The Caribbean Catastrophe Risk Insurance Facility: Parametric Insurance Payouts without Proper Parameters

Abstract

The small island states of the Caribbean are highly exposed and extremely vulnerable to catastrophic weather events, especially hurricanes and earthquakes. During the one to six months following a serious hurricane or earthquake, after emergency funds have been exhausted and before donor pledges come in, Caribbean governments experience a “liquidity gap,” when their monetary resources fall far below what is required to provide essential governmental services and begin the recovery process. Established in 2007, the Caribbean Catastrophe Risk Insurance Facility (“CCRIF” or the “Facility”) offers a solution to the liquidity gap through the use of an innovative insurance scheme. This Article first engages in a background discussion of the Facility, reviewing why it was created, how it works, and what it has accomplished for its insureds since taking effect. It then examines the many facets of CCRIF that have earned it its good name--specifically, its efficiency, fairness, and attentiveness to Caribbean needs and interests. At the same time, the Article attempts to provide a more pragmatic critique than can be found in the existing literature by shedding light on a rather notable CCRIF flaw that has thus far received little recognition: the risk that the Facility’s insurance payouts are inaccurate. Finally, the Article considers the possible ramifications of this flaw and suggests a grassroots solution requiring the participation of the Caribbean people.