Are the Pacific Islands Insurable?
Challenges and Opportunities for
Disaster Risk FinanceVijaya Ramachandran
Junaid Sadiq Masood
Abstract
There are several efforts underway in the Pacific Islands to insure public and private assets against
natural disasters such as cyclones and earthquakes. These efforts are designed to mitigate the annual
costs of such disasters which range from a few percent to over 50 percent of GDP. However,insurance is not a substitute for aid. Most islands are heavily aid dependent and cannot afford to
pay the high premiums associated with disaster risk insurance. Insurance to cover disaster risk
likely needs to be subsidized to offset costs and to build trust. Governments and donors mustalso manage basis risk which can be substantial. Over time, investments in resilient infrastructure,coupled with a more comprehensive approach to risk management, may reduce costs and shiftpremiums to recipients. Finally, current and proposed schemes which provide insurance cover orother products must provide information in a transparent manner on effective demand along withcosts, benefits and administrative fees. A clearly defined exit strategy is necessary if funds are notdisbursed in a timely manner.

Keywords: disaster risk, finance, insurance, Pacific Islands
JEL: G0, O1, O2

www.cgdev.org

Working Paper 516
September 2019

Are the Pacific Islands Insurable?
Challenges and Opportunities for Disaster Risk FinanceVijaya RamachandranCenter for Global Development
Junaid Sadiq Masood
Center for Global Development

We are grateful to Masood Ahmed, Nancy Birdsall, John Bishop, Hayden
Everett, Alan Gelb, Claire James, Nicola Jenns, Kate Kinsela, Jeremy
Konyndyk, Frank LaMacchia, Nicola Ranger, Ganesh Rasagam, CateRogers and to seminar participants at the Department for Foreign Affairs
and Trade Australia and the Development Policy Centre at Australian
National University for helpful comments. Special thanks to David Traill
for sharing his expertise and for detailed comments and to Mallika Synder
for excellent research assistance. We are, of course, solely responsible forany errors.
The Center for Global Development is grateful for contributions from thr
Australian Department of Foreign Affairs and Trade in support of thiswork.
Vijaya Ramachandran and Junaid Sadiq Masood, 2019. “Are the Pacific Islands Insurable?
Challenges and Opportunities for Disaster Risk Finance.” CGD Working Paper 516.
Washington, DC: Center for Global Development. https://www.cgdev.org/publication/
are-pacific-islands-insurable-challenges-and-opportunities-disaster-risk-financeThe data used in this paper is available here: https://www.lowyinstitute.org/theinterpreter/pacific-aid-map-update. More information on CGD’s research data andcode disclosure policy can be found here: www.cgdev.org/page/research-data-and-codedisclosure.

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Contents
1. Introduction: Aid Dependence and Disaster Risk in the Pacific Islands ..................................................... 1
2.

Are the Pacific Islands Insurable? ...................................................................................................................... 63.

Key Components of Insurance Coverage ......................................................................................................... 8

4.

Insuring Individuals: The Scope for Microinsurance .................................................................................... 11

5.

Pacific Islands Schemes...................................................................................................................................... 14

6.

Other Relevant Insurance Schemes for the Pacific Islands ......................................................................... 24

7.

Conclusion............................................................................................................................................................ 31

Appendix 1. Tropical cyclones in the South Pacific, 2010-present ...................................................................... 33
References...................................................................................................................................................................... 35

1. Introduction: Aid Dependence and Disaster Risk in the PacificIslands
The Pacific Island Countries (PICs) are grappling with the deleterious effects of natural disasters and climatechange, which have the potential to—in the case of some smaller island nations make entire countries
inhospitable, posing significant development challenges. Over the past decade, several initiatives have been
undertaken to help improve disaster assistance and cooperation in the region.
The Pacific Islands region consists of thousands of islands stretching across the Pacific Ocean. Countries inthis region share similar challenges and opportunities as small and remote island economies. They are small,have limited natural resources, far away from major markets, and vulnerable to external shocks; all of which
has resulted in low growth and a high degree of economic volatility (World Bank, 2019). These islands arealso among the most vulnerable to natural disasters. According to the World Risk Report, five Pacificcountries are among the top 20 most at-risk countries in the world, with the highest average annual disasterlosses scaled by gross domestic product (World Bank, 2019). The cost of damage and loss suffered in PICs as
a result of recent natural disasters ranges from a few percent to over 30 percent of national gross domestic
product (GDP) (PCRAFI, 2015). Maximum losses sustained during very severe disasters can exceed 100
percent of GDP.
The Pacific Island Countries (PICs) are mostly small economies that are likely not viable without high levelsof foreign assistance. Table 1 shows that aid per capita ranges from a few hundred dollars to over $8000.
Administering these flows is expensive—while data are not available on overhead costs, anecdotal evidence
suggests that these costs are high, especially for the multilateral agencies. In 2016, the total amount of aid
spent was $1.87 billion across 3875 projects (Lowy Institute, 2019). The top five donors were Australia ($799m), New Zealand ($192 m), Japan ($181m), China ($114 m), and the Asian Development Bank ($104 m). The
World Bank Group spent $94 m across 55 projects. China is a rising influence in the region, spending
between $100 million and $400 million per year during the period 2011 to 2016.
The top five recipients were Papua New Guinea, Oceania (Regional), Solomon Islands, Vanuatu, and Fiji. Aid
per capita ranges from $80 for PNG to over $9000 for Tonga. Aid per capita ranges from $80 for PNG toover $9000 for Tonga. Excluding PNG and Fiji, aid to GDP is about 30 percent. These numbers are by far,the highest in the world—no other region comes close. Aid per capita in sub-Saharan Africa ranges fromabout $20 to $150. The Caribbean islands receive a few hundred dollars in aid per person; aid to St Kitts andNevis is around $500.

1

Table 1. Aid flows to the Pacific Islands
Country

Aid (spent)Population

GNI per
capitaAid per
capitaAid to GNI(%)

USD millions
Cook Islands$35.61

17000$17000

$2094

12

Fiji

$127.6899000$4969$141.933

Kiribati$55.71114000$2042$488.68

20

MarshallIslands$29.77

53000

$4678

$561.7012Micronesia$77.5

105000$3662$737.62

20

Nauru

$24.1

11000

$9420

$2190.90

23

Niue$14.151624$18000$8713.05

48

Palau

$18.3422000$13000$833.646

Papua New
Guinea$652.368080000$2352$80.743

Samoa$116.35

195000$4115$596.67

14

SolomonIslands$189.23599000$1742$315.9018

Tonga$101.36107000$3827$9473.00

25

Tuvalu$25.16

11000

$5363

$2287.27

43

Vanuatu$53.59

27000

$3045

$568.85

19

Source: Lowy Institute. All values are in current US dollars

2

Table 2. Likelihood of natural disasters in the PacificCountry

Likelihoodof natural
disaster per
year (%)

Likelihoodof severenaturaldisaster (%)

Damage(%GDP,
median)Damage(%GDP,
maximum)

Population
affected(median)Population
affected(maximum)

Fiji

70.3

8.3

1.3

10.1

0.8

39.7

Kiribati

10.8

2.7

0.8

100.0

Marshall Is

16.2

5.4

1.1

38.3

Micronesia

24.3

5.4

Palau

2.7

0.0

PNG

81.1

Samoa

1.8

3.5

5.7

97.8

8.1

0.1

1.3

0.4

32.7

27.0

18.9

21.0

161.8

1.6

6.7

Solomon Is

51.4

13.5

8.0

14.0

1.1

53.8

Timor-Leste

21.6

2.7

0.1

0.1

0.1

10.1

Tonga

29.7

8.1

4.9

28.2

3.4

100.0

Tuvalu

16.2

2.7

42.0

42.6

Vanuatu

56.8

29.7

PICs

34.0

18.0

131.2

5.3

87.0

1.7

161.8

1.3

100.0

Source: EM-DAT, Lee et al IMF (2018). Severe is defined as a disaster in the 75th percentile of losses; the second column shows theaverage probability per year that each country experiences a natural disaster above 75th percentile over the sample period (1980-2016).

3

Table 3. Losses from natural disasters
CountryMedianlosses($million)

Maximum losses($million)

Medianlosses as %GNI

Maximum losses
as % of GNI

Fiji

62.6

486.5

1.3

10.1

7.0

13.7

1.8

3.5

PNG

19.7

256.2

0.1

1.3

Samoa

171.0

1317.221

161.8

Solomon Is

97.9

171.3

8

14.0

Timor-Leste

2.6

2.6

0.1

0.1

Tonga

21.3

122.5

4.9

28.2

153.7

1120.318

131.2

Kiribati
Marshall Is
Micronesia
Palau

TuvaluVanuatu

Source: Lee et al IMF (2018), Lowy Institute, authors’ calculations. Loss data are not available for all islands.

