Page 12 - Turkinsurance Digital Magazine

10 cover story

nition focusing on what is not covered and including other remain- Finanzas de Centroamérica, Panamá y la República Dominicana -
ing risks within the coverage, parametric insurance policies include The Council of Ministers of Finance of Central America, Panama
a more specific explanation describing what is being covered. The and The Dominican Republic). Working in close cooperation with
same short and clear definition applies to the conditions for claims the governments of member countries, CCRIF and COSEFIN play
payments. Therefore, the two most important steps of the insurance a vital role in natural disaster risk zones through the funding they
process, technical policy issuing and claims payment, become much provide. The product offers solutions via cash flows to countries that
easier and faster; while fewer number of employees can offer rapid are experiencing shocking results following earthquakes, tropical
and uninterrupted services to a wider customer group. cyclones and intense floods.

In general, parametric insurance products are mostly preferred for Growing in Turkey, too
‘back swan’ risks which have higher magnitude but lower likelihood
of occurring. However, policy scopes can be extended to include Unfortunately, a regional organization such as CCRIF does not pro-
other risks with lower costs and higher likelihood in case they are vide services to the region our country is located in. If we consider
defined as parameters.
earthquake as the most significant risk for our country, it is still
unclear how Turkey will supply for the cash flow required during
The most efficient product for risks with the short-term following a potentially destructive earthquake. The
high cost but low probability first step is to determine how and with which resources to finance
the first 24 hours rapidly and without causing any social agitation.
It is of vital importance to supply for this need via assessment teams
As mentioned earlier, parametric insurance is used for risks with located in a region that will not be impacted by the earthquake and
low probability but high cost. That’s why it is generally preferred funds supporting those teams. For now, it is evident that it will take
as a protection against damages that may occur due to natural dis- a long time according to natural disaster terminology for insurance
asters.
companies to activate their emergency plans, recover and restart
their business processes and respond to customer requirements; es-
This practice is known to have been initiated by CCRIF (Caribbean pecially in case of a potential earthquake in the Marmara Region,
Catastrophe Risk Insurance Facility). Founded in 2007 as a risk where the head offices of insurance companies are located.
pool and with the participation of numerous countries, CCRIF was
mainly initiated as a regional fund aiming to compensate for cata- Parametric insurance products are getting more and more popular
strophic damages and continued to operate with this simple struc- in Turkey as well. However, there are not any statistical assess-
ture until 2014. After that, due to the high catastrophe potential in ment as to the share of parametric insurance products among all
the Caribbean’s, it was transformed into a private asset company the current insurance products that are in use. As it makes pay-
and began providing coverage for different geographical regions ments for risks in the policy even though they have not resulted in
and risks.
the expected amount of loss, parametric insurance has the power to
attract customers and bring new customers in the system just like
Its foundation was driven by the World Bank and Japan as the coun- a life insurance policy that pays back the capital investment. Insur-
try that can find the most interesting solutions for the earthquake ance companies are currently offering protection for policyholders
risk due to its geographical location. Some other countries in the against climate change and catastrophic risks via parametric insur-
Americas were included in the program in 2015, after an agreement ance products.
was signed with COSEFIN (El Consejo de Ministros de Hacienda o
Rabia Kübra Kanun / kubrac@bestyayincilik.com