tower Insurance these companies all included reinsurance premiums, and RBF reviews their
Limited Group reinsurance program. Tower (Fiji) has determined that its reinsurance programs.
tourism risks that are underwritten by the London they have taken on) for each class of business
and Lloyd’s market or by large international insurers by division, within Fiji and outside Fiji. The
in the New Zealand market. These placements main property risk accumulations are located
are arranged by locally registered international within the Western and Central Divisions on the
insurance brokers and approved by RBF. main island of Viti Levu. According to the RBV
Insurance Annual Report (RBV 2012), reinsurance
Local insurance brokers surveyed advised that
reinstatement premiums of F$17.8 million (US$9.6
property catastrophe insurance capacity is readily
million) were reported by the industry following
available in the country, although insurers are at
the 2012 catastrophe events, meaning that
times selective in accepting risk. They reported
reinsurance programs were claimed upon for
that for major individual property risks they had
these events.
limited choice, as the major property insurers were
the only companies with large capacity for those In 2011, natural catastrophe insured losses in
accounts. Many of the outer island tourism risks are the global reinsurance market were the second-
placed offshore because local insurers are reluctant largest ever, at over US$110 billion (Swiss Re
to accept these risks, given the potential losses 2012). What made this year significant for insurers
from cyclone, sea surge, and tsunami. (and reinsurers) in the Pacific was the number of
events that occurred in the Asia Pacific region:
Reinsurance earthquakes in New Zealand and Japan, floods in
Australia and Thailand, and a cyclone in Australia.
RBF requires general insurers to submit a
According to the Global Insurance Market Report
reinsurance management strategy as part of
(IAIS 2012), these Asia Pacific events accounted
their license renewal. RBF reviews the submitted
for 61 percent of the insured losses from natural Section
strategies as required by Section 39 of the
catastrophes in 2011, compared to a 30-year
Insurance Act. Local insurers must submit gross
average of 18 percent. As a consequence, there
08
aggregate amounts (a summary of how much risk
38 PCRAFI FIJI
Box 2— Past Catastrophe Events
Cyclone
/// /// Catastrophe event insurance impact
/// ///
In December 2012, Cyclone Evan caused significant damage in Fiji’s The three major property insurers—QBE (Fiji), New India, and Tower (Fiji)—
Western Division. A total of 977 insurance claims valued at F$56.7 million all reported net accounting losses in their Key Disclosure Statements for
(US$30 million) were lodged after the event. In 2009, Cyclone Mick caused the 2012 period (RBF 2012). These losses resulted from claims following
damage totaling F$15.2 million (US$8 million); a total of 240 insurance Cyclone Evan and the two Western Division (Nadi) flood events in 2012
claims were lodged after this event (RBF 2012). and brought the final Fire net claims ratio to 195.7 percent. According to
industry sources, offshore insurers also suffered significant property losses
Earthquake and tsunami
/// ///
as a result of claims from Cyclone Evan, particularly in outer island tourist
resorts. A significant number of claims were lodged in 2009 as a result of
There have been no major earthquake insurance events reported in Fiji in
Cyclone Mick and the Nadi flood event.
recent years. The last major damaging earthquake in Fiji was a magnitude
6.7 earthquake on September 14, 1953, off the south coast of Viti Levu Local insurers have expressed concern at the increasing frequency of
near Suva (Houtz 1962). Local loss adjusters also advised that over the last cyclones and floods in recent years. They are also aware of the potential for
20 years there have been only minor earthquake claims reported. a local earthquake or tsunami event.
Other catastrophe events
/// ///
On the basis of these major property claims in recent years, it is likely that
Fire class insurance premiums will rise over the next one to two years.
Fiji has suffered from three major flood events, one in 2009 and two in
Property insurers may also take underwriting action or withdraw coverage
2012. In the 2009 flood, 418 property insurance claims were lodged in the
completely from exposed areas such as the Western Division floodplains
Western Division for a total value of F$28.5 million (US$15.3 million). In
and Nadi Township.
