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Relief from the Storms: Examining the impact in the Eastern Caribbean

15 December 2017

The damage caused by hurricanes Harvey, Irma, Maria and José has attracted significant media attention, but whereas the size of economic losses in dollars may be higher in continental America and Puerto Rico, the proportional devastation to life and infrastructure is far greater in the Lesser Antilles Islands and the Turks and Caicos Islands.

On the island of Barbuda, 90% of island houses were badly damaged or destroyed, while in nearby Sint Maarten, that figure was more than 95%. Of course, it's not just buildings that have been affected; many power, road and communication networks have been entirely wiped out. According to Panmure Gordon, economic losses from Hurricane Irma alone could reach USD 300bn in its entire storm path, with insurance firms expected to cover only half of that sum.

The total cost of rebuilding will not only include the initial reformation of infrastructure, but also the loss of income in countries that depend on tourism. According to the Eastern Caribbean Central Bank (ECCB), over 4.1mn people visited the region in 2016. The hurricanes will have a long-term effect in terms of this lost revenue.

Hurricane damage has been especially high in the British Overseas Territories of Anguilla, the British Virgin Islands (BVI) and Turks and Caicos, as well as the Commonwealth sovereign nations of Dominica and Antigua and Barbuda. Vast disparities in insurance penetration rates raise the question of the ability of local markets to respond to a disaster of this magnitude. Penetration in the region ranges from approximately 15.1% in the comparatively wealthy BVI (2014) to 4.2% in Turks and Caicos (2016) as a percentage of national GDP. High non-life insurance penetration ratios are a common feature of Caribbean countries, primarily reflecting the cost of property insurance due to the hazard of hurricanes. However, with gross written premiums for Turks and Caicos only reaching USD 35mn in 2016, the potential exists for almost all local capacity to be wiped out, even if there is significant reinsurance standing behind local policies.

Many of the overseas territories are therefore looking to the Caribbean Catastrophe Risk Insurance Facility (CCRIF), which pools regional catastrophe risk among members of the Caribbean Community, and is backed by the World Bank, to provide additional support. The CCRIF has already provided a payment of USD 48.89mn to several of its members in September under its parametric tropical cyclone coverage. Additionally, the UK provided 20 tonnes of humanitarian aid and the US donated 45 tonnes of emergency relief supplies. France also came to Dominica's aid by restoring the nation's hospitals.

Contingency funds specifically for the Eastern Caribbean are discussed in a 2012 report published by the International Monetary Fund. The report reads 'national and regional disaster contingency funds are too small to meet financing needs following a disaster. High reliance on donor emergency assistance throughout the East Caribbean region adversely affects the creation of any sizable contingency funds.' This suggests that the financial issues faced throughout this hurricane season, with demands likely going beyond even CCRIF capacity, were foreseen at least five years ago but a solution continues to elude regional planners. So, to fully recover, the islands must rely on foreign aid, which presents further complications.

Britain retains direct responsibility for the Turks and Caicos Islands, Anguilla and the British Virgin Islands as overseas dependencies. Very little aid was initially donated, however, largely because the UK was not able to draw on its aid budget for certain islands because they classified as 'too wealthy' under the current rules of the Organisation for Economic Co-Operation and Development (OECD). Instead, the Treasury must plan how to finance the aid itself, made more difficult with the dislocation at the Department for International Development over the resignation of the Secretary of State, Priti Patel, and her replacement by Penny Mordaunt in November 2017. In November, the UK government pledged GBP 30mn in further aid for the BVI, Turks and Caicos, Dominica and Antigua and Barbuda. This took the total pledged by the UK to GBP 92mn.

Britain's historical links with Antigua and Barbuda, who have already appealed for disaster aid, raises the possibility of further outlay by the UK for reconstruction, as well as transportation and the costly deployment of the armed forces. This may encounter political difficulties as budgets become tighter and attitudes toward foreign aid budgets harden in the run-up to Brexit in 2019.

By contrast, on the island of Saint Martin (St Maarten), the French and Dutch governments have been working effectively together to deliver post-disaster aid, facing few of the legal difficulties experienced by the UK. In November, tensions inherent in the political relationship between the islands and their European benefactors became clear in Dutch St Maarten, however. Its government collapsed under pressure from parliamentarians and the Netherlands after then-Prime Minister William Marlin refused to implement Dutch oversight measures in exchange for an EUR 550mn (USD 618mn) reconstruction package. The island will also receive supplementary aid from the EU to the sum of EUR 2mn (USD 2.33mn). Questions over access to European funding has naturally raised concerns among the British Caribbean territories amid Brexit talks.

The insurance markets in the East Caribbean, therefore, face years of potential disruption and likely face a long recovery. There are actions and procedures that can be put in place to make this recovery as smooth, painless and as quick as possible, however. It will no doubt be an international effort as many of the economies do not have the strength to recover on their own. Axco will continue to monitor the recovery period and chart its successes and failures.