Jamaica should consider following Mexico’s example by developing catastrophe bonds as part of its disaster risk management strategy, says Yuri Chakalall, senior specialist, natural disaster and risk management at the Inter-American Development Bank (IDB).
The catastrophe bonds issued by Mexico are insurance-linked securities, which provide its government with cash payouts in the event of specified environmental catastrophes. Investors receive positive return on their investment if there are no such events while the security is in effect.
“If the worst possible type of earthquake occurred, Mexico would have access to the investor’s principal,” Chakalall explained. “If there was none, the principal and interest would be given back to the investor.
“Mexico in the 1980s had a massive earthquake, which resulted in severe infrastructural damage and significant deaths,” he said. “And, they wanted a level of confidence and financial capacity to deal with any type of earthquake.”
On that basis, “They developed a system of risk layering, with the budget being the first line of defence. And if a bigger earthquake occurred there were other sources, and they went to market with bonds,” he said.
Chakalall was presenting on the theme ‘Disaster Risk Management and Business Continuity – Issues to Consider and How to Evaluate Risk,’ at the Caribbean Microfinance Alliance Forum, which was held at the Hyatt Ziva Hotel, Rosehall, St James, recently.
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