The Caribbean Development Bank (CDB) and Micro Insurance Catastrophe Risk Organisation SCC (MiCRO) have signed a grant agreement supporting a catastrophe micro-insurance programme for Haiti.

CDB is administering the multi-donor trust fund that supports the operations of MiCRO, which is an innovative one-of-a-kind programme that provides parametric insurance to protect microfinance institutions and their micro-credit borrowers in Haiti against losses resulting from natural disasters. This initiative was launched on September 28, 2011, following an initial contribution of US$1.5 million by the UK Government’s Department for International Development (DFID).

Parametric insurance is a form of insurance which does not indemnify for pure loss, but upfront agrees to make a payment upon the occurrence of a triggering event, often a catastrophic event which may ordinarily precipitate a loss or series of losses. A model is used to calculate the losses incurred and payout due of the insurance policy. This calculation model aims to closely mirror the actual damage on the ground and enables a much more rapid payment as no loss adjusters are required after the event to assess the actual damage. These policies make post-disaster claims payments in a manner that is fast and transparent to policy holders.

Parametric insurance has been deemed to be an appropriate mechanism for the Haitian environment, since it is predictable and has pre-determined payouts being matched to pre-determined hazard levels. This makes reinsurance cheaper than traditional indemnity insurance schemes. The risks that are covered via this particular mechanism are earthquakes, hurricanes (wind) and flooding.

The 2010 earthquake in Haiti had a devastating effect on micro-entrepreneurs who suffered lost assets, suppliers and markets. The microfinance sector, which provides micro-loans to stimulate and sustain many of these businesses, also experienced extensive losses. This resulted in increased risk in providing micro-loans to micro-entrepreneurs.

MiCRO was designed with the goal to increase access to insurance for Haiti’s micro-entrepreneurs with the aim to help them protect themselves and their livelihoods against the economic impact of severe natural catastrophes. MiCRO is a special purpose Barbados segregated cell company licensed to carry on exempt insurance business. It will provide parametric insurance support to Haiti initially, but is to be expanded to include the Caribbean region.

MiCRO currently provides coverage for Fonkoze, which is Haiti’s largest microfinance institution (MFI) with over 50,000 clients. Since its inception, Micro has paid out a total of approximately US$1.3million for three extreme rainfall events in Haiti. Coverage is expected to grow as more MFIs join the programme and other insurance products are developed.

Apart from CDB and the UK Government’s Department for International Development (DFID), MiCRO’s strategic founding partners include the Swiss Agency for Development and Cooperation, Mercy Corps, Fonkoze, Caribbean Risk Managers Limited (CaribRM), Reinsurer Swiss Re, and GC Micro Risk Solutions SM.