The Caribbean region is highly prone to climate hazards and has a history of being adversely impacted by weather related events, resulting in significant losses and damages.
Most of the Caribbean islands lie within the North Atlantic “hurricane belt,” with the major climatic events affecting the region being tropical depressions and cyclones, which generate strong winds, and rainstorms that cause flooding, landslides, and storm surges.
Covering Natural Disaster Losses for Water Utilities - An insurance mutual for the caribbean.
1. Covering Natural Disaster
Losses for Water Utilities
An Insurance Mutual for the Caribbean
The Caribbean region is highly prone to climate hazards and has a history of
being adversely impacted by weather related events, resulting in significant
losses and damages.
Most of the Caribbean islands lie within the North Atlantic “hurricane belt,” with the
major climatic events affecting the region being tropical depressions and cyclones,
which generate strong winds, and rainstorms that cause flooding, landslides, and
storm surges.
Climate change poses significant physical risks to the Caribbean region by
exacerbating the islands’ existing vulnerabilities:1
The impact of climate change on the water infrastructure in the Caribbean is
considered two-fold.4
i. Existing infrastructure is ill-equipped to cope with changes in the hydrological
regime and water quality. Additional treatment will be required to deal with
anticipated deterioration of water sources, pumping arrangements will need to
be reconfigured and more distribution storage will need to be built.
ii. Current levels of hurricane activity already adversely impact water
infrastructure, compromising storage reservoir integrity and damaging
pipelines, intake works and boreholes through sediment and debris, pumping
stations through floods or loss of power. They also affect wastewater treatment
facilities leading to heightened threats to public health. Projected increases in
the frequency and severity of hurricanes hold the potential for large losses,
particularly if utilities do not make needed investments to protect their systems
against more frequent and catastrophic hurricanes.
CONTEXT
CHALLENGES
1–9%
GDP ANNUAL LOSSES
Annual expected losses from the effects
of disasters triggered by such hazards are
expected to be in the range of 1–9% of
Gross Domestic Product (GDP)by 2030.2
USD22 B
COST OF INACTION
The Caribbean’s annual cost of
inaction is projected to total USD22
billion annually by 2050 and USD46
billion by 2100.3
1. GIZ. Loss and damage in the Caribbean: Climate change realities in the Small Island Developing States. 2018.
2. CCRIF. A natural catastrophe risk insurance mechanism for the Caribbean. 2011.
3. Center for Resource Management and Environmental Studies, University of West Indies. Adrian Cashman Water
Security and Services in the Caribbean. 2014.
4. Tufts University. The Caribbean and Climate Change, the costs of inaction. Ramón Bueno et al. 2008.
2. UNLOCKING FINANCE FOR
RESILIENCY requires coordinated
reforms across policies, institutions
and innovative practices in financial
markets. Multilateral, regional and
bilateral development finance
institutions, and national
development banks, play significant
roles in supporting countries while
enabling a virtuous circle of action on
building resilient infrastructure.
Hilen Meirovich
Head of Climate Change, Advisory Services & Blended Finance | hilenm@idbinvest.org
Yvon Mellinger
Chief of Water and Sanitation, Infrastructure and Energy Division | yvonm@idbinvest.org
THE SOLUTION
THE IMPACT
IDB Invest, a member of the IDB Group5
, is performing a set of advisory
services for the operationalization of a natural disaster (windstorms,
hurricanes, earthquakes, volcanoes, etc.) insurance mutual for Caribbean
water and sewage treatment utilities: the Mutual.
It is expected that the Mutual will enable these utilities to reduce the recovery
time of water and sanitation systems after natural disasters and increase their
resilience against future natural disasters. The Mutual will include 3
components:
i. A facility to support early recovery assistance from participating utilities
to the impacted operator.
ii. The mutual insurance vehicle with layers of coverage6
including
reinsurance to effectively address substantial and catastrophic losses.
iii. Instruments to finance investments in infrastructure resiliency
improvements.
These advisory services will result in a new, innovative means to support the
resiliency of utilities. Reinsurers have considerable data on natural disas-
ter-related losses; their participation could enable a better understanding of
how to mitigate losses and protect utilities from future losses.
The Mutual structure will promote the adoption of best practices as covering
the costs to make utilities more resilient should result in smaller losses in the
future which, in turn, will positively impact premiums.7
LET’S CONTINUE THE CONVERSATION
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Reinsurers data
market. Better
understanding
of water
utility risks
Promotion
of the adoption
of best resiliency
practices
Lower risks
against natural
disasters and
lower insurance
premiums
THE MUTUAL
Natural disaster insurance
5. Inter-American Development Bank.
6. World Resources Institute. The future of
Disaster Risk Pooling for Developing
Countries. 2019.
7. The New Climate Economy. The sustainable
infrastructure imperative: financing for
better growth and development. 2016.