New micro-insurance plan for Haiti

The Barbados-based Caribbean Development Bank (CDB) has signed a grant agreement with the Insurance Catastrophe Risk Organisation SCC (MiCRO) to support a micro-insurance programme for Haiti.

MiCRO is a special-purpose company licensed to provide parametric insurance support to Haiti initially, but is to be expanded to include the Caribbean region.

CDB is administering the multi-donor trust fund that supports the operations of MiCRO, which is an innovative one-of-a-kind programme that provides parametric insurance to protect microfinance institutions and their microcredit borrowers in Haiti against losses resulting from natural disasters.

The initiative was launched in September, following an initial contribution of US$1.5 million by Britain.

CDB president Dr Warren Smith, who witnessed the signing, said that the Bank "is very happy to be associated with this venture, since it represents a very good example of innovation in arriving at solutions to the challenges which confront micro-business and solutions to risk".

He said that it was particularly significant that the focus of the exercise is Haiti, where there is a proliferation of microenterprises which he regards as "a dynamic force for the future of the country".

Parametric insurance is a form of insurance which does not indemnify for pure loss, but upfront agrees to make a payment upon the occurrence of a triggering event, often a catastrophic event which may ordinarily precipitate a loss or series of losses," CDB said in a statement.

It said that a model is used to calculate the losses incurred and payout due of the insurance policy. This calculation model aims to closely mirror the actual damage on the ground and enables a much more rapid payment as no loss adjusters are required after the event to assess the actual damage. These policies make post-disaster claims payments in a manner that is fast and transparent to policyholders.

"Parametric insurance has been deemed to be an appropriate mechanism for the Haitian environment, since it is predictable and has predetermined payouts being matched to predetermined hazard levels. This makes reinsurance cheaper than traditional indemnity insurance schemes. The risks that are covered via this particular mechanism are earthquakes, hurricanes (wind) and flooding."

The January 2010 earthquake that killed an estimated 300,000 people and destroyed several buildings in Haiti has had a devastating effect on micro-entrepreneurs who suffered lost assets, suppliers and markets.

"The microfinance sector, which provides microloans to stimulate and sustain many of these businesses, also experienced extensive losses. This resulted in increased risk in providing microloans to micro-entrepreneurs," the CDB said.

It said that MiCRO was designed with the goal to increase access to insurance for Haiti's micro-entrepreneurs with the aim to help them protect themselves and their livelihoods against the economic impact of severe natural catastrophes.

MiCRO currently provides coverage for Fonkoze, which is Haiti's largest microfinance institution with over 50,000 clients.

Since its inception, Micro has paid out a total of approximately US$1.3 million for three extreme rainfall events in Haiti. Coverage is expected to grow as more microfinanciers join the programme and other insurance products are developed.

Apart from CDB and the UK's Department for International Development, MiCRO's strategic founding partners include the Swiss Agency for Development and Cooperation, Mercy Corps, Fonkoze, Caribbean Risk Managers Limited (CaribRM), Reinsurer Swiss Re, and GC Micro Risk Solutions SM.