Protecting Paradise Opportunities for insurance to support marine-based and coastal tourism in the Caribbean 2 Protecting Paradise © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Views and opinions expressed in the adaptation are the sole responsibility of the authors of the adaptation and are not endorsed by The World Bank. Protecting Paradise 3 Acknowledgments This report was made possible by the provision of funds from the PROBLUE Multi-Donor Trust Fund, administered by the World Bank. This report was prepared under the guidance and supervision of Yira Mascaró (Practice Manager, Finance, Competitiveness and Innovation, Latin America and the Caribbean), It was developed under the leadership and coordination of Samantha Cook (Senior Financial Sector Specialist), with inputs from Renata Koch Alvarenga (Consultant, ELCFN) and Brian Owens (Senior Insurance Consultant, ELCFN). The report content drew on data from country-specific and regional reports of Axco Insurance Information, as well as the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC). The report also benefitted from comments and guidance from Monica Parra Torrado (Senior Economist), Juliana Castaño-Isaza (Marine Natural Resources Management Specialist), and Brenden Jongman (Senior Disaster Risk Management Specialist). Cover photo: Tom Perry_World Bank Flickr The report was edited by Anne Himmelfarb and designed by X-Tempo Communications. 4 Protecting Paradise Table of Contents ABBREVIATIONS 6 EXECUTIVE SUMMARY 7 Key findings 9 BACKGROUND 10 INSURANCE IN THE CARIBBEAN 12 Indemnity versus Parametric Insurance 14 Domestic Insurance Markets in Caribbean Islands 15 Product Challenges and Opportunities 20 The Reinsurance Market 22 BIODIVERSITY IN THE CARIBBEAN 24 Biodiversity and the Tourism Industry in the Caribbean 25 Connecting Insurance to Biodiversity Protection 28 Insuring Risk from Coastal-Based Tourism 30 EXAMPLES OF INNOVATIVE INSURANCE INSTRUMENTS FROM AROUND THE WORLD 32 Nature-Based Insurance 34 Forecast-Based Insurance 36 Community Participation Insurance 36 Insurance for Targeted Beneficiaries 36 Bonds 37 Conclusions 38 KEY FINDINGS AND RECOMMENDATIONS  39 Key Findings 39 Recommendations 42 ANNEXES 44 Annex 1– Listing of Selected Larger Local & Regional Insurers Operating by Country 44 Annex 2– Overview of Caribbean Insurance Offerings 46 Annex 3– The Six CCRIF SPC Insurance Products 59 Annex 4– Types of Insurance in the Caribbean 50 Annex 5– Analysis of Peril Insurance Coverage in the Caribbean 51 REFERENCES 52 Protecting Paradise 5 TABLES 18 Table 1. Comparison of Key Insurance Market Statistics 18 Table 2. Potential Reasons for Limited Non-Life Property Premiums and Penetration in Caribbean Countries 20 Table 3. Recent Events and Reinsurance in Selected Caribbean Countries 23 FIGURES 22 Figure 1. Transferring Risk in the Reinsurance Market 22 Figure 2. Employment in the Tourism Sector as a Percentage of Total Employment in Caribbean Islands (2022) 26 Figure 3. Level of Disaster Preparedness among Caribbean Tourism Industry Firms 28 Figure 4. Insurance Coverage of Tourism Firms in the Caribbean 30 Figure 5. Design of the RISCO Product 35 BOXES 12 Box 1. The Insurance Protection Gap 12 Box 2. Caribbean Catastrophe Risk Insurance Facility 14 Box 3. The Blue Economy in the Caribbean 16 Box 4. Rise of Ecotourism 26 Box 5. Nature’s Role in Disaster Risk Reduction 29 Box 6. Impacts of Disasters on the Caribbean Tourism Industry 31 Box 7. A Hybrid Insurance Product Based on Mangroves 33 Box 8. Reef Protection Insurance and the Tourism Industry 34 Box 9. The Climate Risk Adaptation and Insurance in the Caribbean (CRAIC) project 37 PHOTO CREDIT: VILLEMAIN, UNEP 6 Protecting Paradise Abbreviations BI Business Interruption CAT Bond Catastrophe Bond CAT XOL Catastrophe Excess of Loss Reinsurance CCRIF Caribbean Catastrophe Risk Insurance Facility CRAIC Climate Risk Adaptation And Insurance in the Caribbean GDP Gross Domestic Product LPP Livelihood Protection Policy NFIP National Flood Insurance Program RISCO Restoration Insurance Service Company SIC State Insurance Company (Antigua and Barbuda) SIDS Small Island Developing States SPC Segregated Portfolio Company XCD Eastern Caribbean Dollar Protecting Paradise 7 Executive Summary PHOTO CREDIT: FREYA MORALES, UNDP Highly dependent on tourism for its beach erosion, sea-level rise, and intense economic development and financial flooding, disproportionately affect coastal health, the Caribbean region urgently communities and threaten the blue economy needs to protect its natural ecosystems and of the tourism sector. Climate change biodiversity from climate change impacts impacts have affected both infrastructure such as increasingly frequent and intense and the natural resources that enable natural disasters. Major floods, storms, and tourism to continue and thrive. hurricanes in recent years have shown that disasters lead to tremendous losses, not There is untapped potential to utilize only in the natural world, but among multiple insurance products, and in particular businesses and industries—especially those innovative nature-based solutions, to that rely on the health of the environment, reduce disaster risk and increase climate such as the Caribbean tourism industry, resilience in the region. Coastal areas in which depends on coastal ecosystems and the Caribbean can serve as natural defense marine resources. In the Eastern Caribbean, systems for protection against climate tourism accounts for 50 percent of regional change, and the insurance industry could gross domestic product (GDP) and about leverage such systems as part of integrated 40 percent of employment (Wellenstein and solutions that protect businesses amid Connors 2022). disasters and that foster sustainable tourism. Some small pilots already launched The economic and financial losses around the world showcase how innovative that result from natural hazards have insurance products can not only reduce left Caribbean islands with multiple the financial risk of disasters but also challenges and limited financial capacity engage local communities in protecting to cope with climate shocks. Some of the and restoring natural habitats. main impacts of climate change, such as 8 Protecting Paradise The tourism industry is a key source of parametric insurance policy combined income in the economy of the Caribbean, with a sovereign debt transaction (a blue and tourism activities that depend on bond) was placed on the market for US$364 nature are particularly impacted by hazard million. The blue bond was arranged events, which have immediate harmful by Credit Suisse, and the “catastrophe effects on the natural environment, this wrapper” was created by Willis Towers presents a case to explore BI insurance Watson (with risk capacity provided by in this sector. While Insurance coverage Munich Re) as insurance protection for in the Caribbean tourism industry is quite Belize’s loan repayments after hurricane high; the cover varies by country (Rozenberg events. The catastrophe wrapper helps et al. 2021). Grenada and St. Lucia are the safeguard the country’s 20-year sovereign islands with the most tourism firms covered debt structure, while the parametric transfer by insurance. Most firms in the region of risk strengthens Belize’s sustainability have asset loss insurance, and very few and resilience to climate shocks, thereby have liability insurance or income loss (BI) helping to prevent credit rating downgrades insurance in place. and reducing the time it takes the economy to recover following a shock (Cook and Nature-based financial solutions can Holliday 2022). be an innovative way to protect marine biodiversity in light of climate change This report explores the case for introducing impacts and insurance can, and has been innovative insurance products for designed to support marine conservation. businesses within the tourism industry Insurance tied to ecosystems is effective that leverage and conserve coastal and because these financial solutions can not marine ecosystems. It presents an overview only mitigate risks to the environment of the insurance market in the Caribbean, before a disaster happens, but also repair an analysis of the potential of insurance damage to natural assets, bringing positive products to protect natural assets, and a outcomes for nature and the Caribbean consideration of international examples population (The Nature Conservancy 2024). to be applied in the region. Insurance has Some examples of risk mitigation by natural great potential to mitigate disaster risk, but assets include coral reefs and mangroves. realizing this potential will require investing Coral reefs reduce almost 100 percent of in education to expand insurance uptake, wave energy, and thus can decrease the drawing lessons from prior experiences, damage caused by storms. The presence minimizing financial burdens, exploring new of mangroves avoids around US$65 billion products and types of insurance, ensuring in annual losses from floods and storms, that solutions are scalable, and improving mostly related to tropical cyclones (Earth quantitative tools and data. Security 2022). Some innovative solutions have already been launched, such as the Belize Blue Bond, a pioneering initiative for marine conservation through debt restructuring and insurance. In December 2021, a Protecting Paradise 9 KEY FINDINGS products can bring many benefits, including the increase of insurance This report finds that insurance can be pe netration across the Caribbean. designed to incentivize nature-based As seen in the NFIP in the United States, adaptation and help repair natural communities can be incentivized to assets, presenting an opportunity for collaborate in efforts to reduce risk and the Caribbean tourism industry to adopt foster climate resilience. The NFIP not insurance as a key strategy to reduce only provides flood insurance to at-risk disaster risk and meet post disaster communities (specifically property owners funding needs. To date, the main focus and businesses), but it invites them to become of insurers in the Caribbean has been on active participants in implementing flood traditional assets (residential, commercial protection activities through the Community industrial buildings). However, Insurance Rating System. This type of arrangement, markets in the region are slowly growing, which offers discounts to communities that but given the increasing intensity of hurricane work to reduce risk, could be part of various seasons in the Caribbean, innovation will be insurance products, even if they focus on an important strategy to safeguard the future different perils or areas. of Caribbean small island developing states. Insurance regulators should work with More high-quality data and risk models governments and industry across the are essential to develop insurance Caribbean region to stimulate growth policies that support the development of in the commercial and industrial insurance products for coastal and marine insurance sectors and put in place key ecosystems that foster sustainable regulations. Financial incentives could tourism. The use of more accurate historical be used to encourage investment in new data to develop new products is key not only products and enhance competition, while to increasing efficiency and effectiveness, industry associations and government but also to providing more reasonably priced could collaborate on product promotion. insurance. This is because less accuracy Additionally, industry and regulators should (due to lack of data) will generally increase seize the chance to be bold. insurance premiums to compensate for uncertainty (Munich Climate Insurance Innovation is needed to pioneer insurance Initiative 2020). Parametric products products for nature-based solutions could include ecosystems and prioritize and biodiversity protection. Innovative conservation and restoration, or hybrid insurance products around the world are insurance products that include a parametric proving effective in reducing disaster risk, trigger (to satisfy the parametric insurance and they could be adopted in the region guidelines) and also require proof of actual to mitigate the impacts of disasters on loss (based on a claim like traditional biodiversity and natural landscapes and to insurance) could and should be explored. allow the tourism sector to build resilience to climate disasters. There is an untapped Communities play an important role opportunity to grow the commercial and in building climate adaptation and industrial insurance markets horizontally resilience and in reducing disaster risk, through undersold and innovative coverages and their par ticipation in insurance and products. 