Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI)
Regional scheme offering Pacific island states parametric insurance against cyclones and earthquakes.
The Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) is a regional scheme that, through the Pacific Catastrophe Risk Insurance Company (PCRIC) established in 2016, offers small Pacific island states sovereign parametric insurance against tropical cyclones and earthquakes, perils to which these territories are extremely exposed and vulnerable. Like its Caribbean and African counterparts, it pays rapid indemnification when a modeled severity index exceeds a threshold, allowing the immediate post-disaster response to be financed without waiting for international aid. The scheme pools risk among participating states and partly transfers it to reinsurance and capital markets. It addresses a characteristic specific to small island states: a catastrophe exposure disproportionate to their budget capacity, which makes risk transfer particularly valuable. This facility illustrates the global spread of sovereign parametric protection mechanisms and their role in the climate resilience of the countries most threatened by sea level rise and intensifying cyclones.
Textbook case: a Pacific island state hit by a major cyclone receives parametric indemnification from the regional facility to finance relief, without waiting for international aid, as Tonga did after Cyclone Gita in February 2018.
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