Budget 2019

Fiji Budget 2019: Insurance, Climate Change, Fiji

Tower has recognised that only 12 per cent of people have any form of insurance. To help bridge the gap we recently launched SmartPac which is focused on small businesses. Tower is also currently collating data on the various construction types in Fiji and their vulnerability to cyclone events. We will use this data to make improvements to our current process including how we can provide different tiers of cover so that is more accessible and increases the resilience of buildings to cyclone events. We are also developing other products and initiatives that are intended to help get the uninsured, insured.
25 May 2019 14:48
Fiji Budget 2019: Insurance, Climate Change, Fiji
Tower Insurance Head of Pacific Operations Sarah-Jane Wild and Tower Insurance Fiji general manager Veilawa Rereiwasaliwa.

Fiji is one of the 30 countries most vulnerable to natural disasters. TC Winston affected 62 per cent of the population causing FJ$2.98b damage. This is more reason why having property insurance become vital for people.

Government pumped in a lot of money to start rehabilitation work. They cannot do this year in and year out. In fact, no Government in the world will be able to spend billions of dollars on rehabilitation work after natural disasters.

Tower Insurance Head of Pacific Operations Sarah-Jane Wild has been very vocal about the need for different insurance packages to be made available for different sectors within our communities. She and the General Manager for Tower Insurance Fiji Veilawa Rereiwasaliwa explain why insurance is fast becoming a need for many in Fiji today.

Given that some 5 per cent Fijians have property insurance, what are your advice to people on getting their properties insured? Why is property insurance important especially for a country like Fiji where we are experiencing more intensive tropical disturbances frequently?

Fiji is one of the 30 countries most vulnerable to natural disasters. Tropical Cyclone Winston affected 62% of the population causing FJ$2.98 billion in damage. We know that the ongoing effects of climate change in Fiji are likely to eventuate in more frequent and intense events. We also know the significant impact these events will have both financially and psychologically.

To reduce the impact, it will be important to build resilience against these events whilst also adapting to the effects of climate change.  Insurers play an important role in building resilience, as risk managers; we can share our knowledge and data to reduce the risk of damage and to help evolve policy, like the improvement and enforcement of building codes and the design of innovative products.

For property owners, purchasing insurance transfers the risk of the impact of unforeseen events to the insurer.

Screenshot 2019-05-27 at 3.24.37 PM

If you consider the financial impact when the whole property is lost, the cost of insurance is far less significant and can easily be budgeted for.  For example, if a home worth $100,000 is lost, the homeowner if not insured is unlikely to be able to purchase a new home.  However if there was insurance, and the premium per year is around $1000, this is only 1 per cent of the $100,000 cost and it is very likely that they can easily return back to the financial position they were in prior to the loss.

An estimated 60 per cent of the Cyclone Winston losses in Fiji related to properties however only 6 per cent of the total households in Fiji had cyclone cover.   For Tower,

most of the home insurance policies that we have are driven by bank requirements as opposed to customers wanting to insure as a means of protecting their asset. More education and awareness need to be done on the importance of insurance so we are working with an established financial literacy provider to add on an insurance module in their programme. Another challenge is that of the properties that Tower covers, only 33 per cent have cyclone cover. One of the key reasons for this is our requirement to have an engineer’s certificate.  An engineer’s certificate is needed to ensure that the property is meeting the standard of the Fiji National Building code.

Within that code is the requirement for properties to have the resilience to withstand regional wind speeds of 70 metres per second.  We receive some criticism for this process, often because there is work required to have the property to this standard, and it can be costly.  However we know that if buildings meet this standard they fare much better in more intense events and suffer very minimal damage in frequent cyclone events.  This helps keep the cyclone premium at an affordable rate and ensures that property owners do not have repairs having to be carried out every time a low category cyclone occurs.

Tower has recognised that only 12 per cent of people have any form of insurance.  To help bridge the gap we recently launched SmartPac which is focused on small businesses. Tower is also currently collating data on the various construction types in Fiji and their vulnerability to cyclone events.  We will use this data to make improvements to our current process including how we can provide different tiers of cover so that is more accessible and increases the resilience of buildings to cyclone events.   We are also developing other products and initiatives that are intended to help get the uninsured, insured.

What are your views on parametric insurance? Can it work in Fiji? What are the advantages of parametric insurance and how would this assist Government?

Parametric insurance is a risk transfer mechanism that can provide the Government of Fiji with quick access to cash following a major natural disaster.

It should be considered in the overall risk financing strategy of the Government of Fiji.  It is different to indemnity insurance in that the trigger for parametric insurance is not based on an actual loss incurred, but rather a natural hazard event exceeding a defined threshold or modelled loss.

The funds can be utilised how the Government wants and it could be used to benefit those that cannot get access to insurance (not all properties are insurable).  It does not take the place of indemnity covers, it should be considered alongside encouraging people to take up insurance for their own assets.  Indemnity insurance will include risk mitigation which leads to more resilience to events, whereas parametric cover provides immediate access to funds to enable governments to mobilise relief efforts. Parametric cover is not intended to cover the full exposure of an event, more to provide quick access to funds to provide immediate relief.

The Pacific Catastrophe Risk Insurance Company (PCRIC) currently offers this cover for Pacific Island Countries and the payments are within 15 days of a triggered event.  To participate countries are required to be members of the Pacific Catastrophe Risk and Finance Initiative (PCRAFI).

There are currently four Pacific Island countries that have this cover in place and the most recent pay out was to Tonga who as a result of Gita received a $3.5m pay out.

Tonga was paying a premium that was around 8 per cent of the pay-out amount, which is easier to budget for in comparison to the $3.5m that they received and the quick access to these funds greatly assisted their relief effort.

A family in Naqoro, Ra, left devastated after cyclone Winston made landfall on February 20, 2016.

A family in Naqoro, Ra, left devastated after cyclone Winston made landfall on February 20, 2016.

Final remarks

Extreme weather events as a consequence of climate change places increasing burden on the public. To tackle this insurance or insurance like mechanisms can make society more resilient to the impacts of extreme events.

Private insurers have a significant role to play in addressing climate risk, and our role complements tools like the parametric cover. Insurers are risk managers; we can support governments by using our knowledge and sharing our data to increase resilience and help evolve policy, like the improvement and enforcement of building codes and the design of innovative products.

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