10 Protecting Paradise Background PHOTO CREDIT: TOBIN JONES, UN As natural disasters and extreme weather have a significant impact on the climate events become more frequent, intense, crisis as natural assets disappear. The and costly around the world, climate- Caribbean is a biodiversity hotspot, hosting vulnerable regions like the Caribbean many species that are endemic to the region. are especially affected. The Caribbean It hosts 10 percent of the planet’s coral is the second most disaster-prone region reefs and around 1,400 species of marine in the world, with recurrent hurricanes, mammals and fish (NOAA 2024). Climate- flooding, and many other types of disasters, related disasters across Caribbean islands and it is now at the center of the climate are increasingly threatening the rich and emergency. For countries with high levels unique biodiversity of this part of the world of indebtedness like the Caribbean small (Bahamas Department of Statistics 2015). island developing states (SIDS), climate- related disasters have only deepened Biodiversity plays a critical role in the financial vulnerability and overall risk, in regional economy, and its loss limits the turn impacting the insurance sector. services that ecosystems can provide to the economy, including marine and Biodiversity loss is directly associated coastal-based tourism. For example, with climate change, and each has tourism in The Bahamas (which relies in implications for the other: increasing large part on coastal areas) is estimated climate change impacts will result in to contribute to around 50 percent of the more biodiversity loss, and this loss will country’s gross domestic product (GDP), and Protecting Paradise 11 it employs half of the country’s workforce This report explores insurance’s role in (US Department of State, 2020). Changes to supporting marine-based and coastal marine areas could damage this vital industry tourism in the Caribbean. The first section by decreasing the number of tourists who presents a detailed analysis of the insurance visit a natural landscape. These changes can market in 10 Caribbean countries, based on also impact the natural resources available data from Axco, and identifies challenges to those who rely on coastal areas for their and opportunities in the regional and work, for example, due to the increased domestic insurance industry. The next vulnerability of food production systems section discusses the importance of natural and the climate impacts on the availability assets and biodiversity for tourism and the of marine fisheries. economy as a whole in the region, and looks at the role of insurance in protecting these In the last 70 years, the Caribbean region natural resources. The third section reviews has experienced over 400 large disasters, innovative global products and considers mainly floods and tropical storms, which their relevance for the Caribbean. Finally, are intensifying yearly due to climate the last section presents key findings of change.1 Recently, Caribbean islands the research and makes recommendations have faced several Category 5 hurricanes, for Caribbean governments and the tourism including Hurricanes Irma and Maria (2017), and insurance industries. Hurricane Dorian (2019), and Hurricane Beryl (2024). The region itself, composed of small islands, has specific physical characteristics that increase its vulnerability to these extreme events; its population, especially people living in low-lying areas close to sea level, is likewise highly vulnerable. The increased frequency of disasters as a result of climate change has deeply impacted Caribbean countries’ populations, businesses and key industries, ecosystems, and economies. Given this context of vulnerability, the Caribbean islands cannot afford to rely only on post-disaster financing strategies. Without pre-arranged (ex ante) financing instruments such as insurance and pre-financing facilities, vulnerable countries are often forced to reallocate their budgets to deal with the aftermath of a disaster, thus shifting funds away from key social and economic development areas. Insurance—a financial tool arranged ahead of disasters to manage the expense of risks that are usually predictable—can help offset PHOTO CREDIT: YUTAKA NAGATA, UN these public sector expenses. 1- Between 1970 and 2019, about half of all disasters around the world were weather, climate, and water hazards, and climate-related disasters accounted for over 70 percent of all reported economic losses (WMO 2021). 12 Protecting Paradise Insurance in the Caribbean PHOTO CREDIT: STUART PRICE, UN Insurance has a key role to play in costs of premiums, relatively high expense mitigating and adapting to the challenges ratios, limited product offerings, and high posed by climate change and is an dependence on reinsurance to manage important financial protection measure capital, earnings, and the impacts of losses. for disaster-prone regions such as the Consequently, the insurance markets in the Caribbean. Insurance can help incentivize region are not fully developed. However, they risk reduction by ensuring that assets meet do offer a significant opportunity for new minimum standards and by promoting product development to drive additional “build back better” policies after an event. growth. Parametric insurance can be an efficient tool for quick payouts after an emergency, Reducing the number of uninsured assets— when funds are needed most urgently. By also referred to as “closing the insurance delivering immediate liquidity to Caribbean protection gap”—is a vital way of building governments, parametric insurance climate resilience through the insurance supports relief and reconstruction efforts industry. The financial gap between insured and mitigates the often large financial and uninsured losses is a focus of the impacts of climate disasters. insurance industry and regulators around the world, given its high cost and strong Insurance has been in the Caribbean impact in a post-disaster scenario (Swiss since the 1960s, but several factors Re 2018). See box 1 for details. have led to structural limitations in the insurance industry, including the high Protecting Paradise 13 economic challenges in the Caribbean and Box 1. The Insurance Protection the consequent low insurance penetration. Gap This correlation is also reflected in the annual premium per capita, which according to The insurance protection gap Axco is comparatively low in the Caribbean, measures the difference between the ranging from US$136 (in Belize) to US$970 actual insurance coverage in a country (in The Bahamas). and the optimal insurance coverage; it provides information on uninsured Because cover for climate catastrophe– losses in the context of a disaster. Due related losses is often provided as part to various systemic factors described of overall property insurance policies, in this report, insurance only partly the region’s relatively low property covers economic losses from recurrent penetration limits countries’ capacity to disasters in the Caribbean. rely on insurance in times of catastrophe. In addition, many economic assets and Insurance regulators could play a key infrastructure for the Caribbean tourism role in closing the protection gap in sector are located in high-risk areas that are the Caribbean, as the lack of a clear prone to floods. Thus the lack of property regulatory framework in this area is insurance coverage, coupled with the among the main challenges facing the challenges around high-risk properties, region’s insurance market. Another constrains the response that the Caribbean challenge is the lack of awareness of financial sector can offer in the aftermath innovative insurance products that of disasters and contributes to a lack of could help to reduce the protection gap, financial resilience. especially in the context of biodiversity protection and nature-based solutions. It has been around 20 years since disaster risk financing approaches started emerging in the Caribbean, In many Caribbean countries, the level mainly after Hurricane Ivan (2004) and of property insurance penetration is low the subsequent (2007) launch of the to moderate; according to Axco data, it Caribbean Catastrophe Risk Insurance ranges from just over 2 percent in Trinidad Facility (CCRIF) 2 . With the presence and Tobago to 4.2 percent in Antigua and of CCRIF in the region, there have been Barbuda. A useful measure of the uptake of increased efforts to promote disaster and insurance in the markets is the total written climate risk insurance and so mitigate property-related premium as a percentage the risk from recurrent disasters (Munich of the size of the economy (through GDP). Climate Insurance Initiative 2020). This figure is referred to as insurance penetration (see the subsection entitled As the Caribbean economies continue “Insurance Premiums and Penetration by to g r ow, i n s u r e r s o p e r a ti n g i n t h e Country” for more information). Insurance region have an oppor tunity to invest penetration and GDP are considered i n p r o d u c t i n n ova t i o n t o i n c r e a s e positively correlated; as a country and its the range of products available. This citizens become richer, the number and is particularly true in the commercial value of private assets covered by insurance and industrial segments of the property increases, which can be associated with the markets; as they represent 50–70 percent 2- CCRIF was restructured in 2014 as a segregated portfolio company (SPC). 14 Protecting Paradise of the property market in a number of of an event (hurricane wind speed, rainfall countries, they have the potential for volume, etc.) and/or the calculated loss of outsize growth. Although insurers would the event. When the event meets or exceeds like not cover properties located in high- the pre-determined parameter thresholds, risk, high-exposure areas, higher insurance the payout can be released. The best-known penetration in the context of disasters could provider of parametric insurance in the still be achieved. region is CCRIF SPC; as of mid-2024, 19 Caribbean countries are members of CCRIF INDEMNITY VERSUS PARAMETRIC SPC and have parametric insurance. INSURANCE At the same time, the uptake of parametric Both indemnity and parametric insurance products by domestic insurers in the products are available in the Caribbean Caribbean region is limited. According to as risk transfer tools, but their uptake is Axco, there does not appear to be much limited. use of domestic parametric products. Although markets have access to them, Indemnity insurance, or what is often traditional indemnity insurance products viewed as “traditional insurance,” is based are more widely used for nonresidential on the actual loss experienced, so that assets. At the regional or international level, the payout depends upon the damage to more sophisticated parametric catastrophe the insured property or asset. The payout risk transfer options are available, such is often slow because a claim must be as catastrophe (cat) bonds and regional submitted and damage to the property insurance facilities, like CCRIF SPC. For assessed before the payout can be made. more detail on CCRIF’s role in helping Slow payouts are especially common for Caribbean countries respond to disasters, catastrophe-related losses, as it can take see box 2. a long time for the final loss to be reported by the insurance industry (Jarzabkowski et al. 2019). Standard indemnity insurance Box 2. Caribbean Catastrophe Risk is widely available in the region through Insurance Facility the non-life sector, which offers policies to protect against loss to buildings and Launched in 2007, CCRIF SPC is the contents for standard lines of business first-ever multi-country risk pool in (residential, commercial, and, to a lesser the world and provides parametric extent, industrial risks). insurance for various disasters in Caribbean countries. It was established Parametric insurance provides payouts with support from the World Bank and the based upon pre-agreed parameters Government of Japan, and it gives its 19 followi n g a t rig ge ri n g disas te r o r Caribbean member countries immediate adverse weather event. It provides timely liquidity after disasters. In total, CCRIF support immediately after a disaster, as SPC has 30 members, including 19 it is based on pre-agreed parameters for Caribbean islands, four Central American hazards and their impacts and does not countries, three electric utilities, three require assessment of individual claims. The water utilities, and one tourist attraction. parameters can be based on the intensity Protecting Paradise 15 With the support of the World Bank, the Caribbean. With the launch of the CCRIF SPC has since its launch electric utilities product in 2020, CCRIF delivered US$268 million in payouts SPC pioneered insurance coverage for to 17 member countries (64 payouts nonstate actors, including private sector in total) and has reached 3.5 million companies (CCRIF SPC 2024). beneficiaries in the region. Currently, CCRIF SPC offers six parametric insurance products (including insurance DOMESTIC INSURANCE MARKETS specifically for water utilities, which was IN CARIBBEAN ISLANDS added in September 2023).For every product, the policy is triggered based Insurance market profiles across the on a trigger event loss that is agreed on Caribbean vary substantially; each and established in advance of a disaster. country has its unique market dynamics, regulatory framework, and risk landscape After Hurricanes Maria and Irma in that contribute to variations in insurance 2017, CCRIF distributed US$29.6 practices . However, there are some million to affected member countries. commonalities, such as the catastrophe This provided quick financial support to perils countries are exposed to, the types the islands but did not serve as funding and availability of insurance products they for full climate adaptation. Most recently, offer, and the levels of industry concentration the CCRIF SPC paid out funds to several members as a result of Hurricane Beryl and insurance penetration within countries. in July 2024, including US$44 million These commonalities underscore the to Grenada on its tropical cyclone interconnected nature of insurance practices policy—the largest payout ever made in response to climate-related disasters. The by CCRIF SPC. Of this amount, almost analysis below identifies the larger local and US$1.1 million went to the fisheries regional insurers operating by country in the sector via COAST (Caribbean Oceans Caribbean (see annex 1), breaks down the and Aquaculture Sustainability Facility). perils included in standard policies, and looks at how these perils have impacted premiums The CCRIF SPC policy that has and penetration in each Caribbean country resulted in the highest total payout reviewed. from the start of the facility in June 2007 to December 2023 is the tropical Countries in the Caribbean region shape cyclone policy, which has paid out over their standard insurance policies based on US$144 million, followed by the excess peril, including earthquakes, windstorms, rainfall policy at US$73 million and the and floods. Most hydrometeorological earthquake policy at US$50 million. perils impacting the islands, such as wind and flood, are related to hurricanes and In 2019, with the launch of insurance tropical cyclones, although these perils can policies for fisheries (COAST), CCRIF also occur independently. Coastal surge began offering innovative products related to hurricanes is also a factor in some to expand insurance coverage in countries but is dependent on the nature of coastal and adjacent underwater terrain. 