Payouts for Perils: How Insurance Can Radically Improve Emergency Aid (Brief)

Natural hazards—earthquakes, storms, floods, extreme temperatures, and epidemics— affected more than 83 million people in middle- and low-income countries last year. This large and growing development challenge threatens our ability to deliver on the Sustainable Development Goals and strains already straitened resources. Between 2010 and 2015, OECD donors spent at least $2 billion a year on average on the consequences of natural disasters. But there are crucial failures in how this assistance is deployed.
We may not know when or where disaster will next strike, but we know it will. Still, we treat natural disasters like surprises, planning and funding our response only after the fact. This approach makes advance planning diffi cult—budgets are uncertain, and some promised funding never arrives. The support that does materialise is often fragmented, gumming up delivery with red tape or bypassing national authorities.
Unpredictable funding undermines effective response to natural disasters. Two key innovations pre-agree funding for future disaster risks to save lives, money, and time:
  • We should pivot existing funding to enable frontline governments and agencies to pre-enroll for quick-fi re support against predictable future costs.
  • Where no pool of money is available, we can transfer risk to the insurance sector by using concessional insurance to create certainty. Premiums are the price of making sure we have capital when we need it.

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