Catastrophe insurance could cut life-saving costs, says CGD
Disaster aid is financially overstretched, mismatched to the needs of victims, and is often overly reliant on donors, according to a
white paper
published by the
Centre for Global Development
(CGD). The paper argues that insurance payouts linked to risk management incentives and triggered by measurable events such as rainfall levels or wind speeds can save lives and cut the cost of responding to global catastrophes. “When crises like cyclones or drought hit, we wait for things to get really bad, then ask donors for funding, and then contend with delays, shortfalls, and piecemeal funding. That’s tragic for people affected – and much more expensive than tackling disasters in full and on time,” Theodore Talbot, Senior Policy Analyst at the Centre for Global Development told
Development Finance
ahead of the launch of the white paper, which he co-authored. Talbot said humanitarian aid sank to a US$8 billion deficit in 2015. “We can do better,” he added. Entitled
Payouts For Perils: Why Disaster Aid Is Broken, And How Catastrophe Insurance Can Help To Fix It
, the report reaffirms the need for a fresh approach to emergency financing, such as the
World Bank’s
new insurance-based
Pandemic Emergency Facility
. The
Pandemic Emergency Facility was launched earlier this year
and is based around an insurance model that calculates pandemic risk and seeks to act as an intermediary between the first response units at the
World Health Organisation
, and long-term financing. The new facility follows a steady rise in the amount of aid being spent on disasters. According to the paper, in 1980, the total value of aid flowing to humanitarian, emergency, reconstruction, and disaster preparedness initiatives was US$1 billion, compared to more than US$15 billion in 2005. The cost of disasters is also rising disproportionately in lower income countries and lower-middle income countries, according to
figures cited in the paper. In 1980, disasters caused over US$25 billion in damage. By 2005, their economic impact hit US$40 billion, rising to a twenty-year high of more than US$130 billion in 2008.
United Nations Office for the Coordination of Humanitarian Affairs
data suggests that this deficit has grown more conservatively to US$7.3 billion in 2014, up from US$2.4 billion in 2005. However, the authors maintain that financial constraints are being exacerbated by poor modelling and that funding would be more sufficient if funds weren’t slowed down by processes such as preliminary assessments for aid that increase cost. Drawing on external sources, the authors add that when the Ebola outbreak hit Guinea in March 2014, it would have cost US$5 million to contain, but by October, more than US$1 billion was required. In contrast, less than two weeks after Hurricane Erika ravaged the mountainous island of Dominica, a regional insurance pool called the
Caribbean Catastrophe Risk Insurance Facility
released US$2.4 million to government officials, responding to the immediate needs of its people via an excess rainfall insurance policy. “Pilot schemes in Africa, the Caribbean, and the Pacific show that large-scale insurance contracts can release money when it’s most needed,” said Talbot. “They make what was uncertain and delayed predictable and timely, and so save lives, money, and time.” CGD will address the challenges to more effective emergency aid on
19th July 2016 in Washington DC
By Adam Pitt
Photo: Adam Rogers / UNDP