2012, the two flood events were also in the Western Division; 838 claims
were lodged following these floods for a total value of F$33 million (US$18
million) (RBF 2012).
were adjustments in reinsurance capacity and automatically available and is included only as an
higher risk premiums. In 2012 the natural disaster extension to property policies once an engineer’s
losses dropped to US$77 million (Swiss Re 2013), cyclone certification has been received.
but this was still the third-highest year for natural
Industrial Special Risks (ISR) policies are
catastrophe insured losses since 1970. In the
///
used for property insurance on all major
Pacific, Tropical Cyclone Evan caused insured losses
commercial, government, public authority,
of F$57 million in Fiji (RBF 2012) and estimated
and government commercial companies. Each
insured losses of SAT 3 million in Samoa in
///
major property insurer has its own ISR version, and
December 2012.
most brokers use agreed-upon ISR wordings for
Products their clients. The wordings are generally based on
the Australian Mark IV, London market, or Papua
There are no specific catastrophe insurance
///
New Guinea market ISR wordings.
products available in the Fiji market. The ///
Section A major limitation of the ISR wording for
following property and engineering insurance
products include the catastrophe perils of governments is that infrastructure assets such
08
earthquake and tsunami. Cyclone insurance is not as roads, bridges, and wharves are specifically
FIJI PCRAFI 39
excluded. Local insurers and insurance brokers Insurance Law and Regulation
advised that it was common practice, on
major commercial accounts, to include smaller The current insurance legislation in Fiji is the
infrastructure items in an ISR schedule and waive Insurance Act (1998) and regulations. According to
the exclusion. Major infrastructure items, however, RBF, a review of the act is currently in progress. In
would need to be insured under a Completed Civil addition to the act and regulations, RBF provides a
Works policy. number of insurance supervision policy statements
on various aspects of insurance regulation.
Commercial Package or Business Protection
///
policies are used for small and medium Local non-life insurers are required to maintain
enterprises and are offered as either a Multi Risks
///
a minimum solvency ratio of no less than F$1
(accidental damage including earthquake and million, or 20 percent of net premium, or 15
cyclone by extension) or as a Specified Risks (fire percent of net claims outstanding (RBF 2012). In
and basic perils). These generally follow the perils addition, RBF reviews reinsurance management
insured under the ISR, although coverage tends to strategies annually, undertakes on-site
be more restrictive. examinations of licensed insurers and brokers,
and obtains accumulation details from insurers
Contract Works insurance is available for
///
on classes of insurance written in each division
property under construction and may be
///
(region) of the country. There is no requirement
extended to insure construction of infrastructure for a catastrophe reserve to be held, and current
assets. solvency requirements do not take into account
catastrophe risk exposures or any quantification of
Completed Civil Works insurance for
probable large losses from disaster events.
///
infrastructure assets is not a commonly
available product in the Fiji market. Given that
///
RBF (2012) reports that the general insurance
smaller infrastructure assets can be insured under industry has a combined solvency surplus of
ISR, the specialist Completed Civil Works product is FJ$71.9 million (US$39 million), compared to the
less needed than it otherwise would be. minimum required solvency margin of F$20.6
40 PCRAFI FIJI
Box 3— Fiji Electricity Authority
FEA has a comprehensive enterprise risk management process in place to a new valuation is due in 2014). FEA management is aware of sub-limits
identify risks and take action to mitigate those risks. According to FEA, under its ISR insurance for cyclone and sea surge. Overall cyclone limit is
this process allowed it to secure a favorable property insurance renewal F$20 million (US$11 million) per event and F$40 million (US$22 million) on
in September 2012, in spite of a volatile property insurance market (FEA an annual aggregate basis, with specific limits for wind farm and exclusion
2012). FEA advised that the Electricity Act has a clause requiring it to insure for transmission and distribution lines. The earthquake peril is insured on
its assets. It maintains two asset registers, one for accounting purposes and a full sum insured basis. FEA self-funds against potential losses below its
one for insurance replacement purposes. It undertakes a review of asset agreed-upon deductible levels and for any excluded property items.
replacement values on a regular basis (the last was undertaken in 2008, and
million (US$11 million). RBF did note that due to Australian and New Zealand standards as a basis,
the catastrophic claims events of 2012, the general including the New Zealand earthquake code
insurance solvency surplus fell that year by F$8.1 (NZS4203) and Australian wind loads (AS1170.2)
million (US$4 million). for cyclone code. In the engineer’s view, most
commercial and government buildings constructed
The comprehensive annual analysis of the insurance
after 2004 are probably in accordance with the
industry that RBF undertakes demonstrates a
code. There is some uncertainty about who acts
high level of supervision and a comprehensive
as the final certifier of constructed buildings; the
understanding of the insurance market.
