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UK Gov integrates insurance risk transfer into aid and development financing for global resilience

21st November 2023 - Author: Akankshita Mukhopadhyay

The UK government has unveiled its white paper on international development, outlining a strategic shift towards incorporating risk transfer, insurance, and innovative financial instruments, including catastrophe bonds, into its aid and development financing approach.

The focus is on enhancing disaster resilience in low- and middle-income countries through proactive measures rather than reactive responses, the white paper noted.

The white paper underscores the necessity for a fundamental change in supporting nations to prepare for and respond to disasters.

Traditionally, humanitarian appeals are launched post-disaster, leading to delayed assistance arrival. The UK government advocates for a more efficient and swift approach, emphasising the importance of reliable funding through insurance and other mechanisms that automatically trigger and disburse funds according to pre-agreed contingency plans.

Pre-arranged finance, such as insurance, is highlighted as a critical component in ensuring rapid disbursements and minimising economic impact.

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The document reveals that only 2.7% of global crisis finance is currently pre-arranged, with a strong call to significantly increase this figure.

The government proposes scaling up and strengthening disaster risk financing mechanisms, particularly expanding regional insurance risk pools in Africa and the Caribbean to cover a broader range of hazards and ensure affordability for countries and humanitarian agencies.

The “Global Shield against Climate Risks” is positioned as a framework for coordinated action, with the City of London emerging as a central hub for developing and underwriting pre-arranged finance.

The UK government commits to partnering with the City of London insurance market to cultivate pre-arranged deals for managing disaster risks.

“We will ensure that UK brokers are involved in deals that build confidence, trust, and drive value for money, enabling more public-private partnerships,” the white paper noted.

The UK aims to take a leadership role in advising and assisting countries in accessing disaster financing. The government pledges support to the Global Shield and the Centre for Disaster Protection, a resource solely funded by the UK and positioned as the go-to hub for information on disaster risk financing, according to the white paper.

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