Working Paper Series: Special Edition of 2016 to 2018 Interns

Acknowledging that natural disasters can reduce the affordability of insurance, this brief seeks to examine whether governments can more effectively influence premium rates, given the important and significant link between the public sector and the insurance sector. An examination of the issues revealed that the government could better influence premium rates through land-use planning, granting concessions on building materials and a collaboration with insurance companies to provide risk mitigation strategies and financial education to the public. Context and Importance of the Problem Hurricanes, droughts, floods, earthquakes and other natural events are common across the world and may lead to catastrophic damage. An event developing into a natural disaster is primarily driven by its force, the extent of the damage and the loss of life. 48 The vulnerability of infrastructures, increased concentration of population in hazard-prone areas (urbanization), economic and fiscal exposure and climate change can increase the damage caused by an event. In recent years, there has been an unprecedented rise in the frequency and severity of natural disasters plaguing the region. This is fueled by a rise in sea temperature, which is expected to become more noticeable for decades to come, largely due to greenhouse gases emitted by human- induced activities (Intergovernmental Panel on Climate Change, 2014). These activities increase losses and damages, resulting in a negative impact on a country’s GDP. Due to their geographical location, size, and substandard construction practices, Small Island Developing States (SIDS) are more vulnerable to a disaster (Briguglio, 1995). The Eastern Caribbean Currency Union (ECCU) 49 member countries have experienced an increase in the occurrences of natural disasters over the past two decades. During the period 1998 to 2007, the countries experienced 9 natural disasters compared with 15 natural disasters over the period 2008 to 2017, highlighting the frequency and severity of the disasters attributed to climate change (Figure 1). For example, Hurricane George (1998), Hurricane Ivan (2004), Tropical Storm Erika (2015) and Hurricane Maria (2017).

48 According to Centre for Research on the Epidemiology of Disasters (CRED) (2004), Natural disasters are here defined as events that satisfies one of the following criteria: ten (10) or more fatalities, hundred (100) or more people reported as being affected, the declaration of a state of emergency or a call for international assistance. 49 The ECCU countries are Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.

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