16 Protecting Paradise As part of the review of insurance markets across the Caribbean, based on the data in Box 3. The Blue Economy in the Axco reports for each country, 10 countries Caribbean highly dependent on tourism were analyzed: Antigua and Barbuda, The Bahamas, Barbados, The activities defined under the “blue Belize, Dominica, Grenada, Jamaica, St. Lucia, economy,” that is, those connected St. Vincent and the Grenadines, and Trinidad to the ocean in some form, are and Tobago. These countries need to protect key to the economic development the marine assets that attract tourists and are of the Caribbean. These activities therefore well suited to the development of include businesses in ports, renewable innovative commercial insurance products for energy, marine aquaculture, the seafood the tourism industry. They represent a good industry, and ocean-based tourism, cross-section of the insurance markets in the among others. As stated by the High- region: they include larger markets like The Level Panel for a Sustainable Ocean Bahamas, Barbados, Jamaica, and Trinidad Economy, US$1 of investment in ocean and Tobago, which between them write over actions could deliver at least US$5 in US$1.5 billion in gross premiums and have global benefits in the next 30 years. total insured assets of almost US$3 billion (as of 2020/21), as well as smaller markets like In the Caribbean region, the blue St. Lucia and St. Vincent and the Grenadines, economy is increasingly becoming which have a combined gross written premium at tached to the disaster risk of less than US$100 million (as of 2019). financing space, with the potential for ocean-related economic activities to be correlated with risk transfer products. The blue economy can likewise be seen as “an emerging investment opportunity” thanks to increased regulations to protect oceans and limit overfishing, technological innovations to improve ocean health, and changes in the preferences of consumers (Rockefeller Asset Management 2024, 2). In many parts of the world, the tourism industry is associated with (and even dependent on) nature; for SIDS, coastal and marine tourism represents not only the biggest tourism segment, but also the largest economic sector. To protect coastal and marine assets and further engage the local economy, especially those parts of it involved in the tourism PHOTO CREDIT: KADIR VAN LOHUIZEN, UNDP Protecting Paradise 17 From a distribution point of view, the industry, it is essential to understand the markets are dominated by intermediaries, blue economy’s role in the Caribbean i.e., brokers and agents. The agency tourism sector (Ram, Ramrattan, and approach dominates in all markets except Frederick 2019). Trinidad and Tobago, where brokers are responsible for about 80 percent of business The blue economy and specifically transacted. Direct business, in which coastal tourism are connected to customers deal directly with the insurer, the health of marine ecosystems. accounts for 10–15 percent of business in The longevity of this tourism segment some markets. (Insurance purchased over the depends on a healthy environment, and internet, which is a form of direct insurance, is climate change is already impacting beginning to gain a foothold in some markets— Caribbean coasts and causing severe in particular Jamaica, where it accounts for damage, such as beach erosion, water approximately 6 percent of business.) By pollution, and coral reef damage (Moffett comparison, direct non-life insurance in the 2024). Estimates indicate that over half United Kingdom accounted for 32 percent of the Caribbean’s coral reefs could be of the market in 2021. Intermediary-related lost by 2050 due to ocean acidification, distribution could be accessed for blue a direct result of increased CO2 in the economy-related products. ocean driven by climate change. Such threats to the region’s biodiversity also The concentration of the insurance threaten its tourism. markets, based on the market shares of the largest three to five insurance companies, After Hurricanes Maria and Irma in varies. For example, in Jamaica and Belize, the 2017, CCRIF distributed US$29.6 million top-five companies have between 80 percent to affected member countries. This and 90 percent of the market share (a relatively provided quick financial support to the high concentration), whereas in countries like islands but did not serve as funding for Dominica and Grenada, the concentration is full climate adaptation. moderate, and the top-10 companies take about 95 percent of the market. By comparison, the United Kingdom is relatively unconcentrated, The range of products in the non-life sector with the top-five companies accounting for just is remarkably homogeneous across all 10 over 50 percent of the market in 2020. High countries (with the exception of Trinidad and levels of market concentration are associated Tobago, though this discrepancy is likely due with less competition, which in turn can lead to a reporting convention). Most of the market to less product innovation and less efficient consists of policies to cover property and use of capital. motor risks. The rest of the non-life market comprises personal accident and health Several regional and local insurers operate policies and (in some markets) aviation, in the Caribbean, along with a single state- marine, transit, and liability (casualty) risks. owned insurance company, the State In Belize, a small part of the non-life market Insurance Company (SIC) of Antigua and consists of surety, bonds, and credit; no Barbuda. Several companies active in the product offerings currently focus on the blue Caribbean market have operations across economy. multiple islands in the region. 18 Protecting Paradise The industry is now served by companies just over 2 percent in Trinidad and Tobago to in the private sector, with the exception 4.2 percent in Antigua and Barbuda. of SIC. Despite plans for partly privatizing SIC, it appears to be still wholly owned by The amount of property risk retained locally the Government of Antigua and Barbuda, as in the Caribbean markets is likewise quite a limited liability company. low. It is less than 10 percent in Barbados, Jamaica, and Belize, and a more substantial Insurance Premiums and Penetration 23 percent in The Bahamas (table 1). Lower by Country property risk retention by the insurance markets indicates a high dependency on Insurance penetration is a good measure international reinsurance to manage capital of the uptake of insurance policies within levels, earnings volatility, and the level of risk a country. Based on this measure, the retained. A profitable insurance business 10 Caribbean countries analyzed have is willing to transfer some of its profit to relatively small insurance markets, as reinsurers in return for the protection that shown in table 1. Insurance penetration— reinsurance offers; but reinsurance can insurance premium as a percentage of GDP— also be used to offset the impacts of poor is also generally low to moderate, ranging from underwriting. Table 1. Comparison of Key Insurance Market Statistics Gross non-life Non-life Non-life assets and Country premium and insurance Retained risk growth growth penetration Life and non-life Assets: XCD 599.7 retention is 49.1%; Antigua and US$69.6 million 4.2%, U$716 per m i l l i o n ( U S $ 2 2 2 property regionally Barbuda -3.2% (2019) capita (2019) million) +14.9% (2019) estimated to be ≤ 20% (2019) Low; non-life retention Assets: US$682 million i s 2 8 . 2 % ( 2 0 2 0 ) ; The US$381 million 3.9%, US$970 per (2020); TSI: US$16.5 p r o p e r t y i s 2 3 % Bahamas +2.5% (2020) capita (2020) billion (2015) (2017); high use of reinsurance Assets: US$525 million Retention is very low US$205 million 4.2%, US$729 per +1.8% (2021); TSI: Barbados at 3.3% (2021); major -1.3% (2021) capita (2021) US$21.5 billion (2020) use of reinsurance Retention is 9.2% US$54.0 million 3.1%, US$135.8 Assets: US$178.5 Belize (2020); major use of +0.9% (2020) per capita (2020) million +10.9% (2020) reinsurance Assets: XCD 179.4 US$15.9 million 3.0%, US$223 per Non-life retention is Dominica million (US$66.2 -5.5% (2014) capita (2014) 55.7% (2014) million) +9.6% (2014) Life and non-life Assets: XCD 422.2 retention is 26.3%; US$36 million 3.0%, US$321 per Grenada m i l l i o n ( U S $ 1 5 6 property regionally +6.6% (2019) capita (2019) million) +10.2% (2019) estimated to be ≤ 20% (2019) Protecting Paradise 19 Gross non-life Non-life Non-life assets and Country premium and insurance Retained risk growth growth penetration Assets: US$670 million Retention is very low US$433.9 (2021); TSI: US$29 3.0%, US$153.4 at 2.1%, reflecting Jamaica million +9.2% billion, with US$18.6 per capita (2021) high dependence on (2021) billion for hurricane/ reinsurance (2021) earthquake Life and non-life Assets: XCD 699.9 retention is 66.0%, US$67.5 million 3.2%, US$369 per St. Lucia m i l l i o n ( U S $ 2 5 9 property regionally is +10.3% (2019) capita (2019) million) +10.4% (2019) estimated to be < 20% (2016) St. Vincent Assets: XCD 268.4 Non-life retention is US$23 million 2.8%, US$211 per and the million (US$99 million) 41.5% (2014); property -3.4% (2019) capita (2019) Grenadines +9.1% (2019) is 8.8% (2013) Retention is 55.2% Trinidad US$619.5 2.8%, US$441.4 Assets: US$946 million for all non-life but and million +4.4% per capita (2021) +2.0% (2021) approximately 10% for Tobago (2021) property (2016) Source: Axco reports Note: TSI = total sum insured. Insurance, particularly insurance protecting against catastrophes, could be more widely accessed in these countries. This conclusion is based on the data presented above on insurance penetration, level of premium per capita, types of policies and local products offered, and number of insurance market participants. This situation has several possible explanations, as outlined in Table 2. PHOTO CREDIT: KADIR VAN LOHUIZEN, UNDP 20 Protecting Paradise Table 2. Potential Reasons for Limited Non-Life Property Premiums and Penetration in Caribbean Countries Reason Description Mitigation Insurance is often seen as too Improve the cost-benefit balance expensive or is unaffordable even Affordability to show how the policies are more for those who see value in having affordable the coverage Offer parametric products, which Claims can be administratively Claims process provide a quicker payout and do not complex, and payments can be slow require claims to be submitted Improve the value proposition of People’s belief (based on prior insurance so that more people will experience) that the government will Insurer of last resort participate in the insurance sector bail them out reduces the incentive (though belief in government as to purchase policies insurer of last resort will persist) Educate people to improve their Awareness People are not aware of what awareness of insurance policies, of products/ products and types of coverage availability, and effectiveness; work financial literacy are available with local insurance associations and regulators to promote their value People do not have bank accounts, making payments a challenge Find additional ways to make Financial access (especially outside main cities); payments, e.g., payments in lieu of people are often not educated about cash or via tokens how to manage their money