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Finance ministry prepares report for disaster risk financing strategy

Thursday, October 05, 2017

THE Ministry of Finance has prepared a report for the Government, which proposes potential considerations for the formulation of a country-specific comprehensive disaster risk financing strategy.

This has been done with support from the World Bank's Disaster Risk Financing Technical Assistance Programme (DRFTA).

According to the 2017/18 Fiscal Policy Paper (FPP) Interim Report, which was tabled in the House of Representatives by Finance and the Public Service Minister Audley Shaw on September 26, the strategy will be based on assessments of Jamaica's legislative, financial management, and fiscal and insurance market environments.

The resulting recommendations will enable Jamaica to access between US$152 million and US$313 million for post-disaster funding to immediately commence long-term reconstruction.

A fiscal risk analysis, according to the FPP, shows that this would allow the Government to finance its contingent liabilities resulting from a flood or hurricane with a 20-year return period with its own funds without reallocation or indebtedness, other than drawing down on a contingent financing mechanism.

The FPP states that the combination of reserves, emergency financing from the Catastrophe Deferred Drawdown Option (CAT-DDO), and parametric insurance offers a cost-effective strategy. It further notes that with the addition of indemnity insurance for public assets, coverage could be even more effective.

The document points out that reserves and/or annual budget allocations are capable of financing low-severity events such as localised flooding, storms or landslides.

It further highlights that lines of contingent credit like CAT-DDOs are more cost-effective than risk transfer solutions for intermediate risks, such as tropical storms and low-intensity hurricanes.

Additionally, it highlights that catastrophe risk solutions, like parametric insurance, have proven to be cost-efficient against high risks such as a major hurricane or earthquake.

The FPP, in this regard, suggests that the Government could support the establishment of a disaster risk insurance programme for key public assets, in partnership with the private insurance industry.

Noting that most public assets, including schools and hospitals, are not currently insured against natural disasters, the document proposes the designing of a catastrophe insurance programme involving a national inventory of State-owned structures and properties.

According to the FPP, standardised terms and conditions for property insurance policies would be developed, which could assist public managers to identify their risk exposures and coverage needs.

Additionally, it says the programme could also facilitate the development of a national insurance portfolio of public assets for placement on the private (re)insurance market.

The FPP suggests that a national property catastrophe insurance programme for public assets would also create economies of scale and diversified benefits, thereby lowering reinsurance premiums.

The Government continues to benefit from technical assistance from the World Bank under the DRFTA to better identify and manage fiscal risks associated with natural disasters.

— JIS