Insurance mechanisms for tropical cyclones and droughts in Pacific Small Island Developing States
Abstract
One group of locations significantly affected by climate-related losses and damage is the Small
Island Developing States (SIDS). One mechanism aiming to reduce such adverse impacts is
insurance, with a wide variety of products and models available. Insurance for climate-related
hazards affecting Pacific SIDS has not been investigated in detail. This article contributes to
filling this gap by exploring how insurance mechanisms might be implemented in the Pacific
SIDS for tropical cyclones and droughts. The study examines opportunities and constraints or
limitations of some existing insurance mechanisms and programmes as applied to the Pacific
SIDS. Eight insurance mechanisms are compared and discussed regarding the premium cost
compared to the gross domestic product per capita, the amount of payout compared to the
damage cost, the reserve and reinsurance, and the disaster risk reduction incentives. As such,
this article offers a decision-making tool on insurance development for the Pacific SIDS.
Ultimately, implementing disaster insurance for the Pacific SIDS depends on political will and
external technical and financial assistance.