Source: World Bank 2024 PRODUCT CHALLENGES AND The low level of BI insurance penetration OPPORTUNITIES leaves a considerable insurance protection gap, particularly in the area of commercial The Caribbean insurance markets have revenue-related insurance. In many shown strong growth in recent years, and countries, regulators strive to close this the insurance industry in the region has the gap, and for the Caribbean insurance opportunity to develop and benefit from new industry, efforts to close the gap could be products for the commercial and industrial seen as an opportunity for the development segments of the economy. In particular, of innovative products, which are needed there is a significant growth opportunity for to effectively support marine-based and business interruption (BI) insurance—which coastal tourism in the region. protects against loss of business revenue and is often catastrophe-related—given the The limited availability of BI policies in the limited uptake for this product. In most of the markets has several possible explanations: countries discussed in this report, figures for BI uptake are not available, but in Trinidad » The use and value of BI policies are not and Tobago it represents no more than 5–10 well understood by potential insurers. percent of commercial premiums. Protecting Paradise 21 » Customers who made BI-related claims importance of tourism to the region. have had bad experiences. For example, According to Axco, tourism accounts for claims related to the pandemic were 45 percent of GDP in The Bahamas and is rejected because they were not related a major contributor to GDP in Belize, and to any physical damage triggers (included both countries are exposed to the wind in the policy wording); these decisions and surge impacts of hurricanes. These resulted in disputes, poor customer not only directly damage infrastructure perception, and business challenges for and property but also lead to considerable the insurer. loss of revenue. Thus BI products could » Insurers are focused on generating provide valuable support to the tourism revenue from existing products that are sector across the region. more popular. » Product offerings and innovation are The introduction of new regulations is also limited due to weak competition, lack of relevant in this context. Regulations could access to better data, and insufficient be designed to align commercial insurance regulatory incentives. policies with incentives to protect the The first two reasons relate to product environment and promote sustainability demand, while the last two reasons outcomes, including conserving and relate to product supply and incentives; restoring natural infrastructure. This this combination of demand and supply alignment could foster the development of constraints significantly limits the uptake new policies that provide coverage for loss of products related to business interruption. of income while at the same time offering credits to the tourism industry to ensure The commercial opportunities for BI its long-term prosperity. Regulators have products could include the tourism and a key role to play in encouraging greater marine sectors, especially given the competition and innovation in this space. PHOTO CREDIT: KADIR VAN LOHUIZEN, UNDP 22 Protecting Paradise THE REINSURANCE MARKET The evolution of disaster risk insurance is directly associated with the global In the context of disasters, individuals, reinsurance markets, where insurance businesses, and governments are not the companies can insure themselves against only entities that transfer risk to another excessive losses. Because reinsurance party (the insurer); insurers themselves can helps to spread the concentrated risks of also transfer risk to a third party, both to disasters, it supports insurance companies’ protect their own solvency and to manage objective of managing losses, earnings earnings and capital volatility. This transfer volatility, and capital (Jarzabkowski et al. of risk by insurers is called reinsurance. 2023). Figure 1 illustrates the processes involved. Figure 1. Transferring Risk in the Reinsurance Market Insureds Insurance Reinsurance Premium Premium payment for payment for risk transfer risk transfer Individuals Reinsurers Disaster risk Capital flow in Capital flow in claims payment Insurers claims payment Financial Businesses markets Source: Jarzabkwoski et al. 2023 Hurricane Beryl was an unwelcome Hazards that affect an entire region—which reminder that Caribbean islands can be the Caribbean often experiences—threaten impacted in their entirety by a single national budgets and lead to increased natural disaster, such that local insurance debt on a large scale. To address this risk carriers can experience significant and protect themselves from bankruptcy, losses. Although the islands are small, many insurers rely on catastrophe excess of loss disasters that have affected the region are reinsurance (cat XOL). In the Caribbean, as in large in scale and able to impact an entire many reinsurance markets, catastrophe risk national insurer’s portfolio. Annex 2 shows is transferred principally by using cat XOL that many of the local insurers are also part structures. This is evident in table 3, which of multinational and/or regional groups, shows the reinsurance used in connection meaning that these losses can impact with recent disasters in Caribbean countries. insurers across the region. Protecting Paradise 23 Table 3. Recent Events and Reinsurance in Selected Caribbean Countries Country Event Reinsurance Antigua Hurricane Gonzalo (2014); Named perils prevail; multi-cat XOL and Barbuda Hurricane Omar (2008) offered by most companies Hurricane Dorian (2019), US$1.9 billion property loss; Hurricane Mainly cat XOL; low retentions using The Bahamas Matthew (2016), > US$400 million reinsurance insured property loss Catastrophe reinsurance (usually Hurricane Elsa (2021); Hurricane Barbados cat XOL) on net retentions after Ivan (2004); Hurricane Janet (1955) proportional cessions Hurricane Earl (2016), insured loss International reinsurers; likely to Belize of US$10 million; Hurricane Richard use cat XOL (2010) Hurricane Maria (2017); Hurricane Named perils prevail; multi-cat XOL Dominica Irma (2017); Hurricane Dean (2007) offered by most companies Hurricane Beryl (2024); Hurricane Named perils prevail; multi-cat XOL Grenada Ivan (2004) offered by most companies Hurricane and earthquake coverage Hurricane Beryl (2024); Hurricane are normally placed together, Ivan (2004); Hurricane Gilbert based on the combined 250-year Jamaica (1988); earthquake and tsunami loss generated by a catastrophe in Port Royal (1692) risk model; most cat policies are multi-peril Hurricane Tomas (2010); Hurricane Named perils prevail; multi-cat XOL St. Lucia Dean (2007) offered by most companies Hurricane Beryl (2024); Hurricane St. Vincent and the Named perils prevail; multi-cat XOL Tomas (2010); volcanic eruption Grenadines offered by most companies (2021) Hurricane Ian rain (2022); non- hurricane flood events (2017, Cat XOL is market standard, Trinidad 2018); earthquake (2018); Tropical with 1 reinstatement (100% and Tobago Storm Alma (1974); Hurricane Flora extra premium) (1962) Source: Axco reports At the time of writing, no locally based reinsurance companies in the Caribbean islands were found. As seen in table 1, the amount of property risk retained locally in the Caribbean markets is generally low, which indicates a high dependence on reinsurance. The international reinsurance markets would be accessed to transfer risks not retained in the local markets. Note that TRINRE (formerly the Reinsurance Company of Trinidad and Tobago) was privatized in 1994 and is now a direct insurance writer. 24 Protecting Paradise Biodiversity in the Caribbean STOCK PHOTO The Caribbean region is a global biodiversity the Caribbean represent around 26 percent hotspot, housing around 10 percent of all of the global mangrove cover and, are natural coral reefs globally and over 12,000 marine coastline barriers that offer multiple economic species in its beaches, mangrove swamps, benefits, including coastal protection, and seagrass beds. Coastal and marine preservation of local infrastructure, carbon ecosystems in the region are valued at around capture and storage, and support for fish and US$54 billion; they play a key role in the regional sea life reproduction—thus providing both food economy through tourism, fisheries, and much and highly sought-after tourism services (Smith more (see the section on the blue economy), 2024). Coral reefs also represent a valuable which generate approximately US$15 billion ecosystem that provides multiple services yearly for the Caribbean. Despite its vulnerability to the coastal economy, including protection to the impacts of climate change, including from storms. For example, the Mesoamerican hurricanes, droughts, and floods, regional Reef—located within the Caribbean Sea— biodiversity itself has an important role in provides protection to 4.3 percent of Mexico’s mitigating climate change and disaster risk population, 1.9 percent of its built capital, and (High-Level Working Group on Climate Change 2.4 percent of its hotel infrastructure per year in the Caribbean 2023). (Reguero et al. 2019). Reefs in Quintana Roo prevented 43 percent of additional damage In the Caribbean, coastal ecosystems make during Hurricane Dean in 2007, and are critical a vital contribution to preserving the well- to keeping the coastline stable and preventing being of the population. Mangrove forests in erosion (Escudero et al. 2021). Protecting Paradise 25 The health of finances and economies in protection correlated to insurance coverage. Caribbean countries cannot be separated Conversely, the destruction of biodiversity from the health of their ecosystems. In could have lasting impacts on the insurance Jamaica, for example, current rates of erosion and reinsurance industry, deepening the level of of just a few key beaches (Negril, Montego catastrophes, and consequently, the coverage Bay, and Ocho Rios) are expected to cause required (Cook and Holliday 2022). an annual loss in value of US$19 million over 10 years via decreases in tourist satisfaction BIODIVERSITY AND THE TOURISM (Kushner et al. 2011). Such erosion is a result INDUSTRY IN THE CARIBBEAN of the climate crisis, which is intensifying the financial vulnerability of low-income countries The tourism industry is a key source of and SIDS. The decline of coral reefs due to income in the economy of the Caribbean, bleaching and ocean acidification could also and many island states in the region—such leave beaches more exposed to damaging as Antigua and Barbuda, The Bahamas, wave action and cause substantial economic Barbados, Grenada, and St. Lucia—depend losses. on the tourism sector for their development. Tourism accounts for 50 percent of the By one estimate, US$175 billion is needed regional gross domestic product (GDP) and by 2030 to strengthen marine biodiversity around 40 percent of employment in the and sustainable fishing and protect the Eastern Caribbean (Wellenstein and Connors Caribbean coast against climate disasters— 2022). Figure 2 shows the percentage of but since 2015, only US$10 billion has been jobs that tourism represents as a share of allocated toward these ends (Green Climate total employment for the main tourism- Fund 2023). In this context of environmental dependent economies in the Caribbean fragility and funding shortfalls, insurance can region. As of 2020, the tourism industry be an important tool that addresses the risks to employed 413,000 people throughout biodiversity in the region by integrating finance the region (ILO 2020). In Antigua and with nature. Given increasing innovations to Barbuda, jobs generated from the tourism the Caribbean insurance market in recent industry represented over 90 percent of all years, there may be space for biodiversity employment in the country in 2022. STOCK PHOTO 26 Protecting Paradise Figure 2. Employment in the Tourism Sector as a Percentage of Total Employment in Caribbean Islands (2022) Jobs in the travel and tourism sector as share of total employment in the Caribbean in 2022, by country or territory 91.3 86.2 69.8 64.1 Share of total employment 61.6 59.6 47.3 41.1 33.1 32 31 28.3 27.4 25.4 16.8 14.7 12.7 11.4 11.3 9.6 9 8.7 7.6 Source: World Bank 2024 The exposure of the Caribbean to highlighting the economic benefits – as well hurricanes has had a direct impact on the as the benefits for environmental protection tourism industry—which is largely active – of tourism that is closely connected to in coastal areas and natural landscapes natural ecosystems. across the region—and therefore on the Caribbean’s main economic activities. Box 4. The Rise of Ecotourism Depending on hurricanes’ severity and frequency, the impacts can lead to the Ecotourism is defined by the closure of businesses and reduce overall International Ecotourism Society as tourist numbers over the long reconstruction “responsible travel to natural areas period. that conserves the environment [and] sustains the well-being of the Tourism activities that depend on nature local people” (TIES 2015). This type are particularly impacted by hazard