April 07, 2017
Millions of people face hazards like cyclones and drought every day. International aid to deal with disasters after they strike is generous, but it is unpredictable and fragmented, and it often fails to arrive when it would do the most good. We must stop treating disasters like surprises. Matching finance to planning today will save lives, money, and time tomorrow.
Our working group proposes two key innovations:
- Pivot existing funding to enable frontline governments to pre-enroll for quick-fire support (including lending) against predictable future costs. The government of Malawi mobilised concessional lending from the World Bank in five months after devastating floods in 2015. That is much faster than most development loans, but much slower than would minimise suffering and expense by responding quickly and in full.
- Transfer risk to the insurance sector to create certainty (and make donor funds accessible to frontline humanitarian agencies) where no pool of money is available. Premiums are the price of making sure we have funding when we need it. Just as donors have innovated by learning to provide concessional loans, guarantees, and equity, they can also provide concessional insurance.
Policymakers recognise the benefits of responding quickly and effectively to emergencies. Scaling up pre-agreed aid has been held back by uncertainty that payouts will be used well and by worries about undermining incentives to manage disaster risk, while engagement with the insurance sector has raised concerns about whether the public sector can be an informed buyer.
The working group recommends four actions to overcome these stumbling blocks:
- Pivot funding. Predictable funding for disaster response is the most critical resource for dealing with disasters. Funding windows and concessional loans for emergency response exist, but these funds are generally not committed in advance for specific risks, and so spending cannot be planned and response is delayed. Authorities should be able to pre-enroll in existing windows for guaranteed funding against specific future risks.
- Reward planning, resilience, and equity. We can realise a dividend from agreeing money in advance by tying more reliable funding to requirements for investments in risk management and planning. Donors and national authorities might invest in flood defenses, for example, while agencies agree to pre-position emergency supplies and coordinate disaster plans with governments. In parallel, we must demand that support is fairly and transparently distributed, leaving nobody behind. Similar hazards affect people differently depending on their political power and voice. Pre-agreement creates a novel way to incent more equitable, transparent response.
- Give technical advice. Agencies and governments need technically accurate, genuinely independent, and strictly confidential advice to get a clear-eyed view of their potential losses—and the costs for insurance against them. This risk modeling expertise lies with the insurance sector. It has been forced to develop and hone it by strong regulatory requirements—and to avoid bankruptcy. Donors should support a sophisticated advisory facility to deliver the public good of neutral, actionable advice. The facility must have ironclad ethical walls separating it from insurers who might then underwrite risks.
- Catalyse the market. Donors can put money on call to deal with relatively rare and expensive hazards by transferring risk to insurers. Using brokers to get the best deal, benefiting from competition among insurers, and using technically astute estimates of the underlying hazards and exposure will enable the public sector to provide concessional insurance contracts to frontline countries and frontline agencies for the right price. Each dollar of scarce development aid can then cover a larger volume of potential losses, much as health insurance pays for care that is many times the cost of any single premium payment. We can sharpen incentives to manage risks by building requirements for investing in resilience and planning into these contracts.
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