Ministry of Health, Ministry of Works, and local
From 2012 insurers were required to provide public authorities all have some involvement in the
Key Disclosure Statements. These statements are construction approval process.
available on insurer websites and within the RBF
Insurers expressed concern that the code was not
Insurance Annual Report. Their aim is to allow
always enforced, and they questioned why the
transparent financial comparisons to be made
Ministry of Health—which does not appear to
between insurers.
have the necessary engineering technical expertise
Fiji is not listed as a member of the International in this area—is authorized to sign off on building
Association of Insurance Supervisors (IAIS).1 construction. The insurance industry also had
Membership in IAIS would allow Fiji to access concerns that local authorities were allowing
international best practice information on construction to take place on known floodplains
insurance regulation and supervision. and in areas that were exposed to sea surge
and tsunami.
Building Control and Standards
Insurers have taken proactive steps to ensure
The legal basis for all construction in Fiji is the cyclone building standard compliance by requiring
National Building Code (2004). A local engineer engineering certificates for insured properties,
Section in Suva, who undertook cyclone inspections for rather than relying on the government’s
insurers, advised that the code became law in enforcement of the building code.
August 2004. The code is understood to use
08
FIJI PCRAFI 41
Box 4— Fiji Ports Corporation Limited
FPCL advised that it has no formal risk management plan or risk register in FPCL made a decision not to insure for cyclone because the additional
place. It did review some of its key risks with its insurance broker, Marsh premium costs would have been F$500,000 (US$269,000) per year,
Fiji, and attended a disaster management workshop presented by Marsh whereas its actual losses in December 2012 from Cyclone Evan were
Fiji in the past. FPCL has an asset register in place; the last revaluation only F$100,000 (US$54,000). It is aware of the 1953 earthquake and
was completed in 2012. These valuations give the reinstatement values of has obtained engineering reports on the earthquake resistance of major
all wharves and buildings under its ownership. FPCL’s property insurance wharves. In 2005 strengthening was carried out to the Suva wharf and
program was placed by Marsh Fiji with AIG NZ. FPCL was aware that the (when the extension was completed) to the Lautoka wharf, in both cases
property program insured the catastrophe peril of earthquake only and with consideration for the seismic risk.
that cyclone was excluded. The policy had a first loss limit of F$150 million
(US$81 million) and one event, and the deductible was 2.5 percent of site FPCL management did consider that it would be useful if the Ministry
value, with a minimum of F$500,000 (US$269,000). of Finance issued guidelines on insurance requirements for government-
owned companies.
Insurance of Public Assets
Government-owned commercial companies
///
and statutory authorities arrange their own
Fiji has no formal government risk
///
insurance programs, including property
management or risk financing strategy in insurance for key assets. The insurance broker
///
place to provide guidance on which risks are to
///
used for the majority of these programs is Marsh
be retained and which transferred or financed (Fiji), with various local insurers and offshore
(including by traditional insurance). placements also used. Those entities with property
insurance programs are advised by their brokers to
There is no program in place to insure
have assets revalued at least every three years.
///
government key property assets against the
catastrophe perils of cyclone, earthquake, and A government statutory authority, Fiji Electricity
tsunami. Only one government department, the
///
Authority (FEA), and a commercial company, Fiji
Fiji Revenue Customs Authority, is reported to have Ports Corporation Limited (FPCL), were selected by
property insurance for a government building. the Ministry of Finance to operate key government
infrastructure assets. Managers of the two entities
The Ministry of Finance currently has a project
were interviewed to gain an understanding of
///
underway to prepare an asset register of all
their risk management processes and of the
government physical assets; the goal is to
risk financing arrangements they have in place,
complete the project by 2014. The main reason
including property insurance.