events, of tourism is very prominent in the which have immediate harmful effects on Caribbean, where much tourism is driven the natural environment. The segment of the by the islands’ appealing ecosystems tourism industry called ecotourism, which is and natural settings. Ecotourism is becoming increasingly popular, is especially often guided by the desire to conserve vulnerable in this regard, given its direct natural habitats and biodiversity, and it association with nature. Box 4 summarizes may contribute in various ways to the the rise of ecotourism as an alternative to protection of the environment. mass tourism across Caribbean islands, Protecting Paradise 27 ecosystems, disaster risk management Multiple resorts and hotels in the plans in the tourism sector often include Caribbean that are located in natural insurance or other pre-arranged finance. settings and have a sustainability Figure 3, which is based on a survey of focus have been ranked high in travel the Caribbean tourism industry in 2020, guides and have attracted more illustrates the extent to which tourism firms tourism to the region as a result. consider themselves prepared for disasters. Examples include the Secret Bay It suggests a good level of planning for resort in Dominica, which is a luxury shocks through insurance and business resort surrounded by the island’s continuity plans across hotels, restaurants, rainforest (CS Global Partners 2024), and other areas (Rozenberg et al. 2021). and the Oualie Beach Resort in St. Kitts and Nevis, which focuses on sustainable practices and uses low- energy lights, solar heaters, and rainwater for the gardens, where the resort grows its own herbs and flowers (Oualie Beach Resort). Ecotourism in the Caribbean also plays a role in boosting the economy, creating more jobs and generating income through a more diversified tourism industry, focused not only on the traditional beach hotels, but also on immersive experiences in the Caribbean landscapes. Besides ecotourism, some other subsectors and segments of the tourism industry have direct and indirect impacts on Caribbean ecosystems and also suffer from recurrent disasters; they include cruises, large resorts, and many more. Although all tourism segments are affected, the impacts, costs, and policy implications may be different for each subsector; thus differentiated approaches are needed to deal with the costs associated with biodiversity losses and risks. Because of the risks that climate-related PHOTO CREDIT: TOBIN JONES, UN events pose to marine biodiversity and 28 Protecting Paradise Figure 3. Level of Disaster Preparedness among Caribbean Tourism Industry Firms Disaster preparedness in tourism industry firms across the Carribbean Hotel Restaurant Tour/Attraction/Rental/Taxi Share of a tourism firms(%) Source: Rozenberg et al. 2021, citing Erman et al. 2021 Around 63 percent of 1,400 surveyed policy provides) compensate for lost tourism-related firms in the Caribbean revenue. A good example of the benefits have an insurance plan (based on the of such insurance is offered by Mexico: average of the three types of firms—hotels, following Hurricane Wilma in Cancun and restaurants, and tour/attraction/rental/ Cozumel in 2005, the insurance industry taxi businesses—shown in figure 3); this paid over US$4.6 billion (adjusted to 2024 share suggests a relatively high level of values) to cover losses to hotels, the broader insurance to cover disaster risk. A similar hospitality sector, and local services in share (approximately 60 percent) of tourism- Mexico (AP 2006). related firms also have business continuity plans. This figure likewise points to a good CONNECTING INSURANCE TO level of financial preparedness for disasters. BIODIVERSITY PROTECTION It should be noted, however, that these data are not specific to coastal and marine-based To help connect business protection to the tourism businesses, which have a key role protection of biodiversity, risk management in the blue economy in the Caribbean and products will need to measure Caribbean are highly exposed to disasters. ecosystems’ value to society and how this value changes depending on the state of An important means of protecting biodiversity. An example of this approach is tourism business continuity is the use of described in a study by Ferrario et al. (2014), catastrophe insurance to fund property which sought to understand how effective repairs after a disaster and (where the coral reefs are in protecting coastlines. Protecting Paradise 29 Using the results of meta-analysis, the study disasters. Box 5 connects the value of nature estimated the variation in wave energy and to disaster risk reduction efforts, showcasing wave height depending on the extent of how important natural environments are in coral reef environments. This information decreasing exposure to disasters; key factors could then be coupled with information on for the metrics of a nature-based insurance the damage to coastal infrastructure under product. different wave conditions to estimate the physical value of coastal biodiversity for Box 5. Nature’s Role in Disaster coastal flood protection. Combined with Risk Reduction data on the cost of replacing infrastructure, a monetary value could be estimated. Nature itself can ef fec tively contribute to reduction of disaster Given the complexity of biodiversity, there risk. Through forests, coasts, and is no single metric to quantify changes or wetlands, ecosystems often serve losses in it; effective insurance solutions as a natural protective barrier to the will call for different approaches in exposure caused by natural disasters, different contexts. For example, if the and their protection, conservation, aim is to develop an insurance product to and even expansion can be powerful protect fisherfolk against marine biodiversity methods to decrease the vulnerability degradation, measurements could focus on to extreme weather events: the aspect of marine biodiversity considered » A study by Swiss Re (Mueller and most important to the beneficiaries. It can Bresch 2014) found that in Barbados, be useful to measure both the extent or total every dollar invested in protecting the quantity of a natural phenomenon, e.g., tons Folkestone Marine National Park could of fish in an area, as well as the diversity avoid US$20 million in annual damage of the natural phenomena, e.g., number of as a result of hurricanes. different fish species. in an area. Catalogues » In Japan, the coastal forests of the of marine biodiversity indicators are now Sanriku Fukko Reconstruction Park being developed and provide a useful starting were instrumental in reducing the point when considering which metrics to use. impacts of the tsunami generated by the Great East Japan Earthquake in For products that aim to protect against 2011 (Valero, Miranda, and Murisic hazards intensified by climate change, 2021). scientific information must be collected » Coral reefs are considered a very on how biodiversity and ecosystems effective defense system against c hange de pe nding o n t he shoc k storms because they dissipate the characteristics (such as wind speed and energy of waves and in turn reduce ocean temperature). This information will flooding. One study has found that coral inform insurance products that account reefs have the potential to dissipate for the likely damage that different kinds of over 90 percent of wave energy (Jones disaster events will produce. By combining 2024), while another study finds that this information with the value biodiversity at a global level, reefs contribute to and ecosystems are estimated to provide reducing the annual cost of storms by to society, insurers can begin to price over US$4 billion (Beck et al. 2018). products that protect society against natural 30 Protecting Paradise INSURING RISK FROM COASTAL- Insurance coverage in the Caribbean BASED TOURISM tourism industry is quite high; as indicated above, 63 percent of 1,400 surveyed tourism In a region where employment in tourism firms have an insurance plan that covers and other sectors depends on marine disasters, although the percentage varies ecosystems, many homes and businesses by country (Rozenberg et al. 2021). Grenada could benefit from improved access to and St. Lucia are the islands with the most insurance linked to marine ecosystems. tourism firms covered by insurance. Most This section explores how insurance could firms in the region have asset loss insurance, be designed to incentivize the protection of and very few have liability insurance or marine ecosystems while also protecting income loss (BI) insurance in place. Figure homes and businesses in the area. 4 shows coverage by country. Figure 4. Insurance Coverage of Tourism Firms in the Caribbean a) Share of firms with b) Types of insurance, insurance plan, by country by country Asset loss insurance Income loss insurance Liability insurance Share of tourism firms (%) Share of tourism firms (%) Source: Rozenberg et al. 2021, citing Erman et al. 2021 Protecting Paradise 31 The survey found that despite the high insurance coverage, only around 23 percent of firms impacted by a disaster reported that insurance was a key part of their recovery process. This response is due to the challenges around utilizing insurance to cover actual loss to the tourism industry, in particular the challenges of covering damage to marine-based ecosystems, such as coral reefs and mangroves. Box 6 shows how impactful disasters can be on the Caribbean tourism industry, affecting key elements related to tourist activities in the region. To increase the usefulness of insurance to firms affected by disasters, insurance products should promote sustainable outcomes not only by transferring risk from coastal-based tourist activities but also by preserving natural environments locally. Box 6. Impacts of Disasters on the Caribbean Tourism Industry Disasters in the Caribbean often end up damaging key infrastructure for the tourism industry, such as airports and hotels. Disasters have the potential to reduce tourist arrivals by 1.2 percent to 2 percent in the year a disaster happens—not only in the countries hit by the disaster, but elsewhere in the region as well (LaFramboise et al. 2014). After Hurricane Maria (2017), when cruise ships that had planned to stop on the island of Dominica had to change their route, the tourism industry suffered millions in losses. The same happened in Grenada after Hurricane Ivan (2004) due to hotel damage and in St. Kitts and Nevis after Hurricane Omar (2008). The impacts of Hurricane Beryl (2024) are still being assessed. STOCK PHOTO 32 Protecting Paradise Examples of Innovative Insurance Instruments from around the World STOCK PHOTO Nature-based financial solutions can wave energy, and thus can decrease the be an innovative way to protect marine damage caused by storms. The presence biodiversity in light of climate change of mangroves avoids around US$65 billion impacts and can bring risk transfer and in annual losses from floods and storms, other disaster risk financing tools to bear mostly related to tropical cyclones (Earth on marine conservation. Ecosystem-specific Security 2022). insurance—tied to coral reefs or mangroves, for example—would issue immediate payouts Both parametric and indemnity insurance (to the organization or business responsible) policies may be used to protect ecosystems, to protect these natural areas when damaged and although parametric policies can be by a disaster. Some pioneering and innovative more effective for immediate restoration disaster risk transfer solutions used in other following a disaster, a combined parametric- parts of the world could be replicated in the indemnity policy could be a better fit for Caribbean context. specific scenarios. In the case of mangrove insurance, for example, an immediate payout Insurance tied to ecosystems is effective from a parametric component could address because these financial solutions can not obvious disaster damage, given the quick only mitigate risks to the environment liquidity of this type of insurance. However, as before a disaster happens, but also repair mangrove dieback can occur up to six months damage to natural assets, bringing positive after a disaster, an indemnity component of outcomes for nature and the Caribbean an insurance product would be useful for a population (The Nature Conservancy 2024). later assessment and follow-up financing (The Some examples of risk mitigation by natural Nature Conservancy 2022). Thus, in this case, assets include coral reefs and mangroves. a combined product might be appropriate; Coral reefs reduce almost 100 percent of this case is further explored in box 7. Protecting Paradise 33 Some innovative solutions have already Box 7. A Hybrid Insurance Product been launched, such as the Belize Blue for Mangroves Bond, a pioneering initiative for marine conservation through debt restructuring and In the effort to connect nature-based insurance. In December 2021, a parametric solutions with disaster risk insurance, insurance policy combined with a sovereign a new area of research has emerged: debt transaction (a blue bond) was placed protecting ecosystem services with on the market for US$364 million. The blue