Small Amount of Insurance Money Expected For Haiti

Published: Fri 15 Jan 2010

Larry Roth

There is no doubt the devastation resulting from the Haiti earthquake will leave scars on its residents for years to come. Besides the emotional scars, some will be financial because there is little personal insurance to cover the losses expected to total in the hundreds of millions of dollars.

While most of developed nations of the world are accustomed to turning to private insurance to cover losses, such a market is practically non-existent in Haiti. That's not surprising since so many residents have lived at the poverty level.

The government itself does have some coverage as a member of the Caribbean Catastrophe Risk Insurance Facility. In its disaster risk management strategy, Haiti had been paying a $385,500 premium. The settlement for the claim will be about 20 times that amount or about $7.7 million.

That is far short of the money it will take to rebuild. A catastrophe risk model from Eqecat expects the cost of damages to be "in the hundreds of millions of dollars." Much of those funds are expected to come from the aid provided by the international community.

According to the Insurance Information Institute, the most activity regarding claims in the private insurance market will come from multinational companies. Their facilities in Haiti likely are covered through policies that will pay losses no matter where they occur. One German reinsurer estimates its losses to cover total nearly $29 million.

The resulting losses from the magnitude-7 earthquake in Haiti are already being compared to the China earthquake that killed nearly 87,500 people in the southwestern part of the country in 2008. China, too, had minimal private insurance coverage to offset the costs of economic damages. While there was $366 million in losses that were insured, the total cost of losses sustained by that nation were $125 billion.

Although it coverage will pay just portion of the damages, the Caribbean Catastrophe Risk Insurance Facility is important to its 16 member governments. It was created to limit the financial hit that can occur with hurricanes and earthquakes because it provides the short-term liquidity that can be critical to keep an island nation operating.

The facility in 2007 paid claims of nearly $1 million to the Dominican and St Lucian governments after the November earthquake that rocked the eastern Caribbean. A year later, it paid a $6.3 million claim by Turks & Caicos Islands after Hurricane Ike slammed into Grand Turk.