In addition to being heavily aid-dependent, the PICs are highly exposed to adverse natural events, including
tropical cyclones, earthquakes, volcanic eruptions, and tsunamis, which can result in disasters affecting their
entire economic, human, and physical environment. These events impact the PICs long-term development
agendas. From 1950 to 2009, storm and earthquake damage cost the PICs an estimated US$3.2 billion(PCRAFI, 2015). A tsunami that hit Samoa in September 2009 generated damage and losses in excess of
US$120 million, or 22 percent of gross domestic product (GDP) (Government of Samoa, 2009); a tropical
cyclone hitting the country four years later caused damage and losses in excess of US$200 million or 28
percent of GDP (Government of Samoa, 2013). The worst disasters, such as the two tropical cyclones that
hit Vanuatu in 1985, result in losses greatly exceeding the value of GDP. There is quite a lot of variance in the4magnitude of disasters from year to year and also geographically; the southern islands appear to suffer morethan their northern neighbors.
Table 2 shows the likelihood of a natural disaster in the PICs. Table 3 translates these probabilities into losses
measured in US dollars—many islands loses millions of dollars of assets in the aftermath of a natural disaster.
We can see that PICs are prone to disasters—Fiji has a 70 percent probability of a disaster in any given year
while Papua New Guinea has an 81 percent chance. Vanuatu and the Solomon Islands have a greater than 50
percent chance of a natural disaster in any given year. Vanuatu has an almost 30 percent chance of a disasterbeing in the 75th percentile of severity in any given year, this number is 13.5 percent for the Solomon Islands
and 8.1 percent for Tonga. Appendix 1 describes the most significant weather events in the Pacific since2010.
Critical challenges confront PIC governments in the aftermath of a disaster including securing access toshort-term immediate financing for emergency response and maintenance of essential government services
until additional resources become available. This danger is compounded by the limited set of options for
PICs to raise funds in the immediate wake of a disaster. PICs are constrained by their size and borrowing
capacity and have limited access to international insurance markets (Cummins & Mahul, 2009). In addition,
many PICs have a narrow revenue base, are net importers, and rely on aid as an income stream, all of whichplace significant additional constraints on the national budget. The geography of PICs also poses challenges
to post-disaster relief efforts that are unique to small island nations. For example, significant costs are
incurred to facilitate travel to the outer islands for initial post-disaster relief. Following Cyclone Ian in Tonga
in early 2014, 39 percent of initial relief expenditures from the emergency fund went to fuel, distribution, andtravel and freight (PCRAFI, 2015).
Without immediate access to capital in the wake of a disaster to rebuild critical infrastructure and assist
households and businesses, delays in recovery have led to secondary economic and social effects, such asdeterioration in trade, budget imbalances, and increased incidence of poverty (Linnerooth-Bayer & Mechler,2007). Individuals have had to rely on savings and assistance from family members, but these sources are
insufficient in the face of a large-scale disaster. Without pooling arrangements or external assistance, disasters
can lead to a worsening of poverty as victims take out high-interest loans (or default on existing loans), sell
assets and livestock, or engage in low-risk, low-yield farming to lessen exposure to extreme events (Varangis,2005).
All of this points to the need for some form of disaster risk finance, including insurance against natural
disasters. Insurance would help to address some of the above-mentioned problems by smoothing out
payments by donors and PIC governments. However, there is also uncertainty about when and how theinsurance pays out; insurance is not likely to be a market-based solution that replaces the large amounts of aid
currently being disbursed. Section 2 looks at the insurability of the islands and assesses some of the key
challenges. Section 3 suggests components of insurance coverage that are relevant to the Pacific Islands while
Section 4 describes the various schemes proposed or underway. Section 5 concludes.

5

2. Are the Pacific Islands Insurable?
While there is a need for disaster risk finance, there is also a particular set of challenges to providing insurance
in the Pacific islands. Most important is the cost of insurance premiums which is driven by the highprobability of a natural disaster. For countries that are already heavily dependent on aid, these premiums arelikely to be unaffordable. Other issues such as the lack of resilient infrastructure and the lack of trust in
insurance providers are also important. We can sum up insurability as five questions (1) can they pay? (2) is
the model good enough? (3) do they trust? (4) has risk been reduced? (5) will reinsurers support?
oAffordability of premiums: The Pacific Islands are a unique set of countries. They are heavily aiddependent and prone to natural disasters which runs into millions of dollars every year. While there issome market-based activity, this alone is not enough to sustain the population. It is therefore very
unlikely that they can afford to pay the premiums associated with insurance contracts that might
cover a significant portion of losses each year. Aid as a percentage of GNI is sometimes over 100
percent and aid per capita is higher than any other region in the world. As such, the notion of amarket-based insurance model makes no sense.

The PICs are also subject to natural disasters which from time to time, has resulted in large losses. Private
insurers are likely to be conservative, and with good reason, so insurance will be costly (unless it isparameterized in ways that severely limit payout which is not very useful). This, together with aid dependence,indicates that insurance to cover disaster risk likely needs to be subsidized for a significant period of time, tooffset costs and to build trust. This will work best if accompanied by significant investment in infrastructure.
Linking risk transfer (premiums) to risk reduction (investments in resilience) requires careful design ofcontracts.
Insurance premiums can be funded from a variety of bilateral or multilateral sources, thereby reducing theburden on the largest donors. Over time, investments in resilient infrastructure, coupled with investments ineconomic development and a more comprehensive approach to risk management, may reduce costs and shiftsome of the premium payments to recipients. It is worth noting that insurance premiums for flood and othertypes of disaster insurance have been subsidized in rich countries such as the United States, the United
Kingdom and Australia for long periods of time; some subsidies continue to this day.
oBasis risk. In the aftermath of a natural disaster, insurance payouts may differ from the policyholder’s
expectation. The possibility that such a difference might exist is known as “basis risk”. Simply put,basis risk is the difference between expectations and outcome. For the Pacific Islands, this is a very
important type of risk, one that is often not emphasized enough. Meenan (2017) provides an
excellent explanation of basis risk; this is summarized below (with additional commentary relevant to
the Pacific).

Parametric insurance—where payouts are linked to a set of indices—is most commonly associated with basis
risk, although other types of insurance also bear this risk. For indemnity insurance, basis risk may arise from6

the possibility that there is no payout because of a legal miswording. 1 Basis risk may also arise because of thedifference between index loss and actual loss after an event. For example, for parametric insurance, thedifference between the index loss calculated from a wind speed measurement and the actual loss may be thesource of basis risk. This is a source of friction for the Pacific Islands.
Parametric-based insurance covers can be expensive to develop (building a loss index is costly or may havehigh basis risk if corners are cut) and the cost of running a model can be expensive (claims handling cost).
When losses are at or below the deductible, the insurance company must tell the insured that there was not avalid loss as the damage was not high enough.
Basis risk can be quantified by identifying the underlying sources of uncertainty. Quantifying this type of risk
helps to set expectations and to minimize (if not close) the gap between expectation and outcome. If the
expectation from a risk holder is that a payout should be received after an event, then the index attachmentlevel (as defined in parametric insurance contracts) can be lowered, and the trigger can be biased towards
overpayment. This may lead to a more costly premium. 2 Meenan (2017) argues that another option may be to
introduce a “phased attachment,” where there is a small payout at a lower threshold with the remainder of thepayment structured to be paid out at a higher threshold. This may help to manage reputational risk associatedwith a binary trigger structure.
The best approach to reducing basis risk requires a detailed understanding of the sources of uncertainty. One
way to reduce the basis risk is to increase the number of measurement stations; this may reduce the difference
between estimated and actual loss. Another is to evaluate various index formulae to better capture the rangeof vulnerabilities. For the Pacific Islands, better satellite coverage of the islands will help as well ongoing
efforts to share data; currently, data are often not available for the outer lying islands. Basis risk cannot becompletely eliminated but can be managed with the appropriate analytical approach.
oLack of trust: There is often a lack of understanding about risk and insurance, and a lack willingness tomitigate risk through insurance (Prabhakar, Cummins, Pereira, & Pulhin, 2014). There is general
distrust of insurance, due to experience of mismanagement or lack of payouts or difference inpayouts arising from indexed vs actual losses arising from basis risk. People living in disaster prone
areas expect public support such as financial aid after major disasters and are less willing to purchase.
Weak mechanisms for distributing payouts are also a problem--without efficient and transparent
systems, there is a potential for leakage in the flow of payments to people (Clarke & Hill, 2013). Also,

1 Indemnity insurance is a contractual agreement in which one party guarantees compensation for actual or potential losses ordamages sustained by another party.
2 The attachment point is the amount that an insurance company will pay for a risk, as stipulated by the relevant regulatory authority.

An insurance commissioner typically sets the amount to make sure that the insurer is financially capable of covering the risk. For
example, if the attachment point of a risk is $100,000, then the insurer cannot promise coverage for a loss beyond that amount.
If an amount beyond the attachment point is being considered, the insurer would have to turn over the excess to a reinsurer.

7many insurers in the Pacific are branches of international companies which may apply risk profiles
based on higher returns and less risk exposure than the Pacific region. Insurance companies tend to
adopt a conservative approach when there is a lack of market information (Subramanian & Yahel,2013).
oLack of resilient infrastructure, inadequate building codes, and certification mechanisms: Inadequate development
and enforcement of building land-use planning regulations, and over-reliance on disaster response
rather than mitigation, are significant problems. Cyclone insurance for property also requires
certification of compliance with building codes, but there is a shortage of qualified civil engineers in
the region, weak enforcement of building codes, and in some countries, such as the Marshall Islands,
there are no building codes in place to begin with (Mahul, Cook, & Bailey, 2015). Pacific island
governments often lack up-to-date asset registers, leading to undervaluation of assets. Identifying
public properties to insure and maintaining a centralized register could help governments attainbetter prices when approaching the market (Mahul, Cook, & Bailey, 2015).

Valuation of public assets is also sometimes a dilemma for PICs—they may have an incentive to undervalue
an asset—say it is more run down or say the hazard is bad and getting worse because of climate change—to
get development funding or overvalue it—say it is more resilient and that the hazard isn’t as high as thescience says—to make it insurable, even if it is then only partially insured.
oLimited availability of reinsurance: Few national and international reinsurers operate in the region (only
34 companies in 2013). These companies tend to be small and have low capital and solvency andpass on high administrative costs to consumers in the form of higher premiums. Capacity within thereinsurance market is limited, which limits the size of risk accepted and keeps premiums high (Mahul,
Cook, & Bailey, 2015). Insurers and reinsurers cannot afford to operate in the region unless there is asufficient enabling environment including efforts to reduce the residual risks (Prabhakar, Rao,
Fukuda, & Hayashi, 2013) (Prabhakar, Cummins, Pereira, & Pulhin, 2014).

These challenges, while difficult, are not insurmountable. In the next section, we discuss concepts that might
be relevant for efforts to introduce insurance to the Pacific region.