catastrophe models and insurance bond was arranged by Credit Suisse, and the products. As proposed in a report by “catastrophe wrapper” was created by Willis Systemiq (2023), there is potential to Towers Watson (with risk capacity provided create a hybrid risk transfer solution by Munich Re) as insurance protection for that combines parametric insurance and indemnity insurance. Belize’s loan repayments after hurricane events. The catastrophe wrapper helps Parametric insurance increases safeguard the country’s 20-year sovereign liquidity and depends on pre-defined debt structure, while the parametric transfer triggers. It could be used to protect of risk strengthens Belize’s sustainability mangrove ecosystems from cyclones and resilience to climate shocks, thereby that reach certain pre-agreed wind helping to prevent credit rating downgrades speeds. However, it has been shown and reducing the time it takes the economy that mangroves do not always need to recover following a shock (Cook and quick interventions for their survival Holliday 2022). (unlike coral reefs, for example), and thus they may not need an immediate To promote the conservation of biodiversity disbursement of funds (Systemiq 2023). and marine ecosystems in the Caribbean, Indemnity insurance is connected to there should be more investment in a specific asset, not to a triggering insurance products connected to nature event. Because hurricane damage to and local communities. The products listed mangroves may occur or be evident only below—including nature-based insurance, sometime after a disaster has taken forecast-based insurance, community place, indemnity insurance could be participation insurance, insurance for useful in providing a later assessment targeted beneficiaries, and bonds—aim to of specific damage and paying out advance risk mitigation by working with accordingly (Beck et al. 2022). people and local ecosystems and have potential for the Caribbean insurance Such a hybrid solution, which would market. allow part of the payout to be made quickly (parametric component) and part to be made after the actual damage has been assessed (indemnity component), has potential for a range of ecosystems. As of now, however, this proposed solution has been explored only for mangroves. 34 Protecting Paradise NATURE-BASED INSURANCE islands and includes an additional area of 314,976 km2 (121,613 miles). Triggered by The first-ever insurance policy for an tropical storm winds of at least 50 knots, ecosystem covers hurricane risk along a the policy pays out a maximum of US$2 160 km stretch of coastline in Quintana million annually; the per-storm maximum is Roo, Mexico. The mechanism, developed US$1 million. The updated policy doubles by The Nature Conservancy in partnership the minimum payout to US$200,000, which with state and municipal governments and makes possible “a more meaningful post- the tourism industry, combines a trust fund storm response” (The Nature Conservancy and an index-based insurance policy. The 2024). Trust for Coastal Zone Management, Social Development, and Security was created in 2018 and accepts funds from multiple Box 8. Reef Protection Insurance sources to manage beaches and reefs and and the Tourism Industry purchase hurricane insurance to protect The Quintana Roo example showcases them. This parametric insurance policy is how a nature-based insurance triggered when wind speeds exceed 100 solution can support and improve knots within a predefined area around the the tourism industry. The reduction insured reef. The rapid insurance payout in damage to reefs as a result of allows repair activities to commence payout-funded restoration not only quickly following a storm, preventing conserved the coral reef, it also further damage, reducing mortality, and helped reduce the erosion of nearby allowing enhanced recovery (Reguero beaches, which are a key part of the et al. 2019). In 2020, the second year of local tourism economy in Mexico. the policy, Hurricane Delta triggered a Coral reef protection is associated payout of about US$850,000 from the with the general protection of coastal reef insurance policy; this funding was infrastructure and so is essential for critical for repairing damage and testing the entire blue economy of the tourism the mechanism. The Mesoamerican Reef industry (PreventionWeb 2018). Fund, which targets restoration work across the entire Mesoamerican Reef, has adopted This product for marine conservation this model for other areas through work worked directly with beachfront hotels with Willis Towers Watson, InsuResilience to ensure they suffered minimal Fund, and AXA Climate. For information on disaster impacts (e.g., beach debris), how reef protection insurance supports the based on the parametric insurance tourism industry, see box 8. policy and its triggers. Hotel association representatives are also Insurance for coral reefs has been replicated part of the Trust for Coastal Zone and adapted to the state of Hawaii in the Management technical committee, United States, where reefs provide more which discusses how to use the funds than US$835 million in flood protection for to best protect the beaches and the the state annually (Reguero et al. 2021). reefs. Originally piloted in a section of Honolulu in 2022, the updated Hawaii reef policy (February 2024) covers the main Hawaiian Protecting Paradise 35 The Restoration Insurance Service Company verified conservation and/or restoration (RISCO), a social enterprise designed by of mangroves. The annual payment will Conservation International, represents be linked to a site-specific calculation of another coastal protection insurance the flood reduction benefits provided by scheme. RISCO creates new revenue the mangroves.” 3 RISCO is also working on streams for the conservation and restoration generating and selling blue carbon credits of mangroves based on mangroves’ capacity to interested institutions. Unlike the reef to reduce the risk of storm impacts. As described by the Global Innovation Lab insurance products discussed above, which for Climate Finance: “RISCO will contract are parametric products, RISCO is classified directly with insurance companies or as an indemnity product (Systemiq 2023). associations of insurance companies and See Figure 5 for a summary of RISCO’s will secure an annual payment for continued, design. Figure 5. Design of the RISCO Product Conservation and restoration Blue Service Carbon carbon provider(s) risco- credit payments linked or 3rd buyers party Blue. carbon Insurance Blue carbon rights Blue carbon credits Restoration rights Sources insurance holders Blended of finance finance service company Mangroves payments (RISCO) Coastal Impact/ Insurance Coastal Identify asset protection concessional Repayments clients and owners investors Discounted insurance sites, provide premiums Commercial guidance fin. and services. Providers Coordinate with insurance partners Valuation of Fees mangrove risk reduction Insurance companies Source: Global Innovation Lab for Climate Finance 3- Global Innovation Lab for Climate Finance, “Restoration Insurance Service Company (RISCO).” 36 Protecting Paradise FORECAST-BASED INSURANCE INSURANCE FOR TARGETED BENEFICIARIES Hazards can have impacts even before they take place, as businesses may shut C C RI F S PC of fe r s six insu r a nce down in anticipation of a serious event. To products, as listed in annex 3, with one address this possibility, Swiss Re Corporate of them going directly to the targeted Solutions developed Insur8, the first-ever beneficiaries, COAST (Caribbean Oceans typhoon warning insurance for businesses and Aquaculture Sustainability Facility). operating in Hong Kong. This product, which COAST is a microinsurance product for fishers combines parametric risk transfer tools with that covers losses caused by adverse weather non-damage business interruption tools (high waves and heavy rainfall) and tropical and weather data modeling, triggers when cyclones (wind and storm surges), which the Hong Kong Observatory issues a level may damage fishing vessels, equipment, and 8 or higher typhoon warning. infrastructure. This parametric insurance product helps those in the fisheries sector COMMUNITY PARTICIPATION recover from business interruption losses related to weather challenges and cyclones. INSURANCE It is unique in having a livelihood protection component, which ensures that policyholders The National Flood Insurance Program (the governments, as with all of CCRIF SPC’s (NFIP) in the United States, established products) transfer the insurance payouts to the by the Federal Emergency Management ultimate beneficiaries (the fisherfolk) (Martinez- Agency (FEMA) in 1968, works with communities affected by floods to Diaz, Sidner, and McClamrock 2019). help them adopt and implement flood management regulations. The goal is to The Livelihood Protection Policy (LPP) of the Climate Risk Adaptation and Insurance mitigate some of the impacts of future flooding, reduce risk, and encourage in the Caribbean (CRAIC) project is another example of an innovative parametric climate adaptation in flood-prone areas. insurance product directed at targeted To encourage communities to participate beneficiaries. The LPP is a weather index and make a positive impact locally, NFIP parametric microinsurance product in the offers a voluntary Community Rating Caribbean insurance market, implemented System, which provides a discount on flood by CCRIF SPC, protecting households and insurance premiums for property owners, institutions from financial losses resulting renters, and businesses in communities that from heavy rainfall and strong winds, with a implement required floodplain standards. focus on low-income individuals. After a pre- This discount highlights the capacity of defined trigger based on a weather event is these standards to reduce flood risk. The met, the payout is released within a week via Community Rating System uses a credit cash disbursement to affected individuals. scoring system to award points for activities LPP is currently active in Grenada, Jamaica, that involve public information, mapping and St. Lucia. It is considered a public-private and regulations, flood damage reduction, partnership, given that it is provided through and warning and response (FEMA 2024). local insurance companies and financial institutions(CCRIF SPC). See box 9 for further details. Protecting Paradise 37 BONDS Box 9. The Climate Risk Adaptation and Insurance in the Caribbean One innovative bond has already been (CRAIC) project mentioned: the Belize Blue Bond for ocean conservation. The Government of The CRAIC project is led by the Belize included a parametric insurance policy Munich Climate Insurance Initiative, with a sovereign debt transaction—the blue with implementation by CCRIF bond—to ensure that debt repayments can SPC, and has a focus on fostering be made after a hurricane. It is important climate adaptation and reducing to note the incorporation of a commercial the vulnerability of the Caribbean parametric insurance policy in the Belize Blue people to disasters. Its focus on Bonds initiative, as it represents the world’s microinsurance through the Livelihood first commercial sovereign debt catastrophe Protection Policy differentiates from insurance cover. The policy, which is coverage the six main products offered by for a Blue Loan debt payment, is triggered by CCRIF, parametric insurance at the a qualifying hurricane event in Belize (The sovereign (government) level. Other Nature Conservancy 2022). implementing partners of CRAIC include the International Labour A catastrophe bond supporting the Organization, Munich Re, and DHI Jamaican government with insurance (Munich Climate Insurance Initiative cover of US$185 million for three hurricane 2020). seasons was issued by the World Bank in 2021. Notably, the Government of Jamaica was CRAIC’s LPP is a key example of the first government to independently sponsor insurance for targeted beneficiaries a cat bond—first not only in the Caribbean, but because the main goal of the weather- among all SIDS. As the product is structured, index based microinsurance scheme the government is responsible for the premium, is to support vulnerable populations which is fixed in order to decrease uncertainty in the Caribbean. This can include in light of frequent disasters. In the event of a fishers, like in COAST, but also farmers tropical cyclone or other severe climate event and small businesses, with a focus that meets pre-defined (parametric) triggers, on livelihood protection. The CRAIC the payout is disbursed to the government project showcases innovation through within weeks. In 2024, the World Bank renewed the cat bond transaction with US$150 million in public-private partnerships, as the insurance coverage for the 2024–27 hurricane partners work with both governments seasons. This step is consistent with the across the region and insurance Jamaican government’s National Natural companies. Disaster Risk Financing policy (World Bank 2024). 