The intense devastation wrought on Vanuatu by Cyclone Pam will put to the test an innovative insurance program aimed at tackling the risks small Pacific island nations face.
The Vanuatu Government is waiting to hear whether it is entitled to a payout through the World Bank’s Pacific Catastrophe Risk Insurance Pilot.
Considered to be one of the most intense tropical storms on record, Cyclone Pam has so far claimed 11 lives, with damage and casualties still being counted.
Vanuatu President Baldwin Lonsdale signalled that more than 90% of buildings in the capital of Port Vila have been destroyed or significantly damaged.
The catastrophe insurance pilot is a World Bank-run trial aimed at ascertaining whether the insurance market is capable of taking on the catastrophe risks faced by sovereign island nations.
While the program has parametric triggers, payouts are determined by loss modelling rather than on-ground loss assessments, with the objective of enabling quick payouts that can be used for immediate disaster recovery.
According to the World Bank, Vanuatu currently has $9.9 million of coverage under the catastrophe risk insurance pilot facility.
With Vanuatu expected to suffer a 6.5% per annum hit to its GDP as a result of the devastation, Australia’s aid efforts, including $5 million to assist in disaster relief through the United Nations, have been criticised as lacking in any long-term development.
In a recent discussion in The Conversation, three Australian environmental academics assert that the “Pacific region requires a wider and more permanent institution to provide this support for all Pacific Island nations into the future.”
“The developed countries of the Pacific region such as Australia, New Zealand and the United States should look closely at supporting a similar risk pooling mechanism to assist countries like Vanuatu that face the ongoing risk of these powerful cyclones.”
The World Bank has initiated the process for Vanuatu to be assessed under the pilot and will announce any entitlements when a result is reached.