3. Key Components of Insurance Coverage
Subsidies to premiums
What is the best way to subsidize premiums? As discussed earlier, these are largely unaffordable for mostcountries in the Pacific. Premiums can be subsidized by concessional financing facilities such as the WorldBank’s IDA or by one or more of the several regional facilities currently under consideration. They can also
be financed by bilateral donors. However, it is also important that countries being insured have some stake inthe program. Perhaps they can pay 25 percent of the insurance premium, thereby demonstrating somedemand and commitment to the scheme while also building administrative capacity. Over time, this share can8increase, particularly as infrastructure becomes more resilient to disasters. However, we cannot expect this tohappen in the near term; donors who want to build an insurance program in the Pacific must be prepared tofinance premiums for a substantial period.
Use of parametric triggers
Index insurance offers new opportunities for managing disaster risk in the Pacific islands (Talbot & Barder,
2016). Index insurance is insurance that is linked to an index, such as rainfall, temperature, humidity or crop
yields, rather than actual loss. Whereas traditional insurers have to wait to estimate the amount of losses
before paying out, an index-insurance payout is activated once the index crosses a prespecified level. Anotheradvantage is that the transaction costs are lower which in theory at least makes index insurance financially
viable for private-sector insurers. Index insurance is also subject to less adverse selection and moral hazard
than traditional insurance.
Parametric triggers must be used with caution. Although they allow for rapid claims settlement, they lack theflexibility of softer triggers, like a declaration of natural disasters by the relevant authority (local or national).
This limits the abilities of PICs to claim damages from disasters that are costly but just below the trigger
criteria. Basis risk is a significant issue, as discussed above. Soft triggers, such as a declaration of disaster by arelevant government authority, may work better in some circumstances.
Insurance for public assets
Most state-owned enterprises in PICs have some form of property insurance, but the purchase of insurance is
not centrally coordinated or recorded. Several PICS have expressed their concern at not being able topurchase infrastructure insurance from the marketplace. It was either too expensive or simply not available.
For example, accessing cyclone insurance for property requires an engineer’s report certifying that the insured
property meets the building code. In order to better underwrite the cyclone peril, insurers require thatbuildings be inspected and certified by local structural engineers. Given the low number of qualified civilengineers in the region, this can be both expensive and time-consuming. Weak enforcement of building codes
is not uncommon in the region, given limited capacity; some countries, such as the Marshall Islands, have nobuilding code in place.
PICs lack up-to-date centrally held asset registers or insurance registers. Assets can be undervalued if
replacement values are out of date. Identifying a pool of key public properties to insure and approaching themarket could help PIC. There is an urgent need to improve data collection measures and consolidate existingdata to effectively assess risk exposure of public infrastructure. Most PICs currently lack a central register
which tracks the assets held by government departments, statutory authorities, and commercial companies,
and whether there are any insurance mechanisms in place to protect these assets.

9

Investments in resilient infrastructure
Across the Pacific region, there is an urgent need to build and replace infrastructure to ensure greater
resiliency to climate change and natural disasters. Much of the critical infrastructure in the region is at risk
from future sea level rise, storm surge, flooding, and/or drought. There is a need to strengthen resilience by“climate-proofing” infrastructure and building more sustainable communities. The dialogue on investing inresilient infrastructure is best framed by a consideration of the benefits and costs of investing in resilience,
looking at the savings in post-disaster costs for every $1 spent on resilient infrastructure. The Pacific Region
Infrastructure Facility is a useful source for existing research. It describes two initiatives progressing throughthe Pacific Island Forum (PIF)—the Pacific Resilience Facility (PRF) and the Pacific Island Climate Change
Insurance Facility. These initiatives are guided by the overarching Framework for Resilient Development in
the Pacific (FRDP).
According to the World Bank, the three steps required to ensure resilient infrastructure are:i.

Locational Mitigation: Risk-sensitive land-use planning methods should guide where to build new
infrastructure;ii.

Structural Mitigation: Existing infrastructure should be upgraded to resilient designs; andiii.

Operational Mitigation: Emergency preparedness and recovery planning steps should be put into place.

Policymakers can also use climate risk and vulnerability assessments (CRVAs) to determine climate risks andexplore alternative approaches and designs, such as elevating roads and bridges, increasing drainage capacity,and drought-proofing water supplies.
Comprehensive financial packages, combining reserves, contingent credit and risk transfers, may optimize thevariety of instruments described above. A carefully designed insurance program may be able to link
investments in resilient infrastructure to the cost of premiums, thereby creating incentives for governments tomake such investments. The Asian Development Bank is currently talking to PCRIC to house a contingent
savings program, hence offering a combined savings/risk transfer solution to the PICs. “Cat pools” can also
be used as a platform for additional services and products. The World Bank has been exploring the insuranceof public assets and is trying to facilitate access to international reinsurance for domestic insurers. To this end,
the World Bank is working with PCRIC to establish a private sector window for reinsurance.
Bundling of insurance products and strengthening requirements for coverage
In some economies, disaster insurance coverage has been expanded by combining it with other products,
such as adding it to fire insurance policies (OECD, 2015) (Tigre, 2013). Requiring insurance coverage or risk
mitigation for certain kinds of transactions can also broaden coverage. For example, in Fiji, banks require
insurance against specific hazards before lending, and insurance is only available when building standards
have been certified by an insurance industry-approved engineer. This strengthens coverage, although

10loopholes do exist, such as developers securing insurance offshore without a local engineering certification(Wright, 2013). In areas more prone to disasters, governments may even require mandatory insurance andwork with industry to develop appropriate products for such circumstances (Tigre, 2013). There is also
evidence that disaster losses may be reduced when insurance premiums are reduced to reward voluntary
mitigation measures, but few such incentives are currently offered and voluntary actions by business owners
are uncommon (Wright, 2013).
Layering of instruments for disaster risk management
Traill et al (2019) and others emphasize that disaster risk finance must be provided as part of a larger packageof assistance, which focuses on knowledge sharing, risk pooling, capacity building and long term investmentsin public and private infrastructure. This assistance package must also embody deep knowledge of the islands,
local customs and culture. Traill et al provide very good advice for donors looking to engage in the Pacific.

4. Insuring Individuals: The Scope for Microinsurance
The intent of microinsurance is to service low-income markets by offering limited coverage and reducing
transaction costs (Mechler, Linnerooth-Bayer, & Peppiatt, 2006). Until recently natural hazards have not been
explicitly considered as a niche for microinsurance because they impact large regions with multiple andsimultaneous losses, and thus are both more uncertain and have higher potential losses than other types of
insurance. The co-variant or systemic nature of the risks – and the large capital reserves necessary to avoid
insolvency - distinguishes catastrophe coverage from health, accident and other forms of microinsurance.
Various innovative programs are emerging with the support of governments, NGOs, and international
donors.
Forms of microinsurance
Disaster microinsurance can cover sudden-onset events, such as earthquakes, floods, and cyclones, as well as
slow-onset events, such as droughts. Traditionally, insurers have paid claims based on actual losses tohouseholds, businesses, and farmers. This requires extensive networks of claims adjusters who assess
individual losses following an event. This type of insurance is referred to as indemnity-based insurance.
Recently, index-based schemes for slow-onset events have emerged. Index-based insurance is distinguishedfrom indemnity-based insurance in that it features contracts written against a physical trigger (parametricinsurance), such as rainfall measured at a regional weather station. These schemes may offer a viable
alternative to traditional crop insurance, which has failed in many countries, mainly because of the high costs
associated with settling claims on a case-by-case basis.
Index-based crop-insurance contracts are sold in standard units by rural development banks, farmcooperatives, or microfinance organizations, and the “premium” varies from crop to crop. As payouts are not11

coupled with individual loss experience, farmers have an incentive to engage in loss-reduction measures, forexample, by switching to a more robust crop variant.
Delivery models
Full-service model: Commercial or public insurers provide the full range of insurance services from the initialdevelopment of the product, through distribution, to absorbing the risk.
Partner–agent model: Commercial or public insurers, together with microfinance institutions or
nongovernmental and other organizations, collaboratively develop the product. The insurer absorbs the risk
and the agent markets the product through its established distribution network. This lowers the cost of
distribution and thus promotes affordability.
Community-based model: Local communities, MFIs, NGOs, and/or cooperatives develop and distribute theproduct, manage the risk pool, and absorb the risk; there is no involvement on the part of commercial
insurers.
Provider model: Banks and other providers of microfinance can directly offer or require insurance contracts.
These are usually coupled with credit, for example, to insure against the risk of default.
Analysis
Microinsurance represents a financial instrument designed to protect the poor against risks, by using
community-based mechanisms that are characteristic of developing countries. By offering a payout in criticalsituations, microinsurance has the potential to avoid costly ways of coping with losses.
The effects of microinsurance are heterogeneous across various studies but reviews also reveal that microinsurance seems to achieve markedly positive results under specific provisions. Our state of knowledge is still
very incomplete and more systematic studies are still needed to precise the conditions under which thepositive impacts occur. Tentatively, the three following conditions seem to prevail. First, the product design
has to be adapted to the local needs of potential clients and particular attention should be given to theimplementation on the field and the distribution channels used. Second, the reviewed evidence for insurance
products highlights the importance of offering high-quality services, especially in the health care providers, inorder to achieve the expected impacts. Finally, precise and practical information should be given to thebeneficiaries to enable higher utilization rates.
The few cases where microinsurance has been implemented were either free or heavily subsidized or offering
insurance along with other benefits such as subsidized credit and technical assistance. In extensively studied
cases in Malawi (Gine & Yang, 2009) and India (Cole, et al., 2013), take up was only 20-30 percent withadopters hedging only a very small fraction of agricultural income. Take up among farmers not explicitly
targeted in these programs was much lower. There are, however, recent exceptions, with Karlan et al. (2013)
reporting a 40-50 percent take up at fair price plus a 50 percent loading in Ghana, and insurance inducing an

