Lloyd’s of London, the specialist insurance and reinsurance marketplace, in collaboration with the United Nations Capital Development Fund (UNCDF), has launched a new disaster resilience vehicle that will provide crucial disaster risk financing to Small Island Developing States (SIDS) in the Pacific region.
Utilising the global reinsurance market as a source of capacity, the Global Disaster Resilience Vehicle, backed by members of Lloyd’s Disaster Risk Facility, aims to improve recovery and increase resilience.
The vehicle will leverage donor funds committed to the region and utilise local networks to provide exposure-based payments directly to climate-vulnerable communities.
Leveraging capacity from the global reinsurance market, Lloyd’s will work in partnership with the local industry to identify their resilience needs of the local industry, ensuring the availability of adequate coverage by securing the necessary capacity.
This could mean doubling the total amount insured from $1,000 to $2,000 per policy per year, with up to 100% compensation per event.
According to Lloyd’s the underlying insurance policies sold in the region are parametric, while the reinsurance programme is indemnity based.
The Global Disaster Resilience Vehicle is focused to create local impact through payments directly to those affected by natural disasters.
Households will receive variable amounts of payouts directly from a basic insurance product, which will be determined by the severity of the event.
The vehicle will initially cover Fiji, Papua New Guinea and Samoa, and will respond to disasters caused by natural perils including tropical cyclone, earthquake, tsunami and flood
The long-term aim is to scale and replicate the vehicle throughout the Pacific region as well as the Caribbean, Asia and Africa.
John Neal, Lloyd’s CEO, commented: “The insurance industry has been engaged in disaster risk finance for decades and has an increasingly important role to play in providing capital and tailored investment solutions to build resilience.
“Establishing this new vehicle reinforces the crucial role Lloyd’s and the (re)insurance industry plays in supporting communities within the Pacific Islands to respond and recover quicker from disaster.”
In partnership with Lloyd’s, the UNCDF and Aon, the launch of this ‘pioneering’ vehicle aligns with the commitment made by the Insurance Task Force of the Sustainable Markets Initiative (SMI) at COP26 to support tangible actions that enhance the resilience of countries vulnerable to climate change.
In continuation of Lloyd’s commitments outlined in the Memorandum of Understanding (MoU) with the UNCDF in September 2023, Lloyd’s and Aon will collaboratively support the expansion of UNCDF’s existing programs.
This partnership aims to address the protection gap and enhance the resilience of populations across the Pacific Islands.
Dominic Christian, Global Chairman of Aon Reinsurance Solutions, said: “Providing access to risk capital to reinforce and augment the work of the UNCDF is an important step in helping the Pacific islands build resilience against natural disasters, and becomes even more important given the potential impacts of climate change.
“Working with the UNCDF, Lloyd’s, and the DRF represents an exciting collaboration, and underpins our belief that combining our resources and expertise is the most efficient and effective way to develop an ecosystem for disaster risk financing that can benefit the countries and communities that need it most.”
Pradeep Kurukulasuriya, Executive Secretary, UNCDF, added: “UNCDF has a unique mandate to provide blended financing instruments to emerging economies, including climate-vulnerable SIDS to development challenges like impact of climate change and extreme weather events.
“Through a combination of grants, guarantees and concessional loans, UNCDF through its climate risk insurance programme partners, aims to support local market ecosystems to deliver sustainable solutions at the last mile to build the resilience and preparedness of vulnerable communities. We are committed to working with the insurance and reinsurance industry to establish this investment vehicle that will be tested in the Pacific, replicated and scaled to other markets.”
