A global network of NGOs has signed a ‘game-changing’ insurance policy, intended to pay out if a drought hits Senegal, enabling aid agencies to offer live-saving help before a famine threatens to take people’s lives.
The Start Network has taken this bold step because it believes that pre-emptive disaster financing could revolutionise the aid sector and catalyse a new way of preparing for crises. This new financial product will disburse funds early, based on pre-agreed ‘parametric’ triggers, unlike the current model, in which aid agencies are reliant on funding agreed after a crisis has taken place.
Run in a partnership with the Government of Senegal, the African Risk Capacity (ARC) and the Start Network, the pilot is funded by the German Federal Ministry for Economic Cooperation and Development (BMZ) through the German Development Bank, Kreditanstalt für Wiederaufbau (KfW).
Under the arrangement, members of the Start Network will be able to secure funding, based upon a pre-agreed trigger, well before the worst effects of a drought are felt. This will enable farmers and their families to protect livestock and other valuable assets. In the most severe drought, with the largest payout, Start Network could help more than 200,000 people through cash interventions. Even more people could be helped through nutrition or agricultural projects.
The Government of Senegal has a pre-existing drought insurance policy from the African Risk Capacity, which is a basis for the complementary policy signed by the Start Network. If a drought occurs, payouts would be made separately to the Government and to Start Network, with participating NGOs as implementing partners. This will allow the government and Start Network members to immediately launch pre-agreed and coordinated activities to help people to protect their livestock and other assets, well in advance of any international humanitarian aid arriving.
The African Risk Capacity insurance policies are built on parametric insurance mechanisms.
Payouts would be made automatically when pre-agreed triggers are met.
The triggers in this pilot are based on rainfall data. When the rainfall levels fall below a certain threshold, the insurance policy will pay-out.
The policy is for the 2018-2019 agricultural season, and if it pays out, it will do so in November, towards the latter half of the 2018 growing season.
Emily Montier, Start Labs Manager said: “We are delighted to have signed the insurance policy. This is a potential game-changer for the sector. Slow aid funding is one of the biggest structural problems in disaster response efforts, and this costs lives. Study after study shows that early action means more lives saved. That’s exactly what this tool aims to do. We will be working closely with the Government of Senegal and others to ensure swift relief is available to vulnerable people threatened by drought when it occurs.”
Veronika Bertram-Hümmer, KfW Project Manager said: “Many developing countries face the risk of natural disasters without being sufficiently prepared. When a disaster strikes, the way how humanitarian organisations respond is predominantly based on ex post disaster risk financing which is not able to quickly reach the poor and vulnerable. We are very pleased to finance ARC Replica as an initiative which builds up processes, structures and capacities within NGOs to purchase ARC’s drought insurance which improves preparedness and financing in case of a disaster to better help the people in need.”
The pilot is part of a wider programme, which also covers Mali and Mauritania where it is led by the United Nations World Food Programme (WFP). Through its EUR 10 million contribution to the programme, KfW hopes to encourage other donors to provide funding to expand the programme even further.
The pilot will provide an opportunity for NGOs to test the ARC insurance mechanism and learn the skills needed to manage new models of financing. The NGO implementing partners in this pilot include Catholic Relief Services, Action Against Hunger, Oxfam, Plan International, World Vision and Save the Children.
The Start Network believes, that through a wide adoption of innovative financial mechanisms by other stakeholders, the disaster risk management landscape will be transformed and will ultimately become more resilient. The Start Network also aims to generate evidence from the initiative to inform the development of a ‘family’ of global financing mechanisms for frontline humanitarian responders, set to include a financial tool-box of products such as contingency funds, forecast-based-financing, and loans in addition to insurance.