Low insurance rates pose double cyclone threat

Pacific states are underinsured against natural disasters this cyclone season, giving rise to possible looming financial and environmental crises the United Nations has warned.

With the COVID-19 crisis affecting Samoa’s tourism industry, some of the countries hotels and beach fale operators are choosing to forgo property insurance in favour of paying their staff or other essential bills.

United Nations Capital Development Fund deputy programme manager Krishnan Narasimhan told the Samoa Observer he has yet to see a serious discussion over how to deal with this twin crisis.

“I am afraid that this has not been elevated as a policy agenda for large scale advocacy in Government yet but there is a need for it,” he said.

“There is a need for the tourism industry and insurance industry stakeholders to sit together about these things and seek certain types of relief.”

Mr. Narasimhan is responsible for the Pacific Financial Inclusion Programme and is based in Fiji. In recent years he has been developing the Pacific Insurance and Climate Adaptation Programme to help properties insure themselves against the financial walloping caused by severe weather events. 

“The Government role is very critical,” he said of the impending insurance crisis.

“It is not to criticise any Government or Government agency but in the larger scheme of things of offering financial relief packages like extending a credit guarantee or a loan moratorium, they haven’t critically looked at offering financial support for keeping insurance alive.

“That is a conversation I have not seen taking place very seriously, which I think is a very critical factor.” 

The insurance industry needs to play its part too, taking its and its clients’ problems to Governments and bringing creative solutions to the table.

“It is very important we continue to protect the small eco-tourism, mom and pop, bed and breakfast joints because they are very critical when tourism reopens for attracting smaller value tourists, and they are the ones affected critically by the border closures.”

When asked about this issue in September, the Ministry of Finance Chief Executive Officer Leasiosiofaasisina Oscar Malielegaoi said the Government has no plans to “take over” insurance premiums for hotels.

Instead, Samoa continues to improve the climate resilience of its roads, bridges and major infrastructure, Leasiosio said, highlighting that Government buildings are self-insured for cyclones through an independent facility. 

Mr. Narasimhan said helping hotels and the like with insurance would not actually be such an expensive exercise. 

“Having said that, I think industry stakeholders have to come to an agreement in terms of going to Government with a solution, not a problem.”

He said rather than asking the Government to upfront pay the premiums for hotels, a more creative solution could be presented. 

“Rather than that, they could say we have worked together, the tourism industry and the insurance industry, and we have identified that there are x number of small resorts that need support for the next six months or a year.

“We are willing to restructure their insurance packages but they will need this capital, and the rest we are willing to waive. 

“If they go with a solution like that I think most Governments would be able to listen.” 

The Pacific has the lowest rates for insurance penetration in the world, Mr. Narasimham said. In 2015, a survey found just six to 12 per cent of the population had insurance. 

Part of this comes from Pacific communities rustling up the money for emergencies when they need to, like Samoa’s fa’alavelave system.

“Though funerals are very expensive in Samoa, the extended family and families overseas chip in with money, and people don’t feel the importance of making provisions for a funeral in the family,” he said.

“We recognise the importance of insurance, and especially during these COVID-19 times where people become a little more vulnerable than what they were before, and many of them might have lost jobs, especially those in the tourism sector. 

“We have officially entered the cyclone season in the Pacific so it is likely we will be impacted by one of these weather systems, it is certainly going to have an impact on existing coping mechanisms and resilience built up over the years.”

Mr. Narasimhan said he urged businesses to keep talking to their insurance providers to figure out ways to keep their plans going, by restructuring premiums or adjusting the payment schedule.

Many hotels, he suggested, can remove or reduce their public liability insurance because they are having such low occupancy rates. 

But he said small bed and breakfast type properties, like coastal beach fales, may be struggling to make even reduced payments.

“They may not have adequate cash flow or capital to fall back on. In such cases I think there is a need for the industry associations to look at this as a critical aspect of their response.

“I know in my conversations with the South Pacific Tourism Organisation they are looking at this very seriously and trying to assist their members with guidance.”

The U.N.C.D.F. donor partners like the Governments of Australia and New Zealand have expressed their willingness to support programmes that deal with issues like insurance, Mr. Narasimhan said.

“There is underlying recognition among everybody, especially the political leadership in most countries that while there will be a vaccine found for COVID and the health crisis as it exists may not be there next year, the Pacific needs to live with the effects of climate change.

“They recognise that they need to work with us to bring these products sooner rather than later to the market, and I am confident we are on the right track in doing so.”

Samoa and the Pacific can expect between eight to ten named tropical cyclones this wet season, according to the MetService and National Institute of Water and Atmospheric Research (N.I.W.A.) tropical cyclone outlook.

Released on Tuesday, the outlook suggests there will be eight to ten named tropical cyclones in the Southwest Pacific basic between November and next April, which is a normal, or even lower rate for the region.

While Samoa, Tonga and Wallis and Futuna are expected to have normal to slightly reduced activity, New Caledonia and Vanuatu may expect elevated activity or more risk of tropical cyclones.

Countries that usually experience one or more named cyclones should still expect to have that this season, N.I.W.A. says.

At least three cyclones could reach category 3, and similar conditions to previous category 5 storm seasons exist for the coming season too.

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