Cedric Stephens | A new play book needed to boost regional financial resilience

One of my more faithful readers, a former country head of a global American insurance giant, shared an article with me last month that forms part of today’s content.

Its bona fides were excellent: an 80-year-old source calling itself ‘the Swiss Voice in the world’: www.swissinfo.ch.

Switzerland-based reinsurance companies and others from other European nations ‘loan’ their balance sheet capital to insurers in Jamaica and other Caribbean islands – and elsewhere throughout the world – to provide coverage against natural disasters and other kinds of risks. Swiss Re, a 160-year-old company with operations in nearly every country on the planet, tops the list of the world’s largest reinsurers in 2025.

Regional insurance executives visit Europe each year to negotiate reinsurance contracts and/or to attend training courses.

The header of the article, ‘Is Switzerland’s natural disaster insurance a model for the world?’, sparked several thoughts about resilience – the topic of last Sunday’s article. This country can be added to others in Africa, Asia, and Latin America that use their insurance systems in creative ways to address market problems without government subsidies.

My first idea was why had not insurance industry visitors from Jamaica to Switzerland shared details about the workings of that model with the public.

The second was even though climate change and resilience are not sexy words that are used and understood in campaigns for elective office, to what extent did the ruling party’s manifesto, explicitly or implicitly, articulate policies to manage and mitigate shocks and protect local families and the economy? Can Jamaica, and other CARICOM states, learn any lessons from the Swiss model and, in the words of the Central Bank of Barbados Governor Dr Kevin Greenidge, remain disciplined, people-centred, and not merely weather the next natural disaster … and emerge stronger, more confident, and united, when these events occur? Finally, should expensive band-aids, like those advocated by insurance industry leaders in late July – see my article, ‘Jamaica Needs an Inclusive Insurance System’ – be used to solve market problems instead of finding radical solutions that small, island developing nations in the Caribbean face?

The ruling party’s manifesto referred a few times to disaster management and recovery, including steps taken to manage the COVID-19 pandemic. The authors of the 110-page document clearly recognise that the strengthening of the multi-layered National Natural Disaster Risk Financing Plan is an essential part of the strategy to manage the economy and achieve stronger growth.

It also said that more inclusive and sustainable development of the tourism sector was dependent on new investments that were climate-smart and resilient. This is non-controversial stuff.

Swiss model features

The structure of the Swiss insurance model is consistent with the makeup of the federal state. This means that power is shared between a central government and regional governments. The regional units are called cantons. They are like states in the United States or Canadian provinces, but with even more autonomy. The country consists of 26 cantons. Each canton has its own constitution, parliament, government, and courts. They are sometimes described as sovereign states within Switzerland, except where power is delegated to the federal level.

The main parts of the insurance model are:

• All places are insurable, even in areas at substantial risk of floods, landslides, or avalanches;

• Insurance companies play proactive roles in damage prevention. This leads to lower costs and faster recovery;

• Insurance coverage is compulsory for all segments of the society;

• Insurers are mandated to participate in the programme to provide coverage (The principles outlined in bullet points 3 and 4 are referred to as double solidarity);

• In most Swiss cantons, homeowners are required to take out insurance with a cantonal insurance institute. These are public institutions responsible for insuring buildings against fire risk and damage caused by natural elements. Rates are set by law and are based on the value of the property. They do not increase if a building is in a danger zone, such as near waterways that are prone to flooding;

• The compulsory insurance covers a range of natural events, including floods, storms, and hail (but not earthquakes);

• More than 95 per cent of the Swiss housing stock is covered against natural disasters.

• In the cantons with compulsory public insurance, damage is covered by the public institutions. In cantons with private coverage, costs are shared between insurers, providing an additional level of solidarity that makes the Swiss system effective;

• The 12 insurers that cover over 90 per cent of the natural perils market in the privately covered areas all pay into a pool established by the SIA, called the ES poolExternal link. This voluntary association began in 1936 to optimise risk diversification and risk exposure.

• After a catastrophe, the insurers in the ES pool jointly bear 80 per cent of the costs in proportion to their market share. The remaining 20 per cent is borne by the insurer that provided the coverage. The pool is one reason private insurers continue to offer policies in high-risk areas, even when coverage is not required by law; and

• This system ensures affordable premiums and sustainability of natural hazard coverage, even in areas where the risk is ‘above average’.

Less regional coverage

Non-insurance and under-insurance have become more common in Caribbean insurance markets. Barbadian Prime Minister Mia Mottley said recently that Caribbean consumers have been facing the difficulties of a cost-of-living crisis for the past several years.

At the same time, reinsurance costs have increased sharply while some firms have exited markets in Florida and the Caribbean due to the threats of more intense and frequent tropical storms and hurricanes due to climate change.

In the meantime, Caribbean Catastrophe Risk Insurance Facility, CCRIF SPC, based in the Cayman Islands – the world’s first multi-country risk pool and the first insurance mechanism to successfully offer parametric insurance for natural disasters to sovereign states – continues to thrive.

CCRIF’s mission is to:

• Help Caribbean and Central American governments increase their financial resilience to natural disasters and climate-related risks;

• Provide rapid liquidity (quick payouts, often within 14 days) after catastrophes like hurricanes, earthquakes, and excess rainfall so that governments can continue essential services and support recovery;

• Reduce the economic and social impact of disasters by offering affordable insurance solutions that are otherwise difficult for small, vulnerable states to access in the global reinsurance market; and

• Promote a culture of disaster risk management and climate adaptation through technical assistance, capacity building, and partnerships.

Is there an opportunity to adopt some of the elements of the Swiss model in CARICOM member states, widen the role of existing catastrophe insurance providers to include damage prevention, facilitate more public-private sector partnership, and develop more inclusive financial solutions for all consumers?

What role can CCRIF with its deep and extensive base of expertise and institutional knowledge play in the new order of things? Could this approach lessen the region’s dependence on foreign reinsurance providers and promote more stability in insurance markets?

Would more benefits accrue to this country and its CARICOM partners over the long term from a multi-layered Regional Natural Disaster Risk Financing Plan than a separate National Disaster Risk Financing Plan for Jamaica? Is this not consistent with the vision of Caricom Single Market and Economy?

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Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com