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The Staggering Financial Implications of Rebuilding Haiti

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The recent disaster in Haiti has been sobering to consider. The loss of life has been tragic, and the need for medical care and supplies for survivors is nearly overwhelming. Thankfully, world-wide aid efforts have been impressive in mobilizing to care for those in need, and aid organizations continue to make strides to help the victims of this natural disaster.

As the disaster relief process for the Haiti earthquake aftermath continues, one figure that is particularly staggering is the projected cost to rebuild the country. A February 17, 2010, National Underwriter article indicated that estimates for rebuilding Haiti have approached $14 billion. And whereas a majority of United States homeowners purchase property and casualty (P&C) insurance coverage to protect against some of the financial costs of natural disasters, virtually no Haitians had this luxury.

According to a Munich Re expert, at the time of the earthquake Haiti had a P&C insurance penetration rate of less than 1 percent. While Haiti does belong to the Caribbean Catastrophe Risk Insurance Facility (CCRIF) pool, coverage from that pool is only around $8 million. The bulk of the burden for rebuilding the nation’s homes and infrastructure will fall on donors and other countries, as Haiti cannot afford to absorb this cost by itself.

These figures are cause to consider the implications to P&C insurers of protecting countries like Haiti, which is both located in a high-risk location (near the Enriquillo-Plaintain Garden fault zone) and one of the poorest countries in the world. Although risk is high and incomes are low, when disaster strikes, these countries are also the most in need of protection.

And the need for coverage against natural disasters shows no sign of slowing down: there has been a decade-over-decade trend of increased catastrophic events worldwide since the 1990s, with one expert predicting a similar increase into the 2010s. We have seen some of these recent disasters even in our own country. In light of this expectation, P&C insurers might consider examining their approach to high-risk locales, underrepresented groups and reinsurance.

When it comes to P&C insurance in Haiti, as well as insurance coverage in other high-risk, developing nations, what should we consider when thinking about how to protect these nations from financial disaster, while also guarding the insurer against excessive, unsustainable risk?



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