Facility Supervisor: Caribbean Risk Managers Ltd
Email: ccrif@ccrif.org;
Main Tel (Barbados): +1 (246) 426-1525
Tel (Jamaica): +1 (876) 920-4182; Tel (USA): +1 (202) 465-4301
CCRIF Briefing Document: Climate Change and Caribbean Economies:
Implications, Adaptation and Risk Management
Ekhosuehi Iyahen & Simon Young
Caribbean Risk Managers Ltd
Final: 21 May 2009
1
I
MPLICATIONS
Although the islands of the Caribbean are marked by nuanced differences which define the
social, economic and political fabric of each individual country, there are broad similarities
which make the islands, as a collective, all vulnerable to the risks and impacts of climate change.
The fact that they all share similar economic and sustainable development challenges (consisting
of low availability of resources, high debt, a small but rapidly growing population, remoteness,
susceptibility to natural disasters, excessive dependence on imports and vulnerability to global
developments) enhances their vulnerabilities and reduces their resilience to climate change,
particularly via the associated sea-level rise and enhanced climate variability and occurrence of
extreme natural events.
The implication and impact of climate change on these predominantly island nations is therefore
not simply physical but inherently tied to their economic and social viability. The deterioration in
coastal environments, for example through beach erosion and coral bleaching, will significantly
affect local resources such as the fishing industry as well as directly impacting on the value of
the tourism industry.
Sea-level rise will result in an increase in storm surge inundation area, flood water height and
wave damage, in turn resulting in enhanced levels of erosion and specific event impacts which
threaten vital infrastructure, settlements and facilities that support the livelihood of most
Caribbean communities. The increasing devastation and losses caused by natural disasters in the
Caribbean is similarly reflected on a global scale (Figure 1), therefore highlight the increasing
risk being created by climate change.
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Figure 1
Increase in global losses from natural disasters. Data from Swiss Re.
The reduction of potable water resources within small islands is yet another example of a threat
that is not simply physical but could have potentially far reaching social, economic and political
implications (Figure 2.)
Figure 2
Water as a nexus of many risks. From WEF: Global Risks 2009.
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The concern about the future of Caribbean economies within the context of these risks posed by
climate change is therefore a legitimate one. It is not simply based on unfounded fears but born
from experience with current patterns and consequences of climate variability, as well as from
observational records and indeed also climate model projections. This is supported by the 4
th
Assessment Report of the IPCC (Inter Governmental Panel on Climate Change) which concludes
that small islands, including those in the Caribbean, face some of the highest levels of threats and
risks from climate change and hence should focus on enhancing their resilience and
implementing appropriate adaptation measures as a matter of urgency (UN-IPCC 2007; Chapter.
16, page 4).
2
A
DAPTATION
Adaptation to climate change is not a simple task. This is inherently due to the complex nature of
climate change itself and the high level of uncertainty associated with understanding its true
scope, intensity and impacts.
As climate change is a complex issue, effectively addressing adaptation will require a multi-
faceted approach involving both mitigation and adaptation mechanisms and public and private
sector involvement and cooperation. This portfolio of mechanisms could range from
technological (e.g. sea defences), through to behavioural (e.g. altered food and recreational
choices), to managerial (e.g. altered farm practices) and to policy (e.g. planning regulations). In
fact, there is no clear picture of the limits to adaptation, or the cost, and this is partly because
effective adaptation measures are highly dependent on specific geographical and climate risk
factors as well as institutional, political and financial constraints.
Each of the islands of the Caribbean are simultaneously confronted with other social, political,
economic and physical stresses which make adaptation an intrinsically challenging and complex
task. This is because investment in essential adaptation and mitigatory measures will involve the
reallocation of already scarce resources away from economic development and poverty
alleviation, and will also add to already stifling debt burdens.
Although these constraints can limit the choices of adaptation options and their implementation
(such as inadequate data and technical capacity, weak human and institutional capacity and
limited financial resources), it becomes especially important that the harnessing of these
mechanisms and the associated adaptation investments made must themselves be properly
conceived and legitimately implemented.
Mal-adaptation, caused by an underestimation, overestimation or mis-estimation of the impact of
climate change, can also be regarded as an added risk with far reaching consequences for the
people of the Caribbean.
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Within this context the role of risk management as a component used to inform the process of
adaptation to the risks associated with climate change become especially relevant, important and
even critical.
3
R
ISK
M
ANAGEMENT
Apart from the risks created by climate change, Caribbean countries are also subject to a myriad
of other risks. These risks oftentimes do not stop at individual island national borders but are part
of a complex globally interconnected system. Similarly the risks associated with climate change
are borderless. Adaptation to this compendium of risks places enormous pressure on regional
governments who are charged with the responsibility of maintaining critical infrastructure while
preserving lives and economic livelihoods under increasing budgetary constraints. Within this
context prioritising risks and the actions necessary for effective adaptation becomes a point of
concern.
Risk management is a process which governments can harness to determine their priorities in
advance and in order where possible to minimise these risks. It involves a thorough examination
of current situations as well as a constant awareness of the ever changing risk landscape and
offers insight into opportunities and mechanisms which can be used to anticipate, adapt to and
mitigate against present and future risks.