12increase in investment in cultivation. In this case, experiencing insurance payouts either oneself or throughsocial networks was an important determinant of demand. Low uptake remains a challenge in other cases.
Impact evaluations of index microinsurance focus on changes in ex-post shock coping or in ex-ante risk
management. While few rigorous evaluations are available, results tend to show positive outcomes. Focusing
on ex-post shock coping, Janzen and Carter (2019) show that access to IBLI, an index-based drought
insurance for livestock in Northern Kenya, helps them reduce both asset smoothing and consumption
smoothing, two key dimensions of self-insurance. Impact is selective according to wealth position. Poor
households are less likely to have to destabilize their consumption in response to drought, while richhouseholds are less likely to have to compromise their accumulated assets. Insured households are observed
to be less dependent on food aid and other forms of assistance, indicating their better ability to cope withshocks. The use of insurance may also encourage investment in higher risk activities with higher expected
profits.
The insurance market for individuals and businesses in the Pacific is served by 30+ companies (PFIP 2013).
The bulk of PFIP’s microinsurance focus has been on life insurance type products. The companies providing
this product tend to be small; they have no independent financial security rating and pass on their highadministrative costs to the consumer in the form of higher premiums. PICs are price takers when accessing
insurance, as the market is small and has high exposure to catastrophic events relative to premium incomes.
The mean penetration rate for Pacific countries for which data could be obtained was 1.6 percent (Lucas,2015), which is considerably less than the rate in Australia (2.2 percent), half the rate of the European Union(3.1 percent), and about one-quarter the rate of the US (6.0 percent). Most of this insurance is concentrated in
the commercial sector, with household insurance figures even lower.
Currently, only 1 percent of households and 3 percent of businesses in low- and middle-income countries,
respectively, have insurance coverage against catastrophe risks, compared with 30 percent in high-income
countries (Munich Re, 2005). Instead of insurance, the poor often rely on savings, depleting or mortgaging
their land and assets, emergency loans from microcredit institutions, or money lenders. Alternatively, they rely
on family support, which can be overwhelmed by catastrophes that affect people simultaneously throughout aregion or country (referred to as covariant risk).
Finally, it is worth noting that migrants from the islands who are living and working in Australia, New
Zealand or other developed countries play a critical role in smoothing consumption shocks after natural
disasters. The Pacific Labour Scheme low-skill work visa program is a form of disaster risk insurance for the
PICs. Data from around the world shows that remittances are a form of disaster insurance. Yang and Choi(2007) show that Filipino households with migrants use remittances to insure against negative weather
shocks. Using worldwide data, Yang (2008) shows that remittances rise in response to hurricane damage inthe home country, a form of disaster insurance.

135. Pacific Islands Schemes
There are several schemes that aim to develop insurance products and/or provide credit lines for the Pacific;
many of these are described below. Four general observations from reviewing these schemes:
Demand: Overall, there is little to no discussion of demand from PIC governments. It is likely that many ofthe proposed insurance schemes will need to be subsidized for governments to afford them. Governments
will also have to make choices across the various schemes. Demand will also be driven by the extent to whichbasis risk is addressed—if basis risk is high, governments are not likely to trust financial products overtraditional forms of aid. It is important that donors find a way to assess demand and to be transparent about
the level of demand.
Coordination: The Pacific Islands Forum Secretariat and other relevant entities must keep track of the various
products and schemes as they start to lend money or sell insurance products. Several schemes have similar
products and pooling of resources might be of more benefit than separately administered schemes. This pointis recognized by some schemes, but in general, donor coordination is something that needs to be addressed.
Overall indebtedness: As countries access multiple sources of funds and credit lines, each must keep careful trackof overall levels of indebtedness. The PIFS can play an important role here as well. For countries that are
already heavily aid-dependent, the possibility of debt distress is very real.
Transparency: Several schemes mention developing products with the private sector and/or providing
guarantees to private sector entities. These are welcome but donors and governments need to be transparent
if public funds are being used for concessional financing or other subsidies to benefit private sector insurancecompanies or private firms. One option is for funds to be put into a trust; insurance contracts written against
the money in the trust must be transparent in all aspects including premium costs, exposure and associatedfees. Within a defined timeframe, if the scheme does not work out due to low demand or other factors, thefund can be liquidated, and the money returned to the donors.

Pacific Catastrophe Risk Financing and Insurance Initiative
PCRAFI is a multi-donor initiative that aims to provide Pacific Island Countries (PICs) with disaster risk
modeling and assessment tools as well as integrated financial solutions to the challenges posed by natural
disasters and climate change. 3 PCRAFI helped lay the groundwork for the Pacific Catastrophe Risk Insurance
Company (PCRIC), which is a captive insurance company (Devex, 2019). Also associated with PCRAFI is the
Pacific Disaster Risk Assessment Project, which provides 15 countries with disaster risk assessment tools to
help them model vulnerabilities related to natural disasters.

3 Description from the PCRAFI Website

14

Insurance to governments is provided through PCRIC which is headquartered in the Cook Islands. Currently,
four countries are subscribed to PCRIC—the Cook Islands, Samoa, Tonga and the Marshall Islands. The
Solomon Islands, originally a member, withdrew in the test phase.
Key components
Pacific Risk Information System (PacRIS): PacRIS is a platform that helps the PICs and their partners better
understand and assess countries’ exposure to natural disasters and provide unique and relevant information
for their physical and financial management of natural disasters. This is to help build capacity andpreparedness of PICs to predict and mitigate disaster risk. It has subsequently been used to inform urban
planning as well as to support the development of the PCRAFI insurance program. PacRIS contains detailed,country-specific information on assets, population, hazards, and risks. The exposure database leverages
remote sensing analyses, field visits, and country specific datasets to characterize buildings (residential,commercial, and industrial), major infrastructure (such as roads, bridges, airports, ports, and utility assets),
major crops, and population. It also has a comprehensive regional historical hazard catalogue (115,000
earthquake and 2,500 tropical cyclone events) and historical loss database for major disasters. PacRIS iscurrently being updated.
Disaster Risk Financing: The Pacific DRF Program enables countries to increase their financial resilience against
natural disasters by improving their capacity to meet post-disaster funding needs without compromising theirfiscal balance. This program is built upon a three-tiered approach to disaster risk financing.
i.

Self-retention, such as a contingency budget and national reserves, to finance small but
recurrent disasters;ii.

A contingent credit mechanism for less frequent but more severe events; andiii.

Disaster risk transfer (such as insurance) to cover major natural disasters. This insurance
mechanism is modelled on the Caribbean Catastrophe Risk Insurance Facility (CCRIF, see
next section) which has helped improved financial resilience for small island developing
states in the Caribbean. The main features of this insurance scheme are as follows:a.

The DRFI allows participating countries to pool their country- specific risks into
one, better-diversified portfolio.

b. Index-based (or parametric) insurance instruments pay claims based on theoccurrence of a pre-defined event rather than an assessment of actual losses on the
ground. This measurement, made remotely by an independent agency, allows fortransparent, low settlement costs and quick-disbursing contracts.

15

Limitations of PCRAFI
Low demand: Only five of the fifteen eligible islands joined PCRIC; one of these (Solomon Islands) withdrew
in the test phase. Currently, the four clients are the Cook Islands, Samoa, Tonga and the Republic of the
Marshall Islands. It appears that Vanuatu will not be renewing its coverage through PCRIC; however, Fiji has
recently joined the Council of Members. Creating demand for insurance products is an ongoing challenge,
and not just for PCRIC. Premiums for insurance products are high and the quantum of payouts is low—
PCRIC has made only three payouts—to Tonga in 2014 following Cyclone Ian ($1.2 million), to Tonga again
in 2018 after Cyclone Gita ($3.5 million) and to Vanuatu in 2015 after Cyclone Pam ($1.9 million). 4
Affordability of premiums: It is difficult to expect countries that are heavily aid-dependent to invest in marketbased insurance models and meet the high cost of insurance premiums. Optimism about the viability of amarket-based model has given way to the realization that subsidies to premiums are likely to continue forsome years. In 2017, the World Bank was optimistic about moving to a market-based model where premiums
would be paid by the member countries of PCRIC. But it was also cautious about their ability to finance theirpremiums, saying that “market-based catastrophe risk insurance solutions are very new for the PICs and marka major shift in the public financial management of natural disasters” and that “their ability to finance theirpremium remains a challenge moving forward” (World Bank, PCRAFI Project Appraisal Document,
February 2017).
Premiums are currently financed by IDA to the tune of $500,000 per year for each of three countries--theMarshall Islands, Samoa and Tonga. Each pays about $60,000 each from their national budgets. The Cook
Islands pays the full premium of $100,000 from its own funds. PCRIC was initially structured so thatpremiums were subsidized for three years by IDA; in FY19, additional IDA funds were secured to pay
premiums for five years, with the goal of progressively increasing contributions from governments. PCRIC iscurrently capitalized at $24.8 million. Table 4 lays out the full schedule of payments and coverage for thecurrent season. Of the $1.78 m in premiums, $1.5 million is covered by IDA.

4 The point about premiums being high is about affordability rather than pricing – pricing is determined by a hazard model whichsuggests a certain frequency of loss, the PIC picks the premium level and the insurance provider calculates the exposure that can bebought for that amount. Most insurers use hazard models to estimate premiums. For pricing, the main issue is how high the risk isestimated to be vs what PIC’s think it is (and given the lack of detailed modelling in the region given its scale – there is no guarantee
the hazard model is not conservative).

