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DISASTER RISK FINANCING IN CONCERT

Date added

22 September 2019

Summary

Most disasters are not unpredictable, but treating them as such leads to critical opportunities to save lives and build long term resilience being missed.

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Reducing the impacts of weather extremes and disasters is a fundamental part of building longer-term climate resilience. Yet, currently, for every $10 spent on humanitarian response, only $1 is spent on reducing and managing risks. This imbalance must be reversed if we are to tackle the impacts of climate change expected in coming years.

The way we respond to disasters treats them as if they cannot be predicted but disaster risk is not unpredictable and treating it as such means that opportunities to save lives and reduce impacts of disasters are missed. Disaster risk finance can help to shift the incentive to act. In doing so, DRF can, over time, drive the transition to a more proactive approach to risk management.

Disaster risk financing is about having plans, systems and finance in place before an event to ensure that adequate finance can flow rapidly and effectively in an emergency, reducing impacts and speeding recovery. The approach involves quantifying risks in advance of disasters, pre-positioning funds, and releasing them according to pre-agreed plans. This ex-ante approach can complement more traditional ex-post aid by providing a predictable, well-defined tranche of funding much earlier and faster, based on pre-agreed indicators and protocols.

This finance can flow directly through pre-planned channels (such as shock-responsive systems or local NGOs), ensuring that the right assistance reaches the right people, at the right time. Through creating greater certainty about what finance will be available, and by linking finance to national and local systems, risk financing can enable better preparedness, empower government and local actors, and facilitate coordination. This leads to national systems that are more resilient to climate, disasters and other crises.

Currently, more than 30 governments are using some form of DRF instrument.2 In 2017 alone, these instruments paid out more than $100m to finance early response. Most recently, the Bahamas received $11m from the Caribbean insurance risk pool, CCRIF.3Recently, initiatives have been launched to help scale-up DRF for governments through technical assistance, investments in data and learning, and co-financing, including the Global Risk Financing Facility, the Centre for Disaster Protection and the InsuResilience Global Partnership.

Disaster risk financing also has significant potential to improve the way in which humanitarian actors plan, finance and deliver response and recovery. CSOs and the UN are already beginning to mainstream risk financing approaches into existing humanitarian pooled funds, including the Start Fund’s Anticipation Window and emerging Start Financing Facility, the IFRC’s “FbA by the DREF” and (potentially) the UN’s Central Emergency Response Fund (CERF). Innovation is also happening at a national and local level. For example, this year, WFP and Start purchased insurance against drought from African Risk Capacity covering five countries in West Africa (“ARC Replica”).

What is common across all of these approaches is the analysis of risks and potential impacts in advance of crises and disasters and the pre-positioning of financing and protocols for its release – the focus is shifted from reactive to proactive management of risk. The scale of DRF funds is still small compared to overall humanitarian assistance, but there is growing evidence of the benefits of this approach in providing effective early response and more predictable assistance across crisis timelines.

This paper argues that the creation of coordinated DRF systems between government and humanitarian partners, such as CSOs and the UN, would help to catalyse even more effective disaster response and recovery. Currently, government and humanitarian systems are developing in insolation along traditional humanitarian-development divides; this risks replicating some of the challenges of the existing system. DRF in Concert, where all partners work together to quantify risks in advance of disasters, pre-position funds4 and release them in a coordinated way according to pre-agreed, aligned plans, should be a crucial component of national disaster risk management strategies.

In line with the objectives of the World Humanitarian Summit 2016, this is about a system-wide shift toward more predictable, rapid financing, better coordination and strengthened national delivery capacity and preparedness. This type of system is needed now more than ever as we face escalating humanitarian needs associated with the impacts of climate change.

This paper provides one proposition for what such a system could look like and provides actionable steps towards this, building upon recent proposals for a Risk-Informed Early Action Partnership.

Read more about Anticipation and Risk Financing.

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