38 Protecting Paradise CONCLUSIONS instability, given that most of the current products available are small pilots that need Two final points should be made in to be further replicated and improved for concluding this account of innovative maximum effectiveness. insurance instruments. Second, while insurance is an important First, these instruments are pioneers in tool for transferring disaster risk, it is not their respective countries and regions; but the only one; policyholders must be aware precisely because they are pioneers, they that a one-size-fits-all approach cannot face challenges. The NFIP in the United work for such a large challenge. Further, States, for example, has experienced all of these insurance products in whatever decreased community participation and category (nature-based insurance, bonds, increased debt as floods have become more forecast-based insurance, etc.) have both intense (NCCARF Coast Adapt 2016). Other benefits and limitations and will be more innovative insurance products also face the effective in some contexts than in others. risk of limited participation and financial STOCK PHOTO Protecting Paradise 39 Key Findings and Recommendations This section summarizes some of the insurance is activated based on specific lessons learned as a result of this research triggers and does not require individuals into innovative approaches to disaster risk to file a claim, local policyholders (mostly insurance in the Caribbean. The findings governments in the Caribbean) and the focus on education gaps, local communities ultimate beneficiaries (which can often be and insurance beneficiaries, the importance the population or small business) must of minimizing countries’ financial burdens, understand how this type of insurance lessons on parametric and indemnity operates if new products are to be acquired. insurance products, scalability, and the role Information about the insurance market in of data. the Caribbean should be available for and comprehensible to local populations, and it The section also recommends next steps should be applicable to the most vulnerable that provide a roadmap for in surance groups. A better-informed public will in turn companies, tourism sector businesses, and generate interest in and demand for products governments seeking to invest in disaster that can close the insurance protection gap. risk transfer solutions that prioritize nature and climate resilience. These 2. Prior experience with insurance types of insurance solutions are still novel products shows the need to focus on and developing, but the recommendations beneficiaries and local communities. presented here aim to showcase a possible Insurance products that focus on local future in which the insurance industry, communities, such as COAST of CCRIF regulators, and other stakeholders take bold SPC (which targets and supports fisherfolk and innovative action in the Caribbean to specifically), provide a good template for safeguard paradise. structuring future insurance solutions that protect interested parties directly from KEY FINDINGS disaster-related losses. They show that innovative approaches to product development 1. Education is vital to broaden insurance can be successful in attracting investors, while market uptake. at the same time delivering on their objective Caribbean residents—including business to protect coastal ecosystems and groups owners and others in the tourism industry— that are disproportionately affected by these are knowledgeable about insurance for disasters locally. their specific sectors and/or challenges, but there is still a gap in knowledge about However, insurance products that target new types of insurance, especially beyond specific groups must ensure that payouts indemnity insurance products. A review of reach the ultimate beneficiaries. This is a different types of insurance is listed in annex critical measure of success and should be 4. This knowledge gap includes innovative part of any review of product options. Some products such as parametric insurance and existing innovative insurance products offer nature-based solutions. Because parametric lessons about timing and disbursement. 40 Protecting Paradise For COAST, governments are classified and could undertake other measures to make as the policyholders (as with other CCRIF the products accessible and feasible in the products), so they send the payouts to context of the Caribbean islands. fisherfolk through a pre-agreed system. Priority is placed on the rapid transfer 4. Parametric insurance solutions are of funds to the fisherfolk affected, and the most used at the regional level in beneficiaries are identified before an event the Caribbean; indemnity solutions takes place to avoid delays in disbursement are the most familiar and adaptable (InsuResilience Global Partnership 2019). at the domestic level; and there is potential to develop hybrid products. Hurricane Beryl (2024), for example, triggered Nature-based insurance products—such large payouts from CCRIF SPC, including via as mangrove insurance—could include COAST, to the fisheries sector in Grenada. parametric and indemnity components to The Government of Grenada received over provide an immediate payout after a disaster US$55 million with US$44 million from the the and another payout later on based on a follow- tropical cyclone and excess rainfall policies up assessment (Beck et al. 2020). alone, including a payout of US$1.06 million from COAST, a unique product that provides Parametric products have lower costs, require livelihoods support for fisherfolk (CCRIF SPC less time to administer, do not require a claims 2024). The Government of Grenada received assessment process, and respond correctly these funds within 14 days of the disaster when an event occurs, with quick payouts. facilitating providing additional funds to the This type of insurance is more widely used Government to facilitate relief and recovery in the Caribbean at the regional level, through activities. CCRIF SPC, while indemnity products are more widely used at the domestic level, through 3. Disaster risk transfer solutions national programs and insurers. Many of must minimize financial burdens. the products discussed in this report are Where financial services are not affordable parametric in design, but in the context of or accessible—such as in a context of high innovative disaster risk transfer solutions that economic vulnerability and indebtedness like target the protection of coastal-based tourism, the Caribbean—they can impede innovative there is potential for a hybrid product. insurance solutions. The assessment done in this report shows that the high costs of 5. Using scalable solutions allows for insurance premiums have discouraged local larger impact. businesses and key industries from securing Experience with existing products and policies the most effective insurance solutions (or suggests macro-type products are preferable those solutions offering the broadest coverage to micro-products, specifically because of their for disaster events). To generate interest in and potential to be scaled and the low capacity in drive demand for a proposed new solution, the Caribbean region. Micro-products target it could be helpful to remove some of the individuals, such as farmers and fisherfolk, beneficiaries’ financial burden and risk as and are harder to scale to a national level for they engage with the insurance market. For maximum coverage. Macro-type products are example, government might subsidize the easier to scale because they cover a broad premiums for the insurance policies for a number of potential beneficiaries and are number of years, either partially or entirely, simply structured with a single policyholder. Protecting Paradise 41 Most of the current innovative insurance and related analysis are important to improve examples are operating on a small scale understanding of the disaster risks impacting and in specific sectors and countries, given the region. They help insurers understand the small size of countries and of the already where exposed assets are located and what concentrated insurance markets. risks they face. This information facilitates superior product design and more rapid 6. Public-private partnerships could be payouts, and it also minimizes product basis a way to scale an innovative solution risk, improving the confidence of potential and ensure the product reaches its policy beneficiaries. target audience. CCRIF SPC is considered a leader in public- 8. In the context of bringing more private partnerships, as demonstrated by innovative products to support coastal its Livelihood Protection Policy, which is and marine ecosystems and foster provided through local insurance and financial sustainable tourism, high-quality data institutions, and by the National Disaster and risk models are essential. Fund, a public-private partnership of Global The use of more accurate historical data Parametrics, which supports the CCRIF SPC to develop new products is key not only to payouts through reinsurance cover to some increasing efficiency and effectiveness, but Caribbean islands (Evans 2024). also to providing more reasonably priced insurance. This is because less accuracy 7. Greater use of quantitative tools (due to lack of data) will generally increase and superior data will enable better insurance premiums to compensate for understanding of disasters. uncertainty (Munich Climate Insurance Quantitative tools and solutions, such as Initiative 2020). catastrophe risk models, as well as better data STOCK PHOTO 42 Protecting Paradise RECOMMENDATIONS they focus on different perils or areas. A brief analysis of the peril insurance coverage in Innovative nature-based insurance offers the Caribbean is in annex 5, and can help to companies and governments a way of understand what perils to focus on. investing in sustainable solutions in the Caribbean, a disaster-prone region that is 2. Introduce innovation into the market also dependent on tourism. Insurers have a through pioneer insurance products for role to play in the preservation of nature and nature-based solutions and biodiversity biodiversity, and they have a direct financial protection. interest in protecting and insuring fragile Parametric insurance is currently the most ecosystems, thereby boosting the local common product to cover disaster risk, mainly economy (Cook and Holliday 2022). because of the speed with which it pays out, but other complementary products should be Below are some suggested next steps and explored—such as a parametric product that recommendations: values ecosystem presence and prioritizes conservation and restoration, or a hybrid that 1.Design insurance to incentivize includes a parametric trigger (to satisfy the nature-based adaptation through parametric insurance guidelines) and also community participation and targeted requires proof of actual loss (based on a claim payouts. like traditional insurance). As seen throughout Leveraging insurance as a tool to reduce the the report, creative insurance products can risk of disasters and climate change impacts provide effective nature-based solutions in is valuable, and can be done through creative the Caribbean. However, this is a novel area outlets, including fostering community for the Caribbean insurance markets, and participation and influencing payouts for the many relevant products are still small pilots. use of nature-based adaptation. 3. Adopt disaster risk insurance for the Communities play an important role in tourism industry. building climate adaptation and resilience Given the importance of the blue economy and in reducing disaster risk, and their to Caribbean tourism (and the Caribbean participation in certain insurance products economy more generally), there is potential for can bring many benefits, including the the tourism industry in the Caribbean to focus increase of insurance penetration across more on insurance as a disaster risk solution. the Caribbean. As seen in the NFIP in the Innovative insurance products around the United States, communities can be incentivized world are proving effective in reducing disaster to collaborate in efforts to reduce risk and risk, and they could be adopted in the region foster climate resilience. The NFIP not only to mitigate the impacts of disasters on provides flood insurance to at-risk communities biodiversity and natural landscapes and to (specifically property owners and businesses), allow the tourism sector to build resilience but it invites them to become active participants to climate disasters. in implementing flood protection activities through the Community Rating System. This 4.Create the right environment type of arrangement, which offers discounts for innovative insurance product to communities that work to reduce risk, could d eve l o p m e n t t o m e e t m a r ke t be part of various insurance products, even if opportunities. Protecting Paradise 43 Insurance regulators should work with in the Caribbean. Financial incentives could governments and industry across the be used to encourage investment in new Caribbean region to stimulate growth in the products and enhance competition, while commercial and industrial insurance sectors industry associations and government and put in place key regulations. These could collaborate on product promotion. regulations will help close the insurance Additionally, industry and regulators should protection