Willis Re, Munich Re partner with UN agency for new cat risk financing in the Philippines

The United Nations Office for Disaster Risk Reduction (UNISDR) and two major insurance industry players have partnered on a proposal for new catastrophe risk financing for the Philippines, after last fall’s Typhoon Haiyan caused $13 billion in economic losses.

“The Philippines is hit by over 20 typhoons every year,” Margareta Wahlström, head of the UNISDR commented in a statement.

“What is needed is a simple scheme which will provide valuable protection to people and municipalities before the next typhoon season. In order to be successful it will require mandatory take-up by local government units but it will make them masters of their own destiny when it comes to responding to relief and recovery needs in the wake of a major disaster event.”

Willis Re and Munich Re both developed the new catastrophe scheme, The Philippines Risk and Insurance Scheme for Municipalities (PRISM). The UNISDR says the approach is a “fast track way of providing budgetary support in the aftermath of a major natural disaster.”

“Contrary to traditional insurance the payment of claims is not based on actual losses but on a pre-agreed amount when a specific trigger is met,” noted Rowan Douglas, CEO of the Capital, Science and Policy Practice at Willis Group.

“For example, insurance will be paid out in the event of rainfall exceeding a certain amount, or wind speed exceeding a certain threshold.” Douglas is also a member of the UNISDR Private Sector Advisory Group.

“These parametric triggers are based on industry standards and can evolve as more information becomes available,” added Ernst Rauch, head of the Corporate Climate Centre at Munich Re.

“Once one trigger has been exceeded a payment will be made through the scheme manager to the local government unit and this can be used for rescue, relief, recovery or re-building depending on needs assessments. It can become a key part of broader national catastrophe risk management programme. Cover can be adjusted to reward disaster risk reduction efforts undertaken by municipalities.”