With farming being the main the source of income for around 18% of the Jamaican population, adverse weather events can have an extremely detrimental impact on livelihoods. The Caribbean has low insurance penetration rates and is experiencing increasingly frequent and severe weather events, which tests the region’s financial systems.
In an effort to alleviate the issue, Howden, Skyline and Munich Re have developed a new parametric product that protects the Jamaican Co-operative Credit Union League (JCCUL) against non-repayment of micro-loans from farmers in the event of extreme weather.
JCCUL is used for loans by a significant 100,000 smallholder farmers in the country and is leveraged to pay for essentials, such as seeds, day-old chicks, and farming equipment. However, adverse weather events could mean that farmers are unable to repay their loans, which in turn puts JCCUL’s ability to continue to offer vital financial support at risk.
Specifically, the parametric insurance solution will replace lost funds as a result of farmers defaulting on their loans in the event of an extreme hurricane.
Laurent Sabatié, Co-Founder and Executive Director, Skyline, said: “This product demonstrates the potential for parametric insurance to take on risk challenges that don’t lend themselves to traditional insurance. We look forward to expanding this concept as we work with financial institutions to increase resilience against climate change and natural disasters by combining insurance innovation with technology.”
Robin Levy, Group CEO, JCCUL, commented: “If farmers can’t afford to repay their loans, our ability to remain operational is put at risk. Without loans from credit unions, many farmers in Jamaica simply would not be able to afford to operate. This coverage helps to smooth out that volatility and provides them with the confidence to continue to deliver the essential financial support that so many people rely upon to make a living.”
David Flandro, Head of Analytics, Howden, said: “Globally, we’re seeing an exponential increase in weather-related events versus other non-climate perils. Storms in the Caribbean are becoming more powerful, with increased rainfall and higher storm surge, and Jamaica has one of the highest physical exposures to tropical cyclones in the region.”
In order to support the growth of the new proof-of-concept solution, which has the potential to increase the resilience of communities most exposed to extreme weather events, Howden has contributed to the premium for the first year. The project is part of a broader agenda to unlock private capital, including donations from individuals, corporates, and foundations, to help fund solutions for those with limited access to traditional insurance products.