Could Haiti Have Insured Against Earthquake Catastrophe? It did!
by Efin Advisor | January 15, 2010
According to the World Bank’s Natural Disaster Hotspot study, Haiti is one of the countries most vulnerable to adverse natural events. The country’s weak infrastructure, degraded environment, and history of ineffective governments with serious fiscal problems all converge to magnify the size and scope of a natural disaster.
This was clearly displayed during the 2004 hurricane season when over 5,000 Haitians lost their lives following Tropical Storm Jeanne, and in 2008 when Tropical Storm Fay and Hurricanes Gustav, Hanna and Ike inflicted damages estimated at about US$900 million, or around 15 percent of GDP.
The earthquake disaster which has struck Haiti in 2010 has dwarfed even those staggering figures.
In 2007 The World Bank initiated The Haiti Catastrophe Insurance Project. Its objective was to reduce Haiti’s financial vulnerability to natural disasters through insurance coverage against earthquakes and hurricanes.
The effort would be achieved by providing financing to Haiti to allow it to join the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and purchase financial protection against catastrophic earthquake and/or hurricane events.
The pilot initiative represented the first entity created to protect small island states from the financial impact of natural disasters and had two main components with the first being to assist Haiti in joining the CCRIF through the financing of the entrance fee.
That fee was equal to the first year’s insurance premium of US2.57 million. The second project component was payment of annual insurance premium to assist Haiti in purchasing the catastrophe insurance coverage during the first three years.
Now a discrepancy has emerged in the aftermath of the earthquake. CCRIF said Haiti’s government will receive a little under $8 million for earthquake damage. The Eqecat catastrophe risk modeling firm in Oakland, Calif., estimated economic damages from Tuesday’s quake to be “in the hundreds of millions of dollars.”
CCRIF said the amount it will pay Haiti is approximately 20 times the country’s $385,500 premium for its earthquake coverage policy taken out as part of its disaster risk management strategy.
CCRIF announced that it is “hopeful that the rapid payment of funds under Haiti’s policy will assist the government and people of Haiti in addressing immediate needs as they begin the recovery and rebuilding process.” Yet, while the amount being paid by CCRIF is something, it is nowhere near enough.
CCRIF is owned, operated and registered in the Caribbean for Caribbean governments. It is designed to limit the financial impact of catastrophic hurricanes and earthquakes to Caribbean governments by quickly providing short-term liquidity when a policy is triggered.
Clearly, it was the World Bank’s intention to safeguard against what has happened in Haiti. But the disaster has far outscaled the cost for recovery. A tragic lesson is not enough insurance, not for a family, but for an entire nation. Learn more about life, health and home insurance protection at America’s advocate for financial security with a free insurance rate quote at Efinancial.com
Links to ways you can help donate to Disaster Relief in Haiti can be found on the following Google page: Support Disaster Relief in Haiti.
My heart goes out to the people of Haiti whose lives have gone from bad to worst. I only hope that since America is committing its military, and so many hospital ships, air cargo and volunteers, the rest of the world will join with us in the rescue effort with equally great financial contriibutions.
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Read the history of this ravaged Caribbean nation that shares its geography with the Dominican Republic, and the plight of colonial oppression reveals its ugly head. Haiti was once the richest jewel in the Caribean until it revolted against the enslavement of its people by France. It then spent decades making financial reparations to France, England, and others, as compensation for its own freedom?! Haiti has paid its debt to the world’s imperial powers. It’s time for the world to forgive Haiti for any debt it has left owing and help it stand on is own two feet again.
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Reading between the lines of this blog post, it appears to me that the World Bank’s Haiti Catastrophe Insurance Project and the Caribbean Catastrophe Risk Insurance Facility (CCRIF) are shortchanging Haiti. The original premium amount was reportedly in the millions of dollars. How then, can the insured loss amount come to only $8 million?? I hope someone will challenge the CCRIF to demonstrate what it has been paid in premiums and what is owed to Haiti as a result of this disaster!
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One of the best idea I have read to come out of this disaster is to allow displaced Haitians to come to the United States and live and work. If there is no economic future in Haiti then let’s not leave them to whither and die after surviving this horrible destruction.
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Thanks for this enlightening post, Efinancial. It’s a good thing someone is watching the insurance fund that Haiti has been paying into, and seeing it get what it paid for in insurance coverage,
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Some clarifications re CCRIF and the payout to Haiti after the devastating earthquake:
Haiti\’s earthquake premium was $385,000 which was the basis for the approximately $8M payout – which was abut 20 times the amount of the premium. This premium is 15% of the total policy premium of $2.57M, the remainder of which was for coverage against hurricane damage which of course was not triggered by the earthquake.
Once it was determined that the policy would be triggered because of the magnitude and location of the earthquake, the payment was calculated almost immediately and the payout made quickly. Unlike the more familiar indemnity insurance policies, payment was not dependent on after-the-event damage and loss estimation.
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