///
to compile the asset register is to provide an
accounting value for the included assets, although It is not possible from a sample of only two
the register could also record the replacement value entities to reach conclusions about the property
of property assets for insurance purposes. Once the insurance programs of all other statutory
asset register is completed, it would be possible to authorities and state-owned enterprises. It is
identify key property assets that the Government possible that the catastrophe peril of cyclone Section
wish to insure. Fiji also has no central register is generally not insured, both because of the
recording existing insurance of public assets. engineering certificate required and because of
08
42 PCRAFI FIJI
the high premium cost of the cyclone insurance Recommendation 3: The government should
///
extension. Thus there is a potential contingent ensure both that the current project to set
liability for the government should a major cyclone up a central key asset register is integrated
occur, particularly if the main island of Viti Levu with any DFRI strategy, and that the asset
(Central and Western Divisions) were to be directly register is updated regularly. There is currently ///
impacted. A full survey of the property insurance no central asset register of public property owned
programs for statutory authorities and state- by statutory authorities or commercial companies.
owned companies would need to be undertaken Asset registers are held by the individual statutory
to determine if this assumption of a contingent authorities and commercial companies. A
liability is correct. consolidated register would allow the government
to accurately determine the aggregate asset
exposure to catastrophe events and formulate
Options for Consideration
appropriate risk financing responses.
Recommendation 1: An integrated DRFI
///
Recommendation 4: The government should
///
strategy should be developed by the set up a central insurance register as part of
government. The strategy should identify
///
the DFRI strategy and update the register as
key public assets and provide agreed-upon insurance contracts fall due. There is currently
///
retention limits for individual departments, public no central register of insurance held by the
authorities, and state-owned enterprises. It government in respect of property insurance in
should also consider a number of risk financing place for individual government departments,
and transfer options, such as captive insurance, statutory authorities, and commercial companies.
regional risk pooling, and both parametric and
Recommendation 5: The Reserve Bank of Fiji
indemnity insurance.
///
should consider applying for membership in
Recommendation 2: Any DRFI strategy
///
the International Association of Insurance
that is developed should integrate current Supervisors.Membership would allow the RBF to
///
indemnity property insurance held by various access international best practice information on
government-owned commercial companies, insurance company regulation and supervision.
statutory authorities, and some ministries
and departments. Existing indemnity insurance
///
should be reviewed to ensure that the government,
statutory authorities, and commercial companies
are getting the best available coverage, terms,
End Notes
and conditions for the premiums paid. Particular
consideration should be given to the insurance of 1 IAIS members are listed at http://www.iaisweb.org/About-the-
IAIS/IAIS-members-31 (accessed January 20, 2014).
public assets from the perils of earthquake/tsunami
and cyclone/sea surge.
Section
08
FIJI PCRAFI 43
References
FEA (Fiji Electricity Authority). 2012. Annual Report 2012. http://
www.fea.com.fj/wp-content/uploads/2014/02/FEA-ANNU-
AL-REPORT-2012.pdf.
Houtz, R. E. 1962. “The 1953 Suva Earthquake and Tsunami.”
Bulletin of the Seismological Society of America 52 (January):
1–12.
IAIS (International Association of Insurance Supervisors). 2012.
Global Insurance Market Report. 2012 edition. http://iaisweb.
org/index.cfm?event=getPage&nodeId=25308.
New India Assurance Co. Limited. 2012. Annual Report.
PCRAFI (Pacific Catastrophe Risk Assessment and Financing
Initiative). 2011. “Country Risk Profile: Fiji.” September. www.
pacris.sopac.org.
QBE Insurance Group Limited. 2012. Annual Report 2012. http://
www.group.qbe.com/.
RBF (Reserve Bank of Fiji). 2012. Insurance Annual Report 2012.
Suva, Fiji. http://www.rbf.gov.fj/Publications/Publications/Insur-
ance-Annual-Reports.aspx.
Swiss Re. 2012. “Natural Catastrophes and Man-Made Disasters
in 2011.” Sigma 2/2012. http://www.swissre.com/sigma/.
———. 2013. “Natural Catastrophes and Man-Made Disasters in
2012.” Sigma 2/2013. http://www.swissre.com/sigma/.
Tower Limited. 2012. Annual Reports 2012. http://www.tower.
co.nz/Investor-Centre/Reports/Documents/TOWER_Annual_Re-
port_2012.pdf.
Section
08
44 PCRAFI FIJI
Glossary
Someone who acts for the insurance company in arranging insurance contracts. There are two main
Agent types of agents: tied agents, who act for one insurer only, and general agents, who act for multiple
insurance companies.
Someone who acts as an agent for the insured in arranging an insurance or reinsurance program
Broker
with a provider of capacity.
The ability of an insurance company to provide insurance protection to clients, which is limited by
Capacity
its own financial strength and the reinsurance protection it has in place.
