September 22, 2023
The Inter-American Development Bank (IDB) is leading the structuring of the Caribbean Water Utility Insurance Collective Segregated Portfolio (CWUIC SP) to support disaster response and recovery. The IDB has worked closely with CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) and the UK Government to establish CWUIC as a segregated portfolio (SP) within CCRIF SPC together with Climate Investment Funds (CIF), Caribbean Development Bank (CDB) and The Coca Cola Foundation.
Caribbean countries are extremely vulnerable to natural disasters, and they experience disproportionate losses. These nations face similar challenges and climate change will worsen this situation, with more frequent droughts, floods and natural disasters. Total damages from a sample of disasters in the Caribbean between 2015 and 2019 amounted to US$92.5 billion. And these natural disasters, such as hurricanes, windstorms, drought, landslides, and flooding are expected to intensify and be more frequent because of climate change.
There is an urgent need to expand and rehabilitate water and sanitation infrastructure to reach those who are increasingly vulnerable to climate change impacts. Hence, utilities need more and better insurance to increase their resilience to natural disasters. Currently, insurance providers in the Caribbean cannot offer natural disaster insurance to Caribbean water and wastewater utilities on affordable terms. After an event, most utilities lack the budget to restore services quickly or to fund concerted efforts to improve their systems’ resilience. These utilities need a disaster risk financing facility to provide mutual aid, quick liquidity and prioritize loss reduction measures.
CWUIC SP will become a center of excellence for disaster risk management and financing. It is divided into three components: emergency response, parametric insurance, and resilience. Its establishment has been approved by CCRIF SPC’s Board and by the regulator, CIMA (Monetary, Regulatory and Advisory Body of the Cayman Islands). CCRIF already provides parametric insurance coverage to Caribbean and Central American sovereigns, the electric utilities, and fisheries. CWUIC SP will be the first-of-its-kind in CCRIF SPC and the other risk pools because it encompasses both disaster risk financing and management.
Approximately 35 water utilities in 29 territories in the Caribbean have been identified as potential clients for CWUIC SP, which intends to insure against drought, volcanic eruptions, landslide/mudslides, flood (runoff), windstorms, and tsunamis. The UK Government contributed US$5.6 million to help with technical support for shaping CWUIC SP and offering premium subsidies to water utilities in six official development assistance eligible Caribbean countries. Additionally, US$650,000 was provided by the CDB and US$739,000 by the CIF through IDB Invest.
Furthermore, The Coca-Cola Foundation provided a grant of US$500,000 for conducting feasibility studies on water utility projects that promote resilience. CCRIF SPC obtained a US$25 million investment from the UK Government to capitalize CWUIC SP, which will be used, in combination with reinsurance, to protect CWUIC SP against unexpected losses from policy claims. This US$25 million investment will be returnable after 20 years with no interest.