Innovative Approach to Insurance Enables Humanitarian Agencies To Proactively Manage Climate-Related Risks At Scale
A new report published today demonstrates how insurance can help governments and organisations to predict and proactively manage climate-related humanitarian risks at scale.
The report, published by Start Network, a global collaboration of humanitarian NGOs, is based on a comprehensive evaluation of its programme in Senegal, which utilised a ‘parametric insurance’ policy to pay out before the worst effects of a drought were felt.
Six Start Network members – Action Against Hunger, Catholic Relief Services, Oxfam, Plan International, Save the Children and World Vision – worked alongside the Government of Senegal to deliver assistance throughout 2020 to Senegalese families ahead of a severe large-scale drought.
The agencies distributed enriched flour and made cash transfers to more than 335,000 people across seven regions. This enabled families to protect livestock and other valuable assets and avoid resorting to ‘negative coping strategies’, such as skipping meals or sending children to work instead of school. The COVID-19 pandemic exacerbated needs and agencies took the opportunity to broadcast hygiene and sanitation messaging to help mitigate the spread of the virus.
The programme was funded through an innovative parametric insurance policy. This means that payouts are made automatically when pre-agreed scientific triggers are met. The triggers in this programme were based on rainfall data, when the rainfall levels fell below a certain threshold, the insurance policy paid out. The policy was provided by African Risk Capacity Insurance Limited.
The wider programme included complementary policies purchased by Start Network alongside the Government of Senegal. This meant that a payout of 10.6m USD was made to Start Network and another payout of 12.5m USD was made to the Government of Senegal. The payout to Start Network remains the largest-ever funding allocation to civil society for early humanitarian action.
ARC Replica’s Regional Disaster Risk Financing Coordinator, Amadou Diallo, said: “Start Network’s insurance-funded early humanitarian response greatly supported vulnerable communities to manage a difficult lean season, alongside the Government of Senegal. These communities would have been in an unprecedented situation due to the impact of COVID-19 on top of drought. We are able to manage climate risks proactively and this programme has shown why it is so important that more of these programmes are funded.”
The report shows the value of proactively managing humanitarian risks. Impacts included:
- 86% of households reported that they received the cash early enough to help prepare for the lean season.
- 85% of households reported improving the quality or quantity of food they were accessing
- The number of households with children having to work reduced by 13%
The report also makes a recommendation for other risk financing programmes to embed ‘single hazard’ insurance policies within wider risk management strategies to enable flexibility when there are the compounding effects of multiple hazards, as was the case here with drought and COVID-19. This can be achieved by complementing insurance-based approaches with other forms of flexible contingency financing. Start Network is developing an infrastructure for this at the global scale through its Start Financing Facility.
ARC Replica, is run in a partnership between the Start Network, the Government of Senegal, the African Risk Capacity (ARC), and the World Food Programme (WFP), funded by the German Federal Ministry for Economic Cooperation and Development (BMZ) through the German Development Bank, Kreditanstalt für Wiederaufbau (KfW). ARC Ltd is also jointly funded by KfW on behalf of BMZ and the UK’s Foreign, Commonwealth & Development Office.