An insurance company wholly owned by a company or entity that insures the risks of the parent
Captive insurer
entity and subsidiaries.
Insurance that reimburses individuals or entities for loss or damage to a financial position as close
Indemnity insurance as possible to the position they were in prior to the event, in the context of the financial terms of
the coverage (such as deductible/excess and limit).
Intermediaries The general term given to insurance agents and brokers.
The amount that an insurance company retains on a reinsurance contract and in particular an
Net retention
excess of loss of contract.
A type of insurance that is triggered by the occurrence of a specific measured hazard event, such
Parametric insurance
as a certain magnitude of earthquake or category of cyclone.
Probable maximum loss
The maximum value of a claim from a large or catastrophe event. May also be called MPL.
(PML)
The insurance of physical assets such as buildings, plant and equipment, stock, and machinery.
Property insurance The products used for this insurance are variously named as fire and perils, commercial or business
package, industrial special risks, or material damage insurance.
A risk transfer method used by insurance companies to transfer part of a single large risk or an
accumulation of similar risks and so increase their capacity. Reinsurance helps to smooth the
Reinsurance
extreme results and effects of specific perils (such as catastrophe events) and therefore to reduce
the volatility of an insurance portfolio.
The extent by which an insurer’s assets exceed its liabilities. Minimum statutory solvency
Section Solvency margin
requirements are normally included in insurance acts or regulations.
08
FIJI PCRAFI 45
Annex 4
Country Risk Profile
Section
09
PACIFIC CATASTROPHE RISK
ASSESSMENT AND FINANCING
INITIATIVE
FIJI
SEPTEMBER 2011
COUNTRY RISK PROFILE: FIJI
Fiji is expected to incur, on average, 79 million USD per
year in losses due to earthquakes and tropical cyclones. In
the next 50 years, Fiji has a 50% chance of experiencing a
loss exceeding 750 million USD and casualties larger than
1,200 people, and a 10% chance of experiencing a loss
exceeding 1.5 billion USD and casualties larger than 2,100
people.
BETTER RISK INFORMATION FOR SMARTER INVESTMENTS
COUNTRY RISK PROFILE: FIJI
POPULATION, BUILDINGS, INFRASTRUCTURE AND
CROPS EXPOSED TO NATURAL PERILS
An extensive study has been conducted to assemble a
comprehensive inventory of population and properties at
risk. Properties include residential, commercial, public and
industrial buildings; infrastructure assets such as major ports,
airports, power plants, bridges, and roads; and major crops,
such as coconut, palm oil, taro, sugar cane and many others.
TABLE 1:
Summary of Exposure in Fiji (2010)
General Information:
Total Population: 847,000
GDP Per Capita (USD): 3.550
Total GDP (million USD): 3,009.4
Asset Counts:
Residential Buildings: 240,958
Figure 1: Building locations.
Public Buildings: 8,204
Commercial, Industrial, and Other Buildings: 16,974
All Buildings: 266,140
Hectares of Major Crops: 169,733
Cost of Replacing Assets (million USD):
Buildings: 18,865
Infrastructure: 3,094
Crops: 216
Total: 22,175
Government Revenue and Expenditure:
Total Government Revenue
(Million USD): 652.5
(% GDP): 21.7%
Total Government Expenditure
(Million USD): 2734.5 Figure 2: Building replacement cost density by district.
(% GDP): 24.4%
1
Data assembled from various references including WB, ADB, IMF and The
Secretariat of the Pacific Community (SPC)
2
The projected 2010 population was trended from the 2007 census using
estimated growth rates provided by SPC.
Table 1 summarizes population and the inventory of buildings,
infrastructure assets, and major crops (or “exposure”) at risk
as well as key economic values for Fiji. It is estimated that the
replacement value of all the assets in Fiji is 22.2 billion USD,
of which about 85% represents buildings and 14% represents
infrastructure.
Figures 1 and 2 illustrate the building exposure location and
replacement cost distribution, respectively. The footprints of
about 100,000 of the approximately 266,000 buildings shown
in Figure 1 were digitized from high-resolution satellite
imagery. More than 18,000 of such buildings, most near
the vicinity of the nation’s capital of Suva, were also field
Figure 3: Land cover/land use map.