16

Table 4. Estimated premium payments and coverage limits of PCRICCountry

Event

Premium

Averageannualloss(US$)

Attachment
point (US$)

Coverage
limit(US$ m)MarshallIslands

Tropical Cyclone

560,000

414,815780,000

10.20

Samoa

Cyclone369,600

273,778

2,624,000

9.73

Earthquake/tsunami

190,400

141,037

1,106,000

5.98

Tropical Cyclone

280,000

207,4074,806,000

3.53

Earthquake/tsunami 280,000

207,407724,000

3.85

Tropical Cyclone

100,000

74,074

1,571,000

3.03

1,780,000

1,318,519

Tonga

Cook
Islands
TOTAL

36.32

Source: World Bank (2019)

Limits of parametric triggers: Although parametric triggers allow for rapid claims settlement, they lack theflexibility of softer triggers (like a declaration of natural disasters by the national or local government).
Parametric triggers limit the ability of PICs to claim damages from disasters that are costly but just below thetrigger criteria. In 2015 the Solomon Islands pulled out of PCRIC due to the lack of payouts after two natural
disasters. Parametric triggers were set too high to enable a payout in the aftermath of an earthquake in 2013.
The Solomon Islands were again deemed ineligible after flooding due to heavy rains in 2014; a payout was notpossible because the flooding was unrelated to a cyclone. PCRIC covers cyclones while excess rainfall issometimes the greater problem in the Solomon Islands, the Marshall Islands and other places. All countries
weigh the cost of insurance relative to the benefits; if the latter are perceived to be low or non-existent, it isunlikely that countries will continue their participation.
All disaster losses are not covered: The DRF is not designed to cover the government against all disaster losses;
instead, it is intended to cover some portion of the losses from major disasters of certain types. Therefore,

17there may be a difference between expectations and outcome; this type of basis risk is difficult to manage but
must be identified and quantified to manage expectations and preserve demand for insurance products.
Logistical constraints and donor reset: PCRIC is based in the Cook Islands, and functions under a captive insurance
license. PCRIC is structured as a special purpose vehicle, authorized by the government of the Cook Islands,
in order to function as a multi-jurisdictional entity. PCRIC has had some challenges—in its four years ofexistence, it has had a CEO in place for only 10 months. A board has recently been put in place and a new
board chair has been appointed. In 2019, the four major donors of PCRIC—the United States, the United
Kingdom, Germany and Japan--decided to do a reset of the entire project. In connection with this, the WorldBank is currently carrying out a mid-term review with a view to restructuring the company to provide a wider
range of products. Simultaneously, PCRIC is also exploring a “segregated cell” model, in collaboration with
the Asian Development Bank and the World Bank, that would enable it to provide disaster risk financing andinsurance to private entities.
Traill et al (2019) note that PCRIC has faced challenges in presenting itself as a comprehensive solution.
However, part of the issue is that PCRIC has only operated as a company for three seasons, and only had a
CEO for 10 months and a full governance board for six months. Traill et al are hopeful that PCRIC will beable to “refresh its strategic priorities” and particularly focus on becoming a segregated cell company in orderto accommodate new portfolios (such as pilot portfolios in excess rainfall, mutual insurance funds, andclimate change-based insurance) without risking existing capital. The Cook Islands will need to review andpass legislation to establish a segregated cell company and other regulatory and supervisory controls. PCRIC
is currently at work on product development for an excess rainfall index which will be a valuable addition to
its portfolio of activity.

Pacific Financial Inclusion Programme (PFIP)
Jointly administered by the United Nations Capital Development Fund and the United Nations Development
Programme, PFIP, which began in 2014, aims to help low-income Pacific Islanders access financial services
and financial education. It does this by helping financial services providers develop innovative products andservices for mass-market consumers, supporting governments to create an environment that enables suchinnovation and empowers consumers (UNDP, 2019). PFIP has historically engaged with the private sector
with a focus on mobile banking and life insurance products. It has only recently entered the market fordisaster insurance. Traill et al (2019) suggest that PFIP’s product line be enhanced by working with Pacificprivate insurance companies to ensure that products are “sustainable and support risk reduction investment
as well as sustainable levels of coverage.”
PFIP is currently conducting a feasibility study in partnership with the Munich Climate Insurance Initiative todetermine whether a product like the Caribbean Livelihood Protection Plan, which aims to cover financial
losses, while helping with repairs to low-value assets, might be helpful for communities in Tonga. PCRIC is
also being considered as a possible facility for the product. The feasibility study also allows for PFIP toaccelerate its Disaster Resilience for Pacific Small Island Developing States (RESPAC) program and in the18

course of this review, get a clearer idea of micro-insurance needs for disaster damage and livelihood
protection.

Pacific Resilience Facility (PRF)
Discussed and approved during the 2018 Economic Ministers Meeting of the Pacific Islands Forum(FEMM), the PRF aims to help finance resilient infrastructure and strengthen strategic partnerships withdonors and development partners, while also building capacity in terms of national disaster risk budgeting andfinancing (Delia, 2018). The PRF is a fairly new initiative that is under development, as seen in a publishedtender ending on November 2018 for companies to carry out technical work such as designing products(2018).
The goal of the PRF is to establish a regional facility to coordinate and channel investment opportunities, andto build linkages between regional organizations and risk pools. The PRF offers an opportunity for closer
links between regional product development, including insurance products and other forms of financing forreconstruction.
A structure has been proposed for the PRF, based on consultations with stakeholders from government,
private sector, and community groups/civil society organizations (CSOs). Initially capitalized throughmember contributions and other sources, the PRF aims to grow its capital base over time through income
from investments and further contributions from members or donors to become a grant-making facility. It
will be governed by a Council of Members, a Board, and a management team.
Traill et al (2019) argue that the PRF represents an opportunity to connect project financing and insurance, sothat assets financed by the PRF are also protected from disasters. Projects funded by the PRF would need tobe linked to a national infrastructure development plan and satisfy PRF requirements for climate
preparedness.

Pacific Islands Climate Change Insurance Facility (PICCIF)
Discussed during the 2018 FEMM, PICCIF did not however acquire the resources necessary for it to belaunched; it is expected that Tuvalu will propose it during the August 2019 meetings as a country initiative.
Since 2018, a taskforce has sought to develop the concept further and identify funding partners, and it isexpected that a funding agreement will be signed (the report is from April 2019, so it is not clear if such an
agreement was reached). PICCIF is associated with the government of Tuvalu, which first proposed it, and isdesigned to insure against challenges related to climate change beyond disaster risk (such as slow-onset andextreme weather events) and generate financing for climate change insurance (Pacific Island Forum
Secretariat, 2019).

19

Pacific Resilience Programme (PREP)
Run by the World Bank and funded through IDA, PREP is a series of projects aimed at strengthening PIC
resilience to natural disasters through working on areas such as early warning and preparedness; retrofitting
public assets to meet international standards on resilience; creating a framework for “smarter investment inresilience activities”; and promoting financial resilience through providing an immediate post-disaster cash
injection to help recovery (World Bank, 2015). This cash injection provision was part of the consolidation of
PCRAFI and other relevant World Bank projects under the Pacific Resilience Plan, also abbreviated as PREP,
which I believe may be the same project, and which is referenced in a World Bank factsheet on PCRAFI II.
When it was launched in 2016, it began work on improved early warning systems for Tonga and Samoa andpreparing tools to promote PIC financial resilience (PCRAFI, 2016). The World Bank is investigating thepossibility of adding drought and volcano related topics to their early warning systems projects under PREP
and PCRAFI.

Pacific Disaster Resilience Programme (PDRP)PDRP, which was launched by the Asian Development Bank in 2017, provides policy-based loans and grants,
as well as technical assistance, to PICs. This is designed to both provide a quick-disbursing, predictable sourceof financing for post-disaster recovery, as well as to assist countries with undertaking priority actions related
to disaster risk management. One of the stated goals of PDRP is to address challenges that might requireresources greater than those available in emergency funds, but which are not covered cost-effectively byinsurance. It also aims to promote regional collaboration and experience sharing between PICs (AsianDevelopment Bank, 2017). The program began with Samoa, Tonga, and Tuvalu, and a second phase has been
proposed, adding four more countries and replenishing disaster contingent financing for Tonga (Asian
Deveopment Bank, 2019).
PDRP currently offers a contingent credit product funded by national and regional development grants that
operates like a Contingent Emergency Resource Component (CERC), the ADB would like to direct thesefunds into a regional savings fund to allow for greater donor engagement. This fund would likely be located at
PCRIC (or possibly PRF). However, the delays in PCRIC establishing segregated cell structures have
prevented this fund from being established; the Cook Islands is yet to draft the necessary legislation. Finally,
PREP and PDRP have considered mutual fund products such as a mutual insurance fund or a mutual savings
fund, which could be funded through PCRAFI, PREP, or possibly PDRP.

Drua Incubator
Launched by the Government of Fiji in 2017 with initial funding from the Government of Luxembourg, thePacific Climate Finance and Insurance Incubator (also known as the Drua Incubator) aims to bring together
prominent figures in banking and finance to develop new financial products that are appropriate for PICs andPacific Island communities dealing with the effects of climate change. In doing so, it seeks to address the factthat many existing products have excessively stringent compliance requirements, making them unaffordable

20

for PICs. Drua aims to develop more affordable sources of insurance, including for the agricultural sector
which is facing the brunt of climate change (COP23 Fiji, 2017).
The Pacific Islands Forum Secretariat already plays a critical role in promoting regional cohesion across all ofthese initiatives. It will be necessary for the PIFS to bring clarity to the various different projects such as
PCRAFI, PRF, PICCIF, Drua and others.

Fiji Effective Householders Protection
In the aftermath of devastating cyclones (TC Winston and TC Gita), the Fiji government has explored thepossibility of insuring the housing stock. The challenge is to insure housing that is not resilient; the lower
quality of construction has meant that traditional insurers have not been attracted to the market. The WorldBank and the International Finance Corporation, together with the Fiji government, is looking at developing
two household products—a parametric based household insurance product (“the livelihood product”) and ahousehold indemnity product (“the bronze product”). Fiji has recently become a member of the Council ofMembers of PCRIC and PCRIC may play a role by providing reinsurance for both products. 5 For the latter,
PCRIC will need to obtain approval to change its structure to a segregated cell company.

Pilot Programme for Climate Resilience (PPCR)
PPCR, which is a program of the Strategic Climate Fund, one of the two funds in the Climate Investment
Funds framework, was made operational in 2008 and provides funding for technical assistance for countries
to incorporate climate resilience into national development plans, as well as funding for public or private
investments identified in national or sectoral development plans. Participating countries must be ODAeligible and have active MDB country programs, with preference given to highly vulnerable countries eligible
for concessional funds, such as Small Island Developing States, which includes several PICs (Pilot Programfor Climate Resilience, 2012). Unlike many of the other projects here, this is not Pacific-specific, although a
Pacific regional program does exist within the framework.

