'Blue Finance' Aims to De-Risk Shipping
Financial innovations known as "blue finance" are being applied in the Caribbean to de-risk private investments in shipping and coastal tourism. New tools like blended funds and parametric insurance are being used to attract capital by protecting against climate and operational risks, offering a new model for funding logistics infrastructure.
The World Bank is actively backing the region's pivot to a "blue economy" with the "Unleashing the Blue Economy of the Caribbean" (UBEC) project, which includes US$56 million in financing for Grenada, Saint Lucia, and Saint Vincent and the Grenadines, plus an additional US$8 million for the OECS Commission. This initiative is complemented by the World Bank's PROBLUE program, which is developing "blue port" initiatives in Jamaica, Belize, St. Lucia, Grenada, and the Dominican Republic by assessing climate resilience and identifying investment opportunities. A key blended finance initiative is the new Blue Green Bank (BGB) in Barbados, established with support from the Green Climate Fund and Pegasus Capital Advisors. The BGB aims to channel investments into climate resilience projects, including low-carbon transport, and is expected to have a capital base of over BDS$80 million with a lending capacity of BDS$500 million. Parametric insurance provides rapid payouts for climate-related disruptions without lengthy damage assessments. For instance, Aura Underwriting offers a specific Caribbean parametric policy for hurricanes with limits up to US$5,000,000. Payouts are triggered when a hurricane of a certain category passes within a predefined radius of the insured location, with claims settled within 30 days. These insurance products are designed to cover operational disruptions critical to logistics, such as port closures, vessel waiting times, and canal blockages caused by high winds or intense cyclones. This provides immediate liquidity to manage increased fuel costs, crew expenses, and contractual penalties that arise from shipping delays, protecting against both physical damage and non-damage business interruption. The Caribbean Catastrophe Risk Insurance Facility (CCRIF), a regional parametric insurance fund, has demonstrated the effectiveness of this model. Since its inception, CCRIF has made 81 payouts totaling US$462 million to member governments for hurricane and other weather-related events. These funds are crucial for post-disaster needs, including the repair of essential infrastructure that supports the shipping and tourism sectors. A notable example of this in action was the record US$70.8 million payout to the Jamaican government following Hurricane Melissa. This capital injection was available within 14 days of the event, enabling the swift commencement of recovery efforts, which included addressing damage to public utilities and infrastructure vital for logistics and tourism. Beyond sovereign insurance, there's a push to apply these models directly to key industries. Following Hurricane Beryl, the CCRIF made specific payouts totaling $12.6 million for Grenada's electric and water utility companies and its fisheries sector. This sectoral approach is being expanded, with the UBEC project supporting the extension of risk insurance products to protect fisheries and related livelihoods in St. Vincent and the Grenadines, Grenada, and Saint Lucia.