gap for catastrophe-related seize the chance to be bold. Instead of selling losses and in particular for BI coverage. more of what they know in order to grow Regulations developed from an assessment vertically, there is an untapped opportunity to of best practices across the region will also grow the commercial and industrial insurance force the industry to look more carefully at markets horizontally through undersold and the opportunities that exist in many parts of innovative coverages and products. the world but are nascent and not prioritized STOCK PHOTO 44 Protecting Paradise Annexes ANNEX 1 – LISTING OF SELECTED LARGER LOCAL & REGIONAL INSURERS OPERATING BY COUNTRY Regional/ Domestic Insurance Additional Notes Companies Antigua Insurance Company Limited ABI Insurance Company The only regional state insurance Antigua General Insurance Company company People’s Insurance Company State Insurance Company Bahamas First These first 3 companies control about The Royal Star Assurance 65% of the domestic market. In all there Bahamas The Insurance Company of The Bahamas are 19 no-life companies operating of Ltd.Summit Insurance which 2 are in run off Sagicor General Insurance Inc. CG United Insurance Limited Part of the Massy Group, in turn now Barbados Insurance Corporation of Barbados part of Coralisle Group Limited Equity Insurance Company Limited RF&G Insurance Company Limited RF&G estimated to have over 50% of Belize Insurance Company of Belize the non-life market, with another 40% Atlantic Insurance Company Limited taken by the other 2 companies listed ICWI took over First Domestic Insurance Company of the West Indies NAGICO is present in almost all of the Dominica (ICWI) islands featured in the report, except NAGICO Group Barbados Jamaica-based National Commercial Guardian General Insurance Company Bank Financial Group bought Guardian GC United Insurance Limited Holdings (2019) Grenada Netherlands Insurance GC United Insurance was formerly Grenadian General Insurance Massy United Grensure Grensure is a Lloyd’s operation British Caribbean Insurance General Accident Insurance Company (Jamaica) The top 5 companies comprise almost Jamaica Guardian General Insurance Company 80% of the domestic non-life market GK General Insurance Company Advantage General Insurance Company GK General Insurance Company Part of Goddard Enterprises, a St. Lucia M&C General Insurance Company conglomerate West Indies General Insurance Protecting Paradise 45 Regional/ Domestic Insurance Additional Notes Companies Metrocint General Insurance Company Mostly motor insurance St. M&C General Insurance Company Part of Goddard Enterprises, a Vincent St. Hill Insurance Company conglomerate St. Vincent Insurances Limited (Vinsure) Vinsure is a Lloyd’s operation Guardian Holdings Part of the National Commercial Bank Sagicor General Financial Group in Jamaica Trinidad Trinidad & Tobago Insurance Limited Offices in Barbados, St. Lucia & Grenada & Beacon Insurance Company Part of the Massy Group Tobago GC United Insurance After privatization, became an insurer Reinsurance Company of Trinidad & only Tobago STOCK PHOTO 46 Protecting Paradise ANNEX 2 – OVERVIEW OF CARIBBEAN INSURANCE OFFERINGS Industry Industry Industry Distribution Association Regulator Offerings Property, Motor, Marine, Aviation Financial & Transit and Insurance 2020: Brokers do Services Liability Association 15% of total non- Antigua Regulatory of Antigua & life market; Agents Commission Property Barbuda (IAB) (64%); Direct (15%) (FSRC) accounts for 56% of non-life premium (2014) Property, Motor, Marine, Aviation & Transit, Personal Accident & Health, and Liability Property Bahamas Insurance accounts 62% The General Commission of of non-life 2021: Brokers (45%), Bahamas Insurance The Bahamas premium; +3%, Agents (55%) Association (ICB) excl. Personal Accident & Health Commercial & industrial accounts for 70% of Property premium (2020) Property, Motor, Marine, Aviation & Transit, Personal Accident & Health, and Central Bank Liability General & Financial Insurance Services Property 2019 to 2022: Direct, Barbados Association of Commission accounts for Brokers & Agents Barbados (FSC); annual 50% of non-life stress testing premium; -1.3% excl. PA, Health; Commercial & Industrial is about 50-70% of Property (2020) Protecting Paradise 47 Industry Industry Industry Distribution Association Regulator Offerings Property, Marine, Aviation & Transit, Motor, Personal 2021: Direct Organization Office of the Accident & (55%), Agents of Insurance Supervisor of Health, Liability, (25%), Brokers Belize Companies Insurance & and Surety, (15%); mostly in Belize Private Pension Bonds & Credit international (ORINCO) (OSIPP) brokers for Property reinsurance accounts for 55% of non-life market (2020) Non-life accounts for 2020: Brokers do Financial Financial 68% of the total 10% of total non- Dominica Services Unit Services Unit market, i.e., life life market; Agents (FSU) (FSU) and non-life (70%); Direct (15%) (2014) Grenadian Association Authority for Property, Motor, 2020: Brokers do of Grenada the Regulation and Personal 10% of total non- Grenada Insurance of Financial Accident & life market; Agents Companies Institution Health (70%); Direct (15%) (AGIC) (GARFIN) Property, Marine, Aviation & Transit, Motor, Personal 2022: Brokers do Financial Accident & Insurance 61% of total non- Services Health, and Jamaica Association of life market; Agents Commission Liability Jamaica (IAJ) (21%); Direct (12%) (FSC) & Internet (6%) Property account for 51% of non-life market (2021) Property, Motor, and Personal Accident & Financial 2020: Brokers do Insurance Health Services 10% of total non- St. Lucia Council of St. Regulatory life market; Agents Lucia (ICSL) Property Authority (FSRA) (70%); Direct (15%) accounts for 44% of non-life premium (2018) 48 Protecting Paradise Industry Industry Industry Distribution Association Regulator Offerings Property, Marine, Aviation & Transit, Insurance Motor, Personal 2020: Brokers do Association Accident & St. Financial Services 10% of total non- of St. Health Vincent Authority (FSA) life market; Agents Vincent & the (70%); Direct (15%) Grenadines Property accounts for 45% of non-life premium (2018) Property, Motor, Personal Accident & Association Healthcare. 2021: Brokers do of Trinidad Central Bank of 70% is listed as about 80%, Agents Trinidad & Tobago Trinidad & Tobago Miscellaneous do 8% which is & Tobago Insurance (CBTT) going down, Direct Companies Commercial (7%) (ATTIC) & Industrial is about 70% of Property (2021) Source: Axco reports and industry websites PHOTO CREDIT: MARIA FLEISCHMANN, WORLD BANK Protecting Paradise 49 ANNEX 3 – THE SIX CCRIF SPC INSURANCE PRODUCTS CCRIF Date Total Payouts Countries/ Insurance Trigger started (2007-2023) Companies involved Product Earthquake Losses due to ground All CCRIF member 2007 US$50,003,222 (EQ) shaking countries Tropical Losses based on wind All CCRIF member 2007 US$144,398,683 cyclone (TC) and storm surge countries Evaluation of soil saturation and pure rain fall in the loss Excess rainfall All CCRIF member 2013 calculation. Based US$73,222,719 (XSR) countries on the multi-trigger CARE (covered area rainfall event). Losses by fisher workers caused by Adverse Fisheries Weather (high waves and (COAST - heavy rainfall) and losses Caribbean July caused by Tropical Grenada and Saint Oceans and N/A 2019 Cyclones (wind and Lucia Aquaculture storm surge) that may Sustainability damage fishing vessels, Facility) fishing equipment and fishing infrastructure. Anguilla Electricity Direct damage to Company Limited the transmission (ANGLEC), and distribution Electric Grenada’s electric 2020 (T&D) components N/A utilities utility company of the electric power (GRENLEC), St. Lucia system due to Electricity Services impacts of wind. Limited (LUCELEC) 35 water utilities across 29 Caribbean US$8.45 million territories have been m o b i l i ze d i n identified as potential Damage to water and grants for the clients. The Caribbean Water utilities 2023 wastewater systems/ Caribbean Water Water Utility Insurance utilities Utility Insurance Collective (CWUIC) Collective, but no was established as a payouts so far. segregated portfolio within CCRIF SPC Source: CCRIF SPC 50 Protecting Paradise ANNEX 4 – TYPES OF INSURANCE coverage to members and owned entirely IN THE CARIBBEAN by its policyholders. Any profits earned by a mutual can be retained within the company, There are many different structures rebated to policyholders as dividends, or and vehicles that build on the extensive used to lower future premiums; experience of the insurance industry and 3. Market-Based Insurance: An insurance through which governments can manage company that is part of the insurance market and insure risks efficiently. The following and provides risk transfer to policyholders. list showcases the most common types Insurance companies return profits to of insurance (World Bank Public Assets shareholders; Insurance Textbook 2022). 4. Public Entity Risk Pools: Public entities join a risk pool through a written agreement to 1. Self-Insurance: Money set aside by the fund similar risks they all have in common. government to fund an unexpected loss. Can be seen as combined self-insurance In Grenada, after Hurricane Ivan in 2004, the for asset owners; government used its revenue sources from 5. Sovereign Risk Pools: A risk pool provides development expenditure to fund disaster insurance coverage to multiple countries at a relief and reconstruction (World Bank 2006); time and access to international reinsurance 2. Mutual Insurance: An insurance entity markets with a joint portfolio. CCRIF SPC formed as a cooperative to provide is a sovereign risk pool. STOCK PHOTO Protecting Paradise 51 ANNEX 5 – ANALYSIS OF PERIL Floods INSURANCE COVERAGE IN THE Insurance for floods in the Caribbean CARIBBEAN seems to follow a regional approach, in which rates are usually influenced by The following annex provides an competition among insurance companies, overview of catastrophe peril coverages and flood coverage is included in standard in the Caribbean, based on a review of peril packages. In Barbados, one insurer corresponding Axco reports. loads residential rates by 10% in areas prone to flood, where there isn’t a separate flood Windstorms/ Hurricanes rate, while in The Bahamas, flood is part of Windstorms shape insurance premiums in the standard peril package with a deductible the region, influencing post-disaster rate of 2%. adjustments, and variations in deductibles. In some countries, flood coverage is A significant portion of overall property rates included in their natural perils policies, is designated to the catastrophe element, such as Costa Rica, which incorporates primarily windstorms. However, the level floods within fire and allied lines, and Cuba, of risk exposure is what determines the where flood peril rate is embedded in the deductibles in many countries, especially in fire and lightning perils rate. Landslides risk-prone nations with coastal areas – such and road infrastructure impacts is another as Trinidad and Tobago, which differentiates common national budget concern associated rates based on how exposed is the area of the with floods. property. Jamaica applies a 2% deductible on the sum insured, with higher deductibles Earthquakes for beachfront exposures. Windstorms Earthquake coverage in Latin America consistently shape insurance premiums and the Caribbean is typically included across the region, leading to post-disaster in overall property rates, either as part of rate adjustments, deductible variations, and a comprehensive multi-risk policies or as a reliance on regional catastrophe reinsurance constituent of general fire and allied lines dynamics. rates. Common practices involve applying deductibles, usually a percentage of the sum Regional catastrophe reinsurance costs, insured, and in some cases, coinsurance, to as well as conditions in the international share the risk burden between insurers and reinsurance market, have important policyholders. Insurers commonly account impacts on hurricane belt countries in the for earthquakes (and other perils) within the Caribbean, and influence the insurance insurance premium; however, some countries landscape in each nation. Disasters in the offer earthquake coverage free of charge or region also affect property damage premiums; within package policies, especially in low-risk there were significant rate increases in Puerto areas, showcasing flexibility in protection Rico after Hurricanes Irma and Maria, as well against this specific peril. This happened in as in The Bahamas after Hurricane Dorian. The Haiti, where rates returned to post-earthquake impact of Hurricane Beryl on (re)insurance levels after the hardening of the global premiums is yet to be determined. insurance market in 2020. 52 Protecting Paradise References AP (Associated Press). 2006. “Insurers Put Wilma Damage at U$3 Billion.” Banderas News. https://banderasnews.com/0610/nz-hurricanewilma.htm. Axco. 2023. “Insurance Market Report (Non-Life): Eastern Caribbean: Antigua and Barbuda, Dominica, Grenada, St. Lucia, and St. Vincent and the Grenadines.” Axco, London. 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