Private Sector Development Initiative (PSDI)
A technical assistance program run by the Asian Development Bank since 2006 with the aim of improving
the business environment in Pacific Developing Member Countries, PSDI is currently in its third phase. The
current phase is particularly focused on “competition policy and the economic empowerment of women”;
previous phases emphasized “business law reform”, “improving access to financial services”, and reform ofstate-owned enterprises and public-private partnerships (Asian Development Bank, 2013). Unlike the other

5 PCRIC has provided a quote for premiums to the Government of Fiji for the livelihood product; the government has indicatedthat it will not be able to purchase coverage until the next financial year. Technical design for the bronze product is ongoing.

21

projects here, this is not disaster or climate change specific, although its activities are likely relevant to thoseissues.

Pacific Resilience Partnership (PRP)
Associated with the Pacific Islands Forum, to which it reports, the PRP was established in 2017 and designed
to bring together stakeholders in climate change, disaster risk management, and sustainable development tosupport the implementation of the Framework for Resilient Development in the Pacific. The PRP aims tofacilitate experience-sharing, promote linkages between all levels of implementation, promote regional
cooperation, support monitoring and evaluation, and identify and address gaps and strengthen linkages
relating to other climate policy frameworks such as the Paris Agreement on Climate Change. A key goal of
the PRP is to involve a variety of groups promoting resilience, not just government stakeholders (PacificResilience Partnership, 2017).

International Federation of Red Cross and Red Crescent Societies (IFRC) Climate Center
Traill et al (2019) points to the fact that the IFRC climate center has been a pioneer in terms of using
forecast-based financing, which uses parametric triggers to open an ‘anticipatory window’ into the emergency
fund for national Red Cross societies. While the IFRC has not been very involved in the Pacific region, it
appears that a working group is being established around forecast-based financing.

Fiji Early Pension Withdrawal Scheme
In the wake of Cyclone Winston in 2016, the Fiji government allowed pre-retirement pension withdrawals asa way to smooth consumption and rebuild assets. Pension fund members were allowed to withdraw up to
F$6000 as long as it was within the cumulative cap on withdrawals of 30 percent of the total. About 180,000
applications were approved and the average amount withdrawn was F$1510 (US $750).
A recent paper by the IMF evaluates this action in light of a life-cycle savings model with myopic households
facing large shocks from natural disasters. The IMF model highlights the tradeoff between building up
sufficient retirement savings and ensuring access to savings in the aftermath of a disaster (Guo and Narita
IMF, 2018). The authors make an interesting observation—pension funds can be usefully used if the early
withdrawal scheme is carefully managed. In other words, if the withdrawal amount is not too generous, a onetime early withdrawal can improve welfare. It can also reduce the burden of precautionary savings. Finally, theauthors argue that the welfare costs of increasing the mandatory contribution is low and there might be room
to increase the rate of mandatory contribution. However, it is worth noting that Fiji’s mandatory contribution
rate is the highest in the region.
There is scope to broaden this scheme. Most Pacific Islands countries have national defined contribution
pension schemes. Vanuatu has also allowed early withdrawals; in the aftermath of Cyclone Pam, 40,000
members were allowed to withdraw up to 20 percent of their retirement savings. The success of these22schemes will lie in recognizing the tradeoff between retirement and consumption-smoothing, as highlighted
in the IMF paper and in managing expectations around what is possible in the aftermath of a natural disaster.

World Bank Catastrophe Deferred Drawdown Option (CAT-DDO)
In order to develop and enhance the capacity of developing countries to manage natural hazard risks theWorld Bank has recently introduced a new cost-efficient emergency relief instrument; a Development Policy
Loan with a Deferred Drawdown Option for Catastrophe risks (Cat DDO). This contingent financing linethat provides immediate liquidity to countries to address shocks related to natural disasters and serves as earlyfinancing while funds from other sources such as bilateral aid or reconstruction loans are being mobilized(World Bank, 2018).
Funds become available for disbursement after the drawdown trigger – typically the member country’s
declaration of a state of emergency – is met. The Cat DDO instrument requires a country to improve its exante disaster preparedness by putting into place an country macroeconomic policy framework and disasterrisk management program (IPCC, 2018). The World Bank periodically monitors a country’s compliance toensure the cost of future disasters is contained. Cat DDO programs have been successfully implemented in
Colombia and Costa Rica but it remains to be seen how effective these would be in the Pacific setting.
Recently Samoa has revised building codes and improved its multi-hazard systems in preparation for a Cat
DDO instrument (GFDRR, 2017).

Global Risk Financing Facility
The Global Risk Financing Facility (GRiF) is a new initiative which plans to “strengthen financial resilience ofvulnerable countries by enabling earlier and more reliable response and recovery to climate and disastershocks, and over time to a wider range of crises, through establishing or scaling up pre-arranged risk
financing instruments, including market-based instruments like insurance. It will focus on helping poor andvulnerable people, and the economy, services and infrastructure they depend on, to recover more quickly
when a disaster strikes.”
GRiF will be supported by and build on the work of existing programs, including the InsuResilience Climate
Risk Financing and Insurance Program MDTF jointly established by BMZ, DFID and the World Bank, theCentre for Global Disaster Protection jointly established by DFID and the World Bank, and InsuResilience
Solutions Fund jointly established by BMZ and KFW. These programs currently form the Program Allianceof the InsuResilience Global Partnership.
Activities to be financed by GRiF include:
1. insurance premium financing, e.g., for the payment of risk transfer instruments;
2. contingent financing, e.g., through the provision of concessional credits to complement risk transfer
solutions;23

3. risk financing investments, e.g., investment in start-up or operating costs and capital for risk pools;
4. integrating risk transfer with loans to pilot new approaches to support debt sustainability in the faceof extreme events;
5. risk financing mechanisms that promote parallel improvements in country systems for crisis response
and recovery;
6. technical assistance and capacity building where this is not yet covered by other programs.
GRiF will be implemented by the World Bank, the Global Facility for Disaster Reduction and Recovery(GFDRR) and select implementing partners. GRiF funding will be channeled through the World Bank or
select implementing partners such as regional development banks. GRiF plans to work with PCRAFI/PCRIC
and other regional initiatives in the Pacific.

6. Other Relevant Insurance Schemes for the Pacific Islands
Several schemes outside of the Pacific region are worthy of review. Many of these are being implemented incountries that are very different than the Pacific Islands. However, there are elements in each of the schemes
described below that may be of relevance to disaster risk finance in the Pacific Islands. The best functioning
scheme is probably the Caribbean Catastrophe Risk Insurance Facility (CCRIF).

Caribbean Catastrophe Risk Insurance Facility 6
CCRIF SPC is a segregated portfolio company, owned, operated and registered in the Caribbean. It limits thefinancial impact of catastrophic hurricanes, earthquakes and excess rainfall events to Caribbean and—since
2015—Central American governments by quickly providing short-term liquidity when a parametric insurance
policy is triggered. It is the world’s first regional fund utilizing parametric insurance, giving member
governments the unique opportunity to purchase earthquake, hurricane and excess rainfall catastrophe
coverage with lowest-possible pricing.
In 2007, the Caribbean Catastrophe Risk Insurance Facility was formed as the first multi-country risk pool in
the world and was the first insurance instrument to successfully develop parametric policies backed by bothtraditional and capital markets. It was designed as a regional catastrophe fund for Caribbean governments tolimit the financial impact of devastating hurricanes and earthquakes by quickly providing financial liquidity
when a policy is triggered.
In 2014, the facility was restructured into a segregated portfolio company (SPC) to facilitate expansion into
new products and geographic areas and is now named CCRIF SPC. The new structure, in which products are

6 This description of CCRIF is taken directly from its website.

24

offered through a number of segregated portfolios, allows for total segregation of risk. In April 2015, CCRIF
signed an MOU with COSEFIN - the Council of Ministers of Finance of Central America, Panama and theDominican Republic - to enable Central American countries to formally join the facility.
CCRIF SPC is registered in the Cayman Islands and operates as a virtual organization, supported by a
network of service providers covering the areas of risk management, risk modelling, captive management,
reinsurance, reinsurance brokerage, asset management, technical assistance, corporate communications andinformation technology. CCRIF offers earthquake, tropical cyclone and excess rainfall policies to Caribbean
and Central American governments.
CCRIF helps to mitigate the short-term cash flow problems small developing economies suffer after major
natural disasters. CCRIF’s parametric insurance mechanism allows it to provide rapid payouts to help
members finance their initial disaster response and maintain basic government functions after a catastrophic
event.
Since the inception of CCRIF in 2007, the facility has made 38 payouts to 13 member governments on their
tropical cyclone, earthquake and excess rainfall policies totalling almost US$139 million. Also, CCRIF has
made 7 payments totalling almost US$700,000 under member governments’ Aggregated Deductible Cover(ADC).
The ADC is a new policy feature for tropical cyclone and earthquake policies introduced in the 2017/2018
policy year. The ADC was designed to be akin to a dedicated reserve fund providing a minimum payment forevents that are objectively not sufficient to trigger a CCRIF policy, because the modelled loss is below theattachment point.
CCRIF was developed under the technical leadership of the World Bank and with a grant from theGovernment of Japan. It was capitalized through contributions to a Multi-Donor Trust Fund (MDTF) by theGovernment of Canada, the European Union, the World Bank, the governments of the United Kingdom andFrance, the Caribbean Development Bank and the governments of Ireland and Bermuda, as well as throughmembership fees paid by participating governments.
In 2014, another MDTF was established by the World Bank to support the development of CCRIF SPC’s
new products for current and potential members,and facilitate the entry for Central American countries andadditional Caribbean countries. The MDTF currently channels funds from various donors, including: Canada,through Global Affairs Canada; the United States, through the Department of the Treasury; the European
Union, through the European Commission; Germany, through the Federal Ministry for Economic
Cooperation and Development and KfW; and Ireland. In 2017, the Caribbean Development Bank, withresources provided by Mexico, approved a grant to CCRIF SPC to provide enhanced insurance coverage tothe Bank’s Borrowing Member Countries.