2
September 2011
COUNTRY RISK PROFILE: FIJI
surveyed and photographed by a team of inspectors deployed earthquakes and, in some cases, major tsunamis traveling
for this purpose. Figure 3 displays the land cover/land use map great distances. Local faults can also generate from time to
that includes the location of major crops. The data utilized time damaging earthquakes. A tragic example is the 1953
for these exhibits was assembled, organized and, when magnitude 6.5 earthquake, which triggered a tsunami that
unavailable, produced in this study. killed 8 people and severely damaged the wharf and buildings
in the Fijian capital of Suva with significant monetary losses.
HAZARDS
TROPICAL CYCLONE AND EARTHQUAKE Figure 5 shows that Fiji has a 40% chance in the next 50 years
IN FIJI of experiencing, at least once, moderate to strong levels
The Pacific islands region is prone to natural hazards. Fiji of ground shaking. These levels of shaking are expected to
is located south of the equator in an area known for the cause light to moderate damage to well-engineered buildings
frequent occurrence of tropical cyclones with damaging and moderate to heavy damage to structures built with less
winds, rains and storm surge between the months of October stringent criteria.
and May. In the South Pacific region from the equator to New
Zealand in latitude and from Indonesia to east of Hawaii in
longitude, almost 1,000 tropical cyclones with hurricane-force
Main Islands Labasa 180°
0 25 50 100
winds spawned in the last 60 years, with an average of about Kilometers
16 tropical storms per year. Fiji was affected by devastating
cyclones multiple times in the last few decades. For example, 178° E 178° W
tropical cyclones Kina and Ami, in 1993 and 2003, caused about
40 fatalities. Strong winds and widespread coastal flooding
15° S
Fiji
Main
15° S
Islands
damaged homes, infrastructure and crops in the main islands
of Viti Levu and Vanua Levu with about 200 to 300 million USD
in losses that weakened the local economy. Figure 4 shows 0 200 400
20° S 20° S
the levels of wind speed due to tropical cyclones that have
Suva 178° E 178° W
about a 40% chance to be exceeded at least once in the next
50 years (100-year mean return period). These wind speeds, if
they were to occur, are capable of generating severe damage Suva
to buildings, infrastructure and crops with consequent large 0 1 2 4
economic losses.
Perceived Shaking Not Felt Weak Light Moderate Strong Very Strong Severe Violent Extreme
Moderate/ Very
Fiji is situated in a relatively quiet seismic area but is Potential Damage none none none Very light light Moderate Heavy Heavy Heavy
Peak ACC. (%g) <0.17 0.17-1.4 1.4-4.0 4.0-9 9-17 17-32 32-61 61-114 >114
surrounded by the Pacific “ring of fire,” which aligns with Peak Vel. (cm/s) <0.12 0.12-1.1 1.1-3.4 3.4-8 8-16 16-31 31-59 59-115 >115
the boundaries of the tectonic plates. These boundaries are Instrumental Intensity I II-III IV V VI VII VIII IX X+
extremely active seismic zones capable of generating large Scale based upon Wald. et al: 1999
Figure 5: Peak horizontal acceleration of the ground (Note: 1g is equal to the
acceleration of gravity) that have about a 40% chance to be exceeded at least once in
Main Islands Labasa 180° the next 50 years (100-year mean return period).
0 25 50 100
Kilometers
RISK ANALYSIS RESULTS
178° E 178° W
To estimate the risk profile for Fiji posed by tropical cyclones
and earthquakes, a simulation model of potential storms and
15° S
Fiji
Main
15° S
earthquakes that may affect the country in the future was
Islands
constructed. This model, based on historical data, simulates
more than 400,000 tropical cyclones and about 7.6 million
20° S
0 200 400
20° S
earthquakes, grouped in 10,000 potential realizations of the
Suva 178° E 178° W next year’s activity in the entire Pacific Basin. The catalog of
simulated earthquakes also includes large magnitude events
in South and North America, Japan and the Philippines, which
Suva could generate tsunamis that may affect Fiji’s shores.
0.5 0 1 2
0 25 50 75 100 125 150 175 200 The country’s earthquake and tropical cyclone risk profiles are
derived from an estimation of the direct losses to buildings,
Maximum Wind Speed infrastructure assets and major crops caused by all the
simulated potential future events. The direct losses comprise
Figure 4: Maximum 1-minute sustained wind speed (in miles per hour) with a 40%
the cost of repairing or replacing the damaged assets, but
3
chance to be exceeded at least once in the next 50 years (100-year mean return
period).
