Page 18 - IB March 2025

Insurance
PARAMETRIC INSURANCE:

A DOOR OF OPPORTUNITY?

Less than a fornight after an earthquake devastated Port
Vila on December 17, the Chief Executive Officer of the
Pacific Catastrophe Risk Insurance Company (PCRIC) was on
a plane to the Vanuatu capital, a US$1.2 million cheque in
hand.
PCRIC boss Aholotu Palu says when he arrived, Vanuatu’s
Prime Minister told him: “You are the first organisation to
arrive here with cash. There are two planes sitting on the
tarmac, they flew in with in-kind [support], but this cash is
going to assist with our relief effort.”
At the time, Palu noted that although the scale of the
physical and financial devastation caused by the earthquake
was vast, the cheque “did represent a payout over 73 times
the Government’s contribution to the earthquake component SPTO CEO Chris Cocker and PCRIC CEO Aholotu Palu sign a memorandum of
understanding in Suva.
of the policy – an outcome for which the government should
be applauded”. specific allocation for tourism.
In contrast in Tonga, some businesses affected by the Hunga At the time of writing, Niue—with its one hotel—was the
Tonga-Hunga Ha’apai eruption and tsunami of January 2022 only state that had a policy with a tourism component. Palu
are still awaiting insurance payouts. says “it is completely up to the Niue government how they
These experiences have prompted PCRIC and the Pacific calculate the proportion to pay out” in the event of a disaster.
Tourism Organisation (SPTO) to agree to work together to He said the agreement with SPTO is not just a commercial
improve the tourism sector’s access to insurance. opportunity but is also about education and capacity building.
“We’re providing another door of opportunity,” said SPTO “We were in Solomon Islands a few weeks ago and also in
CEO Chris Cocker at the signing of an MOU between the Vanuatu, and we have heard some of the local insurers left …
organisations this month. because the cost was too high, and the risk is too high.
PCRIC’s work was discussed at a recent tourism roundtable “That’s on a micro level. So who is going to provide it? No
in Tonga, where interest was high, he said. “It was an eye- one is going to serve the countries when disaster strikes.
opener” for the Tongan tourism sector to learn this type of “I owe it to our Ministers of Finance back in the day that
insurance was available, Cocker added. they had very good foresight in creating this sort of facility to
“Many of them are still struggling to get payments, and respond to this.”
some of them don’t get payments. So at least there is an While PCRIC was set up with World Bank backing, the
option here that they will be able to get some funding, but United Nations is the primary backer of the Pacific Insurance
through Tonga’s premium cover, in this case as a nation, as and Climate Adaptation Programme (PICAP) launched in 2020.
long as there is commitment from the government that there Krishnan Narasimhan and Sheldon Chanel from the UN
will be an allocation for the tourism sector.” Capital Development Fund recently wrote that “PICAP’s
PCRIC is legally obligated to provide a macro or sovereign investments have already begun reshaping the Pacific’s
product, which means individual businesses or sectors must insurance landscape and driving new innovations. 37 new
work with national governments - more specifically, ministries or improved versions of parametric products have been
of finance. introduced across eight Pacific countries, reaching 44,813
Palu says while that model “works for now”, there is households.”
continued refinement and diversification of policy types. Last year, PICAP launched a market-driven scheme in Fiji
“The company started only with two policies, for cyclone that delivers 20% of the total sum insured before a cyclone
and earthquake. Now we have five: flooding, a tsunami hits, “helping households prepare by securing supplies or
standalone policy, and we are rolling out drought with Tonga strengthening homes in advance.”
before the end of the year, and other countries that have A similar product has just been introduced in Samoa.
expressed interest, especially in the north, because they’re However, they acknowledge the ongoing challenges faced
prone.” by the insurance industry.
PCRIC is also looking at the feasibility of a policy for “To further ‘de-risk’ Pacific markets, UNCDF is working with
extreme heat at the request of some nations. partners on an insurance guarantee and premium financing
Cocker noted the need for tourism sectors to get facility that will aim to ease the burden on insurers, stimulate
agreement between the ministries of finance and tourism, to demand by pre-financing insurance premiums through
ensure that when a policy is taken out with PCRIC, there is a concessional loans, and improve access,” they wrote.

18 Islands Business, March 2025