25

Nineteen Caribbean governments are currently members of the facility: Anguilla, Antigua & Barbuda,
Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Grenada, Haiti,
Jamaica, Montserrat, St. Kitts & Nevis, Saint Lucia, Sint Maarten, St. Vincent & the Grenadines, Trinidad &Tobago and Turks & Caicos Islands. Two Central American governments are currently members of the
facility: Nicaragua and Panama.

Africa Risk Capacity (ARC) Replica
The African Risk Capacity (ARC) provides index insurance against droughts to African Union member states.
As a distinctive feature of ARC, participating governments have to prepare contingency plans prior to taking
out insurance. These plans determine how insurance payouts will be used when the insurance is triggered. By
combining early warning and contingency planning with an insurance mechanism, ARC provides liquidity
shortly after a catastrophic event, while the pre-planned activities ensure that payouts are used quickly andeffectively, mitigating the detrimental impacts of disasters for the poor and vulnerable. Currently, ARC isdeveloping two new insurance products against floods and tropical cyclones.
ARC is piloting a new financing instrument – the Africa Risk Capacity (ARC) Replica – an insurance
mechanism designed to release funds early, quickly and predictably in humanitarian emergencies.
This financing instrument is underpinned by:•

Science-based risk modelling to understand the emergency in areas of operation;•

Contingency planning aimed at mitigating the impact of disasters on vulnerable communities; and•Pre-positioned funding for immediate humanitarian response.

As an insurance risk pool, ARC’s objective is to capitalize on the natural diversification of weather risk across
Africa, allowing countries to manage their risk as a group in a financially efficient manner in order to respondto probable but uncertain risks. These techniques, while not new, can be applied by African countries ininnovative ways to lower the cost of the response to disasters, before they become humanitarian crises, andprovide better services to those affected.
The initial capital comes from participating countries’ premiums as well as one-time partner contributions.
ARC works with countries to calculate country premiums and allocate payouts to member countries based on
predetermined and transparent rules for payment. Countries select the level at which they wish to participate
by selecting the amount of risk they wish to retain and financing they would want from ARC for droughts ofvarying severity. (ARC will provide coverage for other hazards, including floods, at a later date.)
Operations plans, which are meant to optimize ARC disbursements, are a prerequisite for participation andtake into account existing mechanisms, priorities and needs of each participating government. These plans are26

evaluated by the ARC Board’s Peer Review Mechanism according to standards set by the Conference of theParties. The pool reinsures itself as well as benefits from investment income so that builds and protects thecapital available for coverage to member governments.

The Turkish Catastrophe Insurance Pool
The recently launched TCIP is the ﬁrst of its kind to tackle the problem of insurance affordability in a
middle-income developing country and couple it with incentives for disaster prevention. The city of Istanbul
faces an estimated 0.41 probability of a severe earthquake over the 30-year period from 2004 to 2034
(Parsons, 2004).
In response to this risk, earthquake insurance policies are now obligatory for all urban property owners, who
pay a fee based in part on their risk-reduction measures, such as retroﬁtting their apartment buildings, to a
privately administered, public fund. In effect, there is now a partnership between the government and theprivate sector in providing security for earthquake risks throughout the country.
This partnership extends beyond the government and the private insurance market to include an international
ﬁnancial institution. To reduce premiums and make the system viable, the World Bank provides support by
reinsuring two layers of the TCIP risk in the form of a contingent loan facility with highly favorable
conditions and contingent on the occurrence of a major disaster (Gurenko, 2006). Arguably, without this lowcost reinsurance, the premiums would not be affordable for many in this middle-income developing country.
This insurance scheme highlights the role of the World Bank in subsidizing insurance schemes in developing
countries.

The Andhra Pradesh disaster microinsurance scheme (India)
In India’s coastal Andhra Pradesh region, microinsurance services are provided since 2004 as part of theregion’s disaster preparedness program. Life insurance policies that include natural disaster risks are offeredto vulnerable families by the Oriental Insurance Company, a proﬁt-oriented, but publicly owned insurer.
Coverage for risks of ﬂoods, landslide, rockslide, earthquakes, cyclone, and other natural calamities isavailable to groups of women in the age of 10–75 years and with a minimum size of 250members. The
premium ranges between 100 and 150Rupees (approximately 2–3 Euro) (Krishna, 2005).
Insurance premiums are kept low by offering only minimal cover and dealing with organized women groups,
thus limiting transaction costs. Still, to help the operation get underway, the international NGO Oxfam UK
paid 50 percent of the premium in the ﬁrst year. Insurers have also made insurance affordable to poor
communities with cross subsidies from their other lines of business and wealthier clients in order to meetgovernment regulatory standards.

27

Contributing even further to the low premium, additional support for the system comes from OXFAMtrained village disaster management volunteers, who act as insurance agents by carrying out contract
preparation and claims handling and thus lowering transaction costs even further. Coverage under thisscheme is extended currently to more than 1000 vulnerable families, and since 2002 more than 80 insurance
claims have been reported and settled, including damages to property from natural events (Krishna, 2005).
However, there have been no major catastrophes in the insured region. It should also be kept in mind that
this is only a small pilot system. Scaling up would put more stress on the program, requiring considerably
more backup capital or reinsurance.

Proshika and the Participatory Livestock Compensation Fund (Bangladesh)
One of the largest NGOs and MFIs in the world with more than 2 million clients, Proshika offers theParticipatory Livestock Compensation Fund (PLCF). The PLCF was introduced in 1990 and covers the loss
caused by sudden death of farm animals and poultry, specifically cattle, goats and chickens. Each group of
borrowers contributes 3 percent of the purchase value of the animals to this fund and in case of death thewhole purchase value is compensated. This scheme experienced wide-scale defaults during the 1988 massive
floods that affected 73 million people, more than half the population of Bangladesh (CRED, 2007). As a
response to the disaster, in 1991 a natural disaster management program was established, and since 1997
compulsory group-based insurance is included. Under this program 2 percent of the savings balance isannually transferred to a fund, which will pay twice the amount of the savings deposit in the case of property
damages due to disasters, while savings stay intact. In the life policy component, a minimum of twice thesavings balance will be paid out depending on the years of membership in the savings scheme -- theoutstanding loan will be recovered (ILO, 2005). With more than two million clients in 20,000 villages and2000 slums in 57 districts of the country, this insurance fund has wide geographic diversification. The
experience of the Proshika scheme and similar other programmes have led many observers to recommend
the partner-agent model, where commercial insurers play an important role (Linnerooth-Bayer & Mechler,2007).

Afat Vimo (India)
Since 2004, an NGO called the All India Disaster Mitigation Institute (AIDMI) has been offering a disasterinsurance program, Afat Vimo, covering households and small businesses for 19 different types of disasters,
including floods, earthquakes, cyclones, fires and riots. Currently covering 6,000 clients—mostly men andwomen running small enterprises—it is planned to upscale the scheme to cover an additional 10,000 people
in the next few years. The scheme is backed by two public insurance companies which collaborated closelywith AIDMI in designing the product, setting premiums, determining cover and underwriting the risk.
On average, premiums are approximately 0.5 percent of the clients’ annual income. They are kept affordable
by relying on voluntary help from the NGO administering the Livelihood Relief Fund (LRF) and support
from donors in the form of post-disaster and post-conflict interest-free loans to assure solvency. Because of28

the pro-poor regulatory requirements in India, the public insurers also subsidize premiums of their lowincome clients from insurance in more lucrative markets. Finally, premiums are kept affordable by limiting
cover, leading some observers to claim that the main benefit of Afat Vimo has been to limit the debt that canquickly arise out of a disaster, but not necessarily to provide the poor with needed capital to fully restore theirlivelihoods (Vaux 2007).

Index Based Flood Insurance Pilot (Bangladesh)A pilot project launched in 2013 in one district in Bangladesh provides flood insurance based on water levels
and a hydrodynamic model. Households pay a premium of BDT 824 (USD 10) plus VAT. Floods above
predetermined water levels lasting more than 10 days trigger compensation payments of BDT 2,800 (USD 36)
per household, increasing to a maximum of BDT 8,000 (USD 100) for floods of 26 or more days. The pilot
program covers 1,661 households in 14 villages. The program is designed to distribute payments quickly andto reduce the possibility of human error or tampering (Oxfam, 2013; Oxfam Bangladesh, 2013; Swiss Re,
2013).
The program was initiated by Oxfam, funded by the Swiss Agency for Development and Cooperation, and is
jointly implemented by CIRM Advisory Services (India), Institute of Water Modelling (Bangladesh), Pragati
Insurance Ltd. (Bangladesh), Swiss Re, Manab Mukti Sangstha (Bangladesh) and Palli Karma Sahayak
Foundation (Bangladesh) (Oxfam Bangladesh, 2013). In 2014, the first pay-out from the program was madeto 700 households. Floods in August and September 2014 caused significant damage in several villages, andcompensation was paid on 31 October (Swiss Re, 2014; Oxfam, 2014).

H urricane-Resistant H ome Improvement Program (St. Lucia)
In 1996 the St. Lucia charity, National Research and Development Foundation (NRDF), with assistance from
USAID/OAS and CARITAS, established a home improvement program offering loans for affordable new or
improved existing housing to low-income homeowners, while providing for physical and financial protection
against natural disasters. Within this Hurricane-Resistant Home Improvement Program (HRHIP), minimumbuilding standards were developed for reference by homeowners, and builders and local builders were trainedin safer construction. The services of a trained building inspector were also offered to approve materials foruse in retrofitting and to check whether minimum standards were being observed. Furthermore, a groupinsurance plan, underwritten by a Caribbean subsidiary of a United Kingdom–based insurance company, wasestablished through a St. Lucia broker. The insurance plan covered major natural disasters such as
windstorms, earthquake, floods and sea surge, and volcanic eruptions. Membership of the insurance scheme
was mandatory for recipients of the home improvement loans. Full coverage with a deductible of 2 percent
was specified in the policies. Premium rates ranged from 0.60 percent for concrete block homes to 1.05
percent for homes made of timber. The insurer trained NRDF project officers in property valuation andaccepted these exposure estimates.

