The World Bank nearly doubled the Philippines’ natural disaster risk insurance in 2017 with a new $390 million in coverage that became effective Dec. 19, 2018 to help the country better respond to losses from climate change and disasters.
The multilateral lender said Monday the renewal would provide 25 provinces in the country with the Philippine peso equivalent of $390 million in insurance against major typhoon and earthquake events.
Under the program, the World Bank would sign an agreement with private reinsurers to provide coverage against disaster and severe weather impacts for national government agencies and 25 participating provinces. Insurance payouts are made when pre-defined parametric triggers are met.
State-run pension fund Government Service Insurance System provides the parametric catastrophe insurance coverage. The insurance policy is designed to provide rapid liquidity in the face of disasters to the government to enable rebuilding and recovery to commence.
The renewed policy almost doubled the coverage under a 2017 policy, facilitated by the World Bank through a catastrophe swap, that provided the Philippine peso equivalent of $206 million in insurance.
The panel of risk takers, selected through a competitive bidding process, also doubled under the renewed policy. Risk takers were able to participate in the transaction either through a derivative contract or a retrocession agreement.
Mara Warwick, World Bank country director for Brunei, Malaysia, the Philippines, and Thailand, said the initiative demonstrated the Philippines’ strong commitment to continue investing in innovative financial solutions that will mitigate the impacts of major earthquakes and extreme climate and weather-related events.
“The program complements the country’s overall strategy and efforts in ensuring resilience against natural disasters and climate change impacts,” Warwick said in a statement.
The World Bank is also supporting the Philippines in preparing a sovereign catastrophe bond to complement the existing insurance program by providing cover for more extreme events.
The Philippines is among the world’s most vulnerable countries to natural disasters. The country is expected to incur, on average, $3.5 billion in asset losses each year due to typhoons and earthquakes.
George Richardson, World Bank director for capital markets, said this development marked another milestone in the bank’s partnership with the Philippines.
“We look forward to deepening this partnership as we work together to harness innovative financial solutions to boost the country’s resilience against unforeseen events,” he said.