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23 May 16 08:23

I am attending the first World Humanitarian Summit in Istanbul. This is a flagship event organized by the United Nations and a number of heads of state are joining UN Secretary General Ban Ki-Moon to discuss the way forward.

Total humanitarian assistance has increased dramatically from USD 18 billion in 2012 to USD 28 billion in 2015 – the highest ever
recorded. With this increase comes a massive funding gap as needs for humanitarian assistance are increasing even more. Consequently, the humanitarian funding mechanism needs to be fundamentally redesigned. And insurance can play a meaningful role in there – for example by providing coverage against natural disasters!

Natural catastrophes are increasing in frequency and severity. The consequences are especially severe in vulnerable low-income countries, which are both the worst hit and the least prepared. Innovative financial instruments such as parametric insurance or catastrophe bonds exist to protect these countries against humanitarian crises caused by natural catastrophes and to preserve hard-won development gains – even in the face of floods, earthquakes, adverse weather and other setbacks.

Natural catastrophes and (soon) even the outbreak of epidemic diseases are insurable risks. The re/insurance and capital markets are prepared to and have the financial means to absorb these risks. Governments and humanitarian actors can transfer these risks to the private sector, which has the benefit of converting a highly volatile financing requirement into a more stable budget item and of leveraging available funds. This leverage can be as high as 30 times (USD 1 million of premium could result in USD 30 million payout in case of major catastrophe).

Doing this allows the global community to move away from reactive post-event funding towards proactive funding strategies. Humanitarian actors and governments could tap into the technical expertise of re/insurers to develop objective and politically acceptable ‘triggers’ for the early and quick release of funding.

A paradigm shift in humanitarian financing for natural catastrophes towards risk transfer solutions requires the willingness and ability from the side of governments and humanitarian actors to take control of their disaster risk financing. Humanitarian actors can both promote and sponsor insurance schemes as well as securing funds for their own operations through insurance mechanisms. Humanitarian actors can increase the efficiency of their funding mechanisms by reserving traditional humanitarian funding for non-insurable risks, particularly for conflict-related settings and slow, onset disasters, while transferring insurable risks, such as natural
catastrophes, extreme weather and potentially epidemic outbreaks to the private sector.

Insurance does not only provide the funding for recovery after an event but also puts a price tag on risks by analyzing the underlying exposure and vulnerability. This process informs decision makers of their overall preparedness, allows for improved contingency planning and targeted investment in risk reduction measures.

You can follow the WHS here: https://www.worldhumanitariansummit.org/

https://www.worldhumanitariansummit.org/

www.worldhumanitariansummit.org


Category: Food security: Livestock, Climate/natural disasters: Climate change, Disaster risk, Drought, Earthquakes, Resilience, Other

Location: Istanbul, İstanbul, Turkey


3 Comments

Urs Leimbacher - 23 May 2016, 8:53 p.m.

Thanks, Reto, for sharing some key points on cutting-edge innovations that the private and public sector may jointly bring to life. I hope there's a great turnout from the private sector in Istanbul!

And I look forward to the launch of the new pandemic emergency financing facility! This will be both a great step forward on fighting pandemic outbreaks and also a showcase example of how partners from international organisations, governments and the private sector join forces on concrete challenges to develop solutions that will save many lives.

Reto Schnarwiler - 30 May 2016, 10:45 a.m.

The first World Humanitarian Summit on 23-24 May 2016 in Istanbul convened 9000 participants from 173 Member States, including 55 Heads of State and Government, hundreds of private sector representatives, and thousands of people from civil society and non-governmental organizations. The United Nations in its 70 years has never come together at this scale, with this many different stakeholders, to discuss the pressing challenges that are resulting in so much suffering today.

Risk-informed decision making and insurance came up several times during the summit and also made it into the Chair's Summary:

•It was announced that the United Nations committed to making all its plans and programmes risk informed. These efforts would not only greatly assist in responding better to crises, but also lead to more predictable finance to allow early action, such as through risk finance and insurance.
• Humanitarian needs must be met by adequate and predictable financing. Commitments were made to increase resources and widen the donor base, including through expanding financing streams and mechanisms, ramping up risk insurance, greater support to pooled financing mechanisms, and mobilization of Islamic Social Finance. There was broad support from Member States to increase the Central Emergency Response Fund to $1 billion. This included a 25 per cent increase by one country, a pledge to provide $149 million over 5 years, as well as an initiative to use risk financing (backed by a fund to help pay the premium) to establish an innovative financing mechanism linked to risk insurance.

tom - 10 Jun 2016, 4:18 p.m.

It is unclear how this insurance would work. For example, in many cases, the "natural disaster" is exacerbated by human or government inaction or mismanagement. Such would seem to not lead to unquestioned or automatic payout of the policy?

As the article mentions, amounts to ameliorate current problems has gone from 18 to 28 billion which is not adequate. Premiums suggested here put a severe dent in current, inadequate funds.

Large corporations often "self insure" because of high premium costs. Governments have the means but are often reluctant to pay when funds are due even in the case of emergency pledges. What makes such a policy effective in such an environment?

Has such a policy ever been created and its potential costs/benefits to all parties assessed?


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