The knowledge gained from utilising the comprehensive identification and assessment of risk
processes can provide valuable information that can then be presented to decision-makers,
thereby offering them an appropriate platform upon which to make decisions about the optimal
use of limited resources for adaptation.
It is important to also note that intrinsic to the risk management process is an appreciation of
uncertainty. Uncertainty is a factor which is critical in a lot of the risks faced by Caribbean
countries and by extension also the risks created or enhanced by climate change. The utilisation
of statistical methods and models and the in-depth knowledge of insurers who have experience in
quantifying and managing risk allows for these uncertainties to be limited to some extent,
thereby providing a more solid base upon which to make decisions.
Through the risk management process, public and private efforts can therefore be better focused
on those risks that cause either the greatest damage or occur the most frequently, with options
being offered into the means or tools of implementation to prevent or mitigate these risks and
how these can be spread across both the private, public and legal regulatory framework.
Distribution of risk management efforts across the different sectors must be aligned with the
relative impacts of each risk on that sector (e.g. Figure 3.)
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Figure 3
Example of the breakdown of economic costs for one risk; the distribution may be
very different for each of the different risks a country and its people face, and will also vary with
economic profile etc.
The utilisation of risk management as a tool to aid decision-making in an uncertain environment
has the potential to greatly help the islands of the Caribbean to effectively adapt to the risks
associated with climate change. The role of new initiatives such as CCRIF highlight some of the
ways in which risk management tools have been and can be harnessed to adapt to the risks that
result from climate change.
4
C
ASE
S
TUDY
:
CCRIF
The CCRIF provides a working model of an innovative risk management mechanism that
provides cost effective risk transfer as part of a holistic disaster risk management framework
within the Caribbean. It is a regional fund for Caribbean governments designed to limit the
financial impact of catastrophic hurricanes and earthquakes by quickly providing financial
liquidity when a policy is triggered. CCRIF offers parametric policies backed by both traditional
and capital markets.
The intense risk assessment processes involved in the CCRIF initiative involves the collection of
information relating to catastrophe risk exposure to hurricanes and earthquakes. This in turn
provides valuable data that can aid national governments and regional risk management
institutions in understanding the extent of exposures which they face as a country. This helps
governments to determine the level of coverage to purchase as well as aiding efforts in physical
disaster risk reduction and avoidance, general disaster response and recovery planning, and long-
term sustainable development planning.
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5
C
ONCLUSIONS
Investing in adaptation initiatives that reduce the impact of climate change is absolutely essential
for the future viability and sustainability of the economies of the Caribbean. Risk management
and by extension the utilisation of risk management tools and mechanisms will be critical in
ensuring that effective adaptation measures against climate change are made even within the
context of constrained resources and budgetary pressures.
The importance of comprehensively mapping and addressing the pronounced risk landscape
within each individual Caribbean island as a result of climate change highlights the need for the
mainstreaming of the risk management process within policy making, and the possibilities for the
creation of a role for a ‘Country Risk Officer’ in the individual islands.
5.1
The Case for a Country Risk Officer
The case for this role can be made on a number of grounds involving several simple questions:
Who evaluates the mix of prevention, preparation, response, recovery and risk transfer
actions across different risks?
Who takes responsibility for international coordination, as many catastrophes do not stop at
the individual national border?
These questions underscore the importance of developing a systematic method of addressing
these risks. They also underscore a need for Caribbean islands to find innovative ways of taking
ownership of the risks in order to control the adverse conditions which they can create for the
people of the Caribbean.
Although some work is being undertaken at the local, corporate and even national level on
mitigation and building awareness about climate change, adaptation and the role of risk
management in the process, it is necessary that the appropriate exchange of information,
expertise, governance and management structure is coordinated, in order to effectively address
the current multifaceted risk scenarios faced by the islands.
Within this context a Country Risk Officer would act as a central point of contact for the
purposes of systematically managing a comprehensive multi-area risk portfolio that coordinates
and builds upon the work already being carried out by governments. Essential to this role will be
creating a high degree of synergy between the various levels of government and administration,
private-sector operations and the insurance industry. Improving the level of collaboration across
the various sectors by actively engaging in the development of new partnerships involving the
transfer of risks and financing of economic losses through the coordination of global efforts
would be an essential component of effectively adapting to climate change.
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Figure 4 illustrates a fundamental tool of country (or regional/global) risk management; the
mapping of the risks onto a severity/likelihood grid. The example provided is for the world
economy, but the same principles can be applied at a country level, so identifying key priorities.
Figure 4
The Global Risk Landscape. From WEF: Global Risks 2009.
Without ownership of these risks and a systematic method of addressing the problems they
create, adaptation will remain fragmented and the challenges created by climate change will
continue to further dampen prospects of sustainable growth within the Caribbean.
Although risk management is not the complete solution to the problems being created for
Caribbean people and economies by climate change, it does provide an important benchmark
upon which more informed decisions can be made regarding investments in adaptation and
mitigatory measures.