The Cook Islands : Disaster Risk Financing and Insurance

Abstract

This country note is produced is part of The Pacific Catastrophe Risk Assessment andFinancing Initiative (PCRAFI). The geographic spread of the Cook Islands poses logistical problems for any necessary post-disaster relief and response efforts. The events of 2005 demonstrated that the Cook Islands is extremely vulnerable to the threat of tropical cyclones (TCs): in the two months of February and March 2005, TCs Meena, Nancy, Olaf, Percy, and Rae swept the country. The Cook Islands is expected to incur, on average, about NZ$6 million (US$4.9 million) per year in losses due to tropical cyclones. In the next 50 years, the Cook Islands has a 50 percent chance of experiencing a per-event loss exceeding NZ$97 million (US$79.5 million. The Cook Islands has a proactive approach to disaster risk financing and insurance (DRFI), which is supported by the upper echelons of government. In January 2011, the prime minister in his role as chair of the National Disaster Risk Management Council requested that the Ministry of Finance and Economic Management look at ways to become self-reliant in initial disaster response and generate new income streams for investment in a fund specifically for disaster management response and recovery. The Cook Islands has available a maximum amount of NZ$5.6 million (US$4.6 million) in the form of contingency funds and catastrophe risk insurance to facilitate disaster response. A number of options for further improving the Cook Islands financial protection against disasters are presented for consideration: (a) the development of an integrated DRFI strategy; (b) investigation of using contingent credit to access additional liquidity post-disaster; (c) development of an operations manual for post-disaster budget mobilization and execution; and (d) the identification of assets to be included in an insurance program for critical public assets.