Financial risk transfer mechanisms in West-Indian ocean islands: an overview of the existing situation in early 2013
This report provides a review of financial risk transfer mechanisms geared to mitigate economic impact of disasters for small island states in the context of natural and climatic disasters. The report reviews different tools in use in the region as well examples from other regions. The review is carried out of the following territories: Comoros, Madagascar, Mauritius, La Reunion, Seychelles and Zanzibar. It occurs within the context of implementation of the Mauritius strategy in the South Western Indian Ocean.
The concept of financial risk transfer mechanisms is based on the principle that the economic risk in the eventuality of a disaster should be transferred to the insurance and financial mechanisms that have been specifically created to absorb economic losses linked to the occurrence of the risk, whether or not the risk has been predicted. The report also explains that risk transfers do not replace the preventive measures that a country should take, but instead underlines that the system should be implemented in synchrony with the government’s budgetary policy.
The report is divided into 3 main sections:
1) a review of traditional insurance mechanisms in the two main insurance markets of the Indian Ocean Commission (COI) being La Reunion and Mauritius;
2) a description of the two National Contingency Funds established by Madagascar and the Seychelles: with these not being risk transfers since the risk remains with the territory’s Government, but representing the first funds accessible before those payables under a transfer mechanism; and
3) a review of the new parametric insurance schemes recently set up in Malawi, the Caribbean and Central America, followed by a description of the African Risk Capacity project.