Financial wizardry has its uses

Financial wizardry has gotten a bad name lately - some in the U.S. have even called for a Financial Product Safety Commission. Innovation in financial products clearly has its uses, though. One case in point is the Caribbean Catastrophe Risk Insurance Facility. Established in 2007, the facility provides insurance against natural catastrophes for 16 Caribbean nations. And it just recently won two industry awards in quick succession.   

Caribbean countries face a tricky problem in insuring against the hurricanes and earthquakes that can devastate their economies on short notice. In large countries, natural disasters tend to strike only one region at a time, which means the central government can play the role of insurer by providing various forms of disaster relief. Small countries don't have that possibility open to them - thus the logic of creating an insurance pool for many small countries.

The most recent beneficiary of the policy has been Turks and Caicos. Following Hurricane Ike, the government received US$6.3 million from the facility. That must have come in handy after nearly 80% of the homes on the islands were damaged. Now why can't we come up with a facility to insure against catastrophe on Wall Street?

>> Read more about the Caribbean Catastrophe Risk Insurance Facility