A commercial insurance payout has paid the bill for more than CHF 7M worth of climate disaster response costs since an innovative insurance policy was triggered in September. By the end of the year, as disasters continue, it could pay as much as CHF15M towards the recovery efforts of some of the poorest communities on Earth.