September 2011
COUNTRY RISK PROFILE: FIJI
do not include other losses such as contents losses, business
interruption losses and losses to primary industries other Main Islands Labasa 180°
0 25 50 100
than agriculture. The direct losses for tropical cyclones are Kilometers
caused by wind and flooding due to rain and storm surge,
while for earthquakes they are caused by ground shaking
178° E 178° W
and tsunami inundation. After assessing the cost of repairing
or rebuilding the damaged assets due to the impact of all the
15° S
Main
Fiji 15° S
simulated potential future events, it is possible to estimate Islands
in a probabilistic sense the severity of losses for future
catastrophes. 0 200 400
20° S 20° S
Suva Total Average Annual 178° E 178° W
The simulations of possible next-year tropical cyclone and Loss (million USD)
earthquake activity show that some years will see no storms 0 - 0.05
0.05 - 0.1
0.5 - 1.0
1.0 - 2.5
or earthquakes affecting Fiji, while other years may see one Suva
0.1 - 0.25
0.25 - 0.5
2.5 - 5.0
5 - 10
0 1 2 4
or more events affecting the islands, similar to what has
happened historically. The annual losses averaged over the
Figure 7. Contribution from the different districts to the average annual loss for
many realizations of next-year activity are shown in Figure tropical cyclone and earthquake (ground shaking and tsunami).
6 separately for tropical cyclone and for earthquake and
tsunami, while the contributions to the average annual loss
from the different tikinas are displayed in absolute terms
Main Islands Labasa 180°
0 25 50 100
in Figure 7 and normalized by the total asset values in each Kilometers
tikina in Figure 8. Figure 8 shows how the relative risk varies
by tikina across the country.
178° E 178° W
The same risk assessment carried out for Fiji was also
15° S
Main
Fiji 15° S
performed for the 14 other Pacific Island Countries. The Islands
values of the average annual loss of Fiji and of the other 14
countries are compared in Figure 9.
0 200 400
20° S 20° S
AAL / Asset Value
Suva 0% - 0.2%
178° E 178° W
Tropical Cyclone 0.2% - 0.3%
Earthquake
Average Annual Loss = 76.5 million USD Average Annual Loss = 2.5 million USD 0.3% - 0.4%
0.4% - 0.5%
9.8% 14.0%
0.5% - 0.6%
1.0% 0.6% - 0.8%
Suva
Buildings Buildings 0 1 2 4 0.8% - 1%
1% - 1.8%
Cash Crops Cash Crops
Infrastructure Infrastructure
30.2% 60.0% Figure 8. Contribution from the different districts to the tropical cyclone and
85.0%
earthquake (ground shaking and tsunami) average annual loss divided by the
replacement cost of the assets in each district.
Figure 6: Average annual loss due to tropical cyclones and earthquakes (ground
Tropical Cyclone Earthquake Ground Motion Tsunami
Average Annual Loss (million USD)
shaking and tsunami) and its contribution from the three types of assets.
100
10
8
In addition to estimating average risk per calendar year, 80 6
another way of assessing risk is to examine large and 4
rather infrequent, but possible, future tropical cyclone and 2
60 0
earthquake losses. Table 2 summarizes the risk profile for
Fiji in terms of both direct losses and emergency losses. The
40
former are the expenditures needed to repair or replace the
damaged assets while the latter are the expenditures that
20
the Fijian government may need to incur in the aftermath of
a natural catastrophe to provide necessary relief and conduct
0
activities such as debris removal, setting up shelters for
homeless or supplying medicine and food. The emergency
losses are estimated as a percentage of the direct losses.
4
Figure 9: Average annual loss for all the 15 Pacific Island Countries
considered in this study.
September 2011
COUNTRY RISK PROFILE: FIJI
Table 2 includes the losses that are expected to be exceeded, adopted to estimate the likelihood that different levels of
on average, once every 50-, 100-, and 250-years. For example, casualties (i.e., fatalities and injuries) may result from the
a tropical cyclone loss exceeding 834 million USD, which is future occurrence of these events. As shown in Table 2, our
equivalent to about 28% of Fiji’s GDP, is to be expected, on model estimates, for example, that there is a 40% chance
average, once every 100 years. In Fiji, tropical cyclone losses in the next fifty years (100 year mean return period) that
are expected to be substantially more frequent and severe one or more events in a calendar year will cause casualties
than losses due to earthquake ground shaking and tsunami. exceeding 1,300 people in Fiji. Events causing 2,000 or more
The latter, however, remain potentially catastrophic events. casualties are also possible but have much lower likelihood
of occurring.
