Insurance for the Disaster Response Emergency Fund – building Resilience Together: Harnessing the power of insurance for silent disasters

The International Federation of Red Cross and Red Crescent Societies (IFRC) is the largest humanitarian organization with operations in 191 countries. The IFRC acts before, during and after disasters and health emergencies to meet the needs and improve the lives of vulnerable people. The organization administers the Disaster Response Emergency Fund (DREF), which is a multilaterally funded, rapid response mechanism that provides funding directly to local humanitarian actors both before and immediately after a crisis hits. To develop a new instrument aimed at increasing DREF’s ability to respond to more natural disaster events, the InsuResilience Solutions Fund (ISF) is co-funding the development and implementation of a climate risk solution. The project is being co-developed by IFRC, Aon and the Centre for Disaster Protection (the Centre) and supported by international donors UK FCDO, British Red Cross, Danish Red Cross, and the private sector.

Today, the impact of climate change is seen in the rapidly rising tide of small and medium size disasters, which are occurring more frequently with increasing intensity, affecting vulnerable communities disproportionately. Research from the 2020 IFRC World Disaster’s Report found that over the past ten years, 83% of all disasters triggered by natural hazards were caused by extreme weather and climate-related events. Local and rapid responses are increasingly necessary, but often National Red Cross or Red Crescent Societies in disaster-hit countries lack the resources or capacity to respond, especially when tackling multiple crises.

In response to this urgent challenge, IFRC is leading an ambitious project in collaboration with Aon, a leading global professional services firm, and the Centre. The goal is to offer insurance that provides additional financial support to the DREF Fund. DREF is already financing emergency relief costs after climate events through the National Societies (NS) established in developing countries. The insurance coverage will be available for natural hazards, including flood, earthquake, wildfire, droughts, and hurricanes in ODA countries.

The IFRC recognizes that relying solely on traditional grant funding is insufficient, and therefore intends to develop innovative financing solutions for the DREF.

Nena Stoiljkovic, Under Secretary General for Global Relations, Humanitarian Diplomacy and Digitalization said:

This first-of-its-kind partnership leveraging government donors and bringing the humanitarian and private sectors, unlocks powerful sustainable financing solutions to global humanitarian challenges. At IFRC, we are aiming to reach more disaster-affected people in communities, and this innovative insurance tool for our DREF paves the way for greater impact and efficiency.

To achieve ambitious growth, the IFRC plans to diversify its sources of funding and introduce insurance as a way to secure additional financial support. The long-term goal is to make insurance a permanent part of the funding strategy for the DREF, providing a safety net for emergencies, and expanding insurance coverage for all DREF allocations. This will ensure smooth support from DREF to NS in coming years.

Eugen Doce, co-head of the InsuResilience Solutions Fund, said:

IFRC’s intention to enhance and complement DREF’s capacities when hit by climate-related hazards is a unique opportunity to bring development work closer to the humanitarian work and pilot climate risk insurance as a means for enhancing humanitarian aid activities. The ISF is proud to co-fund this innovative programme adding capacity to improve the resilience for vulnerable people in many parts of the globe.

Eric Andersen, president of Aon, said:

“Through an Aon United approach, we have brought capabilities across the firm to help ensure DREF can allocate funds when communities need it the most. Through an innovative re/insurance solution, we can access reinsurance capital using the capabilities of Aon’s Captive and Insurance Management team.”
“In addition, we are developing probabilistic risk models for climate risk related to flood and drought, as volatile weather events increase in both frequency and severity. We are pleased to collaborate with the IFRC, ISF and CDP, and that our deep expertise can help enable access to new forms of capital to better support humanitarian efforts and maximize the impact in communities around the world.”