Finance minister Mark Brown said he met with international insurers last month to reassure them government was taking steps to reduce flood and fire risk, such as building fire hydrants and spending $300,000 on school security.
In an indication of the gravity of insurers’ concerns about Cook Islands risk, Willis Towers Watson manager Ged McCombie was joined for the first time by a broker for Lloyds of London, Thomas Loomes.
Brown said the meeting’s indicated that a tailored approach to insurance coverage was an option for the Cooks, spread the cost across a blend of insurance products.
Cook Islands is one of six nations signed up to the Pacific Catastrophe Risk Insurance Company – Brown said he had proposed that the company’s coverage be extended, so private companies as well as sovereign nations could take out cover.
This is different from other insurance: rather than waiting to pay-out once the losts are assessed, this scheme pays out as soon as a “catastrophe” of an agreed magnitude occurs. “This is an insurance product that I would like to see extended to the private sector to provide additional levels of financial protection.”
This week, Cook Islands News reported major resort operators’ calls for the government to set up an insurance scheme to protect homes, businesses and public sector agencies in the face of rising insurance premiums.
The premiums were rising because of the risk of storms and floods cause by the climate crisis, they said, and because of a series of arsons.
Tata Crocombe from The Rarotongan estimated the impact of the arsons at $1 million a year across the tourism industry. And his company alone was paying $350,000 more because of climate change.
Brown said he had not yet seen proposals from Crocombe or Willis Towers, but would certainly be happy to consider their suggestions.
He’s drawing the line at a government-run insurance company, though: “I would expect our government to outsource the expertise rather than try and set up and manage its own insurance company, let alone get into the business of underwriting insurance.”
Brown said the small size of the Cooks meant the insurance pay-outs for fire damage was disproportionately higher than in would be in other countries. “This was damaging in terms of risk assessment and therefore premium increases.”
The government was able to provide “some measure of comfort” to the underwriters about actions the government had taken to reduce the risk of arson, he said.
These included an $300,000 for full-time security at all schools, and local businesses also paying for increased security.
In addition, government was installing fire hydrants in the water network as part of Te Mato Vai water upgrade.
And the strong investigative work by police in apprehending and subsequently convicting last year’s arsonist was a factor in limiting the increases in the fire insurance.
But there was only so much government could do: “Much of the premium increase was also due to the hurricanes that hit the Caribbean and the Pacific in the last two years. The latest damage by Dorian just last month did not help things.
“As a result the reinsurance companies and underwriters have had to increase their premiums to cover the losses incurred. Although these are events that did not impact us directly they do have the effect of increasing our premiums also.”
He noted that the government already has an emergency response fund of $2m to enable an immediate response to disasters, allowing them to sign up local contractors to leap quickly into action.
And the country also had a US$10m contingent line of credit with the Asian Development Bank that could be drawn down with just a few days’ notice, to help the rebuild and recovery.
“The Cook Islands have always asserted that the most effective way of protecting our properties from natural disaster is to build resilience in our properties to try and reduce the impact of damage,” Brown said.
“This is why climate finance is so important for us. Foreshore protection and infrastructure strengthening will is required for us to live in a climate changing world.”