A more complete picture of the risk can be found in Figure
10, which shows the mean return period of direct losses in TABLE 2: Estimated Losses and Casualties Caused by Natural Perils
million USD generated by earthquake, tsunami and tropical Mean Return Period (years) AAL 50 100 250
cyclones combined. The 50-, 100-, and 250-year mean return
Risk Profile: Tropical Cyclone
period losses in Table 2 can also be determined from the
curves in this figure. The direct losses are expressed both in Direct Losses
absolute terms and as a percent of the national GDP. (Million USD) 76.5 609.9 834.0 1,190.9
(% GDP) 2.5% 20.3% 27.7% 39.6%
In addition to causing damage and losses to the built Emergency Losses
environment and crops, future earthquakes and tropical (Million USD) 17.6 140.0 191.6 274.3
cyclones will also have an impact on population. The same
(% of total government 2.4% 19.1% 26.1% 37.3%
probabilistic procedure described above for losses has been expenditures)
Casualties 126 988 1,292 1,773
2,000
Risk Profile: Earthquake and Tsunami
TC+EQ
Direct Losses
Direct Losses (million USD)
TC
1,500
EQ
(Million USD) 2.5 10.1 22.3 98.2
1,000 (% GDP) 0.1% 0.3% 0.7% 3.3%
Emergency Losses
500
(Million USD) 0.0 2.1 4.4 17.5
0
(% of total government 0.0% 0.3% 0.6% 2.4%
0 100 200 300 400 500 600 700 800 900 1,000 expenditures)
Mean Return Period (years)
Casualties 5 35 64 167
Risk Profile: Tropical Cyclone, Earthquake, and Tsunami
70%
TC+EQ Direct Losses
60%
TC (Million USD) 79.1 620.1 844.8 1,203.6
Direct Losses (% GDP)
50%
EQ
40% (% GDP) 2.6% 20.6% 28.1% 40.0%
30% Emergency Losses
20% (Million USD) 18.1 141.0 193.4 274.6
10% (% of total government 2.5% 19.2% 26.3% 37.4%
0%
expenditures)
0 100 200 300 400 500 600 700 800 900 1,000
Casualties 131 996 1,323 1,835
Mean Return Period (years)
Casualties include fatalities and injuries
1
Figure 10: Direct losses (in absolute terms and normalized by GDP) caused by either
tropical storms or earthquakes that are expected to be exceeded, on average, once
in the time period indicated.
5
September 2011
PCRAFI 2015
Country Note
FIJI
This note on Fiji forms part of a series of country Disaster Risk Finance and Insurance (DRFI) notes that
were developed to build understanding of the existing DRFI tools in use in each country and to identify
gaps future engagements in DRFI that could further improve financial resilience. These notes were devel-
oped as part of the technical assistance provided to countries under the Pacific DRFI program jointly im-
plemented by the World Bank and the Secretariat of the Pacific Community financed by the Government
of Japan. The technical assistance builds on the underlying principles of the three-tiered disaster risk
financing strategy and focuses on three core aspects: (i) the development of a public financial manage-
ment strategy for natural disasters, recognizing the need for ex-ante and ex-post financial tools; (ii) the
post-disaster budget execution process, to ensure that funds can be accessed and disbursed easily post-di-
saster; and (iii) the insurance of key public assets, to resource the much larger funding requirements of
recovery and reconstruction needs. The Pacific DRFI Program is one of the many applications of PCRAFI.
It is designed to increase the financial resilience of PICs by improving their capacity to meet post-disaster
financing needs without compromising their fiscal balance.
The Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) is a joint initiative of SOPAC/SPC, World Bank, and the Asian
Development Bank with the financial support of the Government of Japan, the Global Facility for Disaster Reduction and Recovery
(GFDRR) and the ACP-EU Natural Disaster Risk Reduction Programme, and technical support from AIR Worldwide, New Zealand GNS
Science, Geoscience Australia, Pacific Disaster Center (PDC), OpenGeo and GFDRR Labs.