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public assets. Additional exceptions include properties owned by statutory corporations such as port and airport authorities, as well as utility companies that can independently access the insurance markets.

Utility companies in particular, to reduce insurance cost, have been actively considering a regional self-insurance program with the Caribbean Development Bank (CDB) and the Caribbean Electric Utilities Service Corporation (CARILEC). Although in the conceptual stage, the program's principal concepts include a backstop credit line in the initial years of premium accumulation. As the fund grows, the utility companies should rely less on the line of credit until it eventually becomes a standby support to be used only after the fund is depleted because of claims arising from a catastrophe event at the uppermost loss levels.

The Barbados Light & Power Company Limited (BLP) started its own self insurance program, due to unavailability of Transmission and Distribution (T & D) catastrophe insurance coverage in 1993, and the subsequent extraordinary high rates to obtain the coverage, estimated at 25% of the estimated losses of assets in a catastrophic event. The fund is composed of cash and committed lines of credit. Similar to the regional approach, the lines of credit are to be used only after the cash portion of the fund is depleted. BLP is now able to look at its insurance needs from a more reasonably priced excess of loss layer, above the level of its self-insurance fund. The company estimates very significant annual premium cost savings.

In 1993, The Caribbean Hotel Association (CHA) retained a US-based risk management firn to perform a pan-Caribbean study regarding wind storm risks to its members' properties to see if there was some way of reducing the upward spiraling costs of insurance. The computer-generated wind study performed by a sub-contractor of the risk management firm provided a probable maximum loss profile of the region and divided the Caribbean into 6 different risk zones. The study suggested that there appeared to be enough diversification of risks among these zones to allow a regional insurance company for the CHA properties to survive a 1.3% probability of a major storm disaster event. Using the expected loss (EPL) information as the starting point, and based on their own financial modeling capabilities, the risk management firm determined a capitalization figure for a regional insurance company to sell 'all risks' property insurance to each of the 1,000 CHA or so members. The risk management firm then created, and today manages a Bermuda insurance company whose exclusive clientele are members of the CHA.

# _Incentives and Disincentives to Risk Based Pricing_

For many homeowners, the answer to soaring insurance rates, during the 3 years following 1992, was to reduce or eliminate their coverage. With the lack of statistics, it is difficult to measure the degree to which capital stocks are underinsured though 30% is estimated in the insurable housing sector and in most ESC countries few government assets and buildings are insured. From an insurance industry perspective, underinsurance is business lost which would otherwise carry little incremental acquisition cost. Furthermore, policyholders who terminate their insurance seldom return. Insurance, is a discretionary expense, and once terminated, becomes excluded from buying patterns. Local governments are, of course, concerned since the greater the non-insurance (or