29

Between 1996 and November 2002, 345 loans were disbursed within this program, with an average loan sizeof EC$11,000 (approximately US$4,100 in 2002). The majority of these loans (68 percent) were either for
extensions to existing structures or for new structures. The remainder of the loans were for repairs andrenovations, purchase, or relocation of homes. No claim was reported by the scheme, as no major event with
substantial losses hit the country. The program was discontinued in 2002 when the insurance broker went
into liquidation; it was revealed that the insurance premiums had not been passed on to the insurer, causing
the contracts to lapse. Efforts are currently under way to revive the insurance scheme (OAS, 2003a; OAS,
2003b).

PT Asuransi MAIPARK (Indonesia)
In Indonesia, the government has legislated to require industry cooperation in a reinsurance scheme forearthquake risk. Concerns about whether insurers would be able to pay claims in the event of a large
earthquake led to the creation of a national reinsurance company, PT Asuransi MAIPARK, in 2003. All nonlife insurance and reinsurance companies operating in Indonesia are shareholders of the company, which isoperated by the industry. Premiums are charged based on property type and location. Insurance cover isprovided as an extension of standard fire policies. MAIPARK also supports research, public education, andrisk mitigation activities such as supporting work towards safer construction standards and building codes(OECD, 2015a; MAIPARK, 2015).

Europa Re (South-Eastern Europe)
Europa Re is a private reinsurance company established in 2010 to increase access to catastrophe insurance
for households and small and medium enterprises in southeastern Europe. It aims to provide reinsurance forboth indemnity and parametric insurance products as well as technical assistance to insurance companies in
the region (Europa Re, 2015a). In November 2015, the company launched online sales of earthquake
insurance in Albania through a local insurance partner, with expansion to Serbia and Macedonia planned(Europa Re, 2015b).
Europa Re is owned by the governments of Albania, Serbia, and the Former Yugoslav Republic ofMacedonia. It was established with support from the World Bank, the Global Environment Facility, the Swiss
Secretariat for Economic Affairs, and UNISDR Europe (OECD, 2015a). The company is based in
Switzerland (Europa Re, 2015a).

Flood Re (United Kingdom)
In the UK between 2000 and 2013, flood insurance has been available to households in high-risk areas due tovoluntary agreements negotiated between the government and insurance providers, under which, at-risk
properties could be insured as long as the government’s Environment Agency had plans in place to defend
vulnerable areas (OECD, 2015a). These voluntary agreements will be replaced by a reinsurance scheme whichis to begin operating in April 2016. Flood Re is a not-for-profit flood reinsurance fund managed by the30insurance industry. It will have statutory powers intended to help improve affordability of flood insurance inareas at risk. It will impose an industry-wide levy of GBP 180 million (USD 270 million) per year and provide
reinsurance cover to the industry. However, over the next 25 years it is intended that risk mitigation measures
be strengthened, and that the industry should transition to fully risk reflective pricing for flood insurance(Flood Re, 2015).

MicroEnsure (multi-country)
MicroEnsure works with partners across the insurance value chain to develop and deliver affordable
insurance solutions. It tailors its role depending on the needs of its partners, but broadly plays three key roles.
First, MicroEnsure analyzes a country’s market for microinsurance. It then identifies insurance andreinsurance companies and brings them on board to bear the risk of insuring customers. Second,
MicroEnsure mobilizes distribution partners— companies and organizations with high levels of trust among
the poor—to get insurance into the hands of customers. Third, MicroEnsure provides integrated back-officeservices to its insurance and distribution partners, including product design and marketing, risk selection,
underwriting, and pricing.
MicroEnsure mainly subsidizes small-scale farmers but has slowly started introducing disaster insurance aspart of its portfolio. A pilot project in Ghana aims to insure small businesses against fires and other disasters.

7. Conclusion
The PICs are inherently prone to frequent, large natural disasters. The cost of dealing with the aftermath ofthese disasters requires either setting aside large sums of national income in good years or large sums ofexternal support. Given existing levels of dependence on aid, donors will likely have to pick up some of thesecosts whatever the mechanism.
Currently, donors meet costs mostly in the form of disaster relief after the event. This has advantages in thatthe money goes where it’s needed, its disbursements can be supervised, etc. But it also incurs costs--mostly
delays and uncertainty in disbursing money when a disaster happens. Insurance can help to address some ofthese problems by smoothing out payments by donors and PIC governments, but there is also uncertainty
about when and how the insurance pays out. It is important for donors to assess demand for insurance
products and to be transparent about the cost of insurance contracts and related exposure to disasters.
The unique circumstances of PICs suggest that premiums will need to cover payouts and as payouts are
expected to be large, premiums will also be large. Donors will need to subsidize premiums just as they now
subsidize payouts. It is therefore a mistake to characterize insurance schemes as market-based financing.
Donors can assist governments to reduce risk by increasing resilience to shocks. This would entail improving
the quality of infrastructure, building codes etc. This may also translate into lower expected payouts (and31hence lower insurance premiums). Indeed, a well-designed insurance scheme may be able to incentivize
countries to undertake the preparatory work that would increase resilience, by linking premiums to the degreeof resilience preparedness.
Donors and governments must invest in understanding the benefits of the various types of disaster risk
finance and optimize across the available portfolio of products and delivery methods while recognizing thatdifferent communities or industry segments may benefit from these products in different ways. Investments
in data and in data sharing arrangements will go a long way towards maximizing the returns to disaster risk
products.
Even as donors and governments invest in the various schemes described in this paper, it will be essential fora regional body such as the Pacific Islands Forum to keep track of overall levels of indebtedness andencourage all actors to minimize duplication and administrative costs. Debt distress is a real possibility for aregion that is already heavily dependent on aid.
There may be political economy considerations for both PICs and donors to go the private insurance route(rather than the direct payout route) but these need to be explicit and carefully costed. This is especially thecase if public funds are being directed to private companies and/or used to subsidize private insurers or theirclients. As with all public-private partnerships, the design of the scheme has to align incentives, be transparent
about costs and benefits, and promote competition among private providers to maximize value for money for
public resources.

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Appendix 1. Tropical cyclones in the South Pacific, 2010-present
Tropical cyclones are measured on a yearly basis (each year is a season). The South West Pacific region(where the PICs lie) is one of seven divisions in which tropical cyclones are measured..
SeasonTotal
TC's

Strongeststorm

DeathsDamages(USD)

2010–11

7

Wilma

4

$25 million

2011–123

Jasmine13$17.2 million

2012–13

5

Sandra17$161 million

2013–14

6

Ian

12

$48 million

2014–15

6

Pam

16

> $250 million

2015–16

8

Winston50≥ $1.41 billion

2016–17

4

Donna

3

≥ $5 million

2017–18

6

Gita

11

$285 million

2018–19

5

Pola

Totals50

Winston≥ $1.43 million
126≥ $2.2 billion

The top four weather events were as follows:
1. Winston: Severe Tropical Cyclone Winston was the most intense tropical cyclone in the Southern
Hemisphere on record. It caused $1.4 bn in damages and 44 fatalities. Most of the damage was
focused in Fiji. It destroyed the livelihoods of at least 40,000 people and displaced 40 percent of Fiji's
population. Total aid to Fiji was $117m in 2016 and $146m in 2017.
2. Pam: Severe Tropical Cyclone Pam was the second most intense tropical cyclone of the south Pacific
Ocean in terms of sustained winds and is regarded as one of the worst natural disasters in the historyof Vanuatu. It causes $692m in damages and at least 15 fatalities. Most of the damage was focused in
Vanuatu but it damaged crops and buildings in the Solomon Islands, Tuvalu and Fiji as well. Initialmonetary assistance for Vanuatu included $3.8 million from Australia, $2.9 million from the United33Kingdom, $1.8 million from New Zealand, and $1.05 million from the European Union. Tuvalu
received $1m in aid from Australia.
3. Evan: Severe Tropical Cyclone Evan was considered to be the worst tropical cyclone to affect theisland nation of Samoa. It caused damages of $315 million and 14 fatalities. Most of the damage waslimited to Samoa but other islands affected included American Samoa, Fiji, Tonga, and New
Zealand. The United States provided NZ$60,000 to the Samoan Red Cross for relief operations.
New Zealand authorities provided at least NZ$500,000, as well as a P-3 Orion plane to search foreight missing fishermen.
4. Gita: Severe Tropical Cyclone Gita was the most intense tropical cyclone to impact Tonga sincereliable records began. It caused damages of $220 million. Torrential rains and damaging winds
caused widespread disruptions in Samoa and American Samoa, prompting emergency declarations inboth. Outlying islands in the Fijian Lau Islands were significantly affected, particularly Ono-i-Lau andVatoa. Wallis and Futuna, Niue, and Vanuatu were also affected, but impacts in those areas wereminor. India provided US$500,000 humanitarian aid to Tonga under UNOSSF. On 13 February,
Australia provided A$350,000 (US$275,000) in emergency supplies via the Royal Australian Air Force(RAAF) to assist more than 2,000 people. Australia also sent humanitarian supplies to the Tongan
Red Cross. Two civilian humanitarian specialists were deployed to assist Tonga's National
Emergency Management Office. A medical expert also provided assistance to assess healthinfrastructure. New Zealand provided NZ$750,000 (US$544,000) in assistance.
It is difficult to come by aid data for cyclones as aid is dispersed over time. It is also challenging to calculate
the cost of indirect aid such as relief supplies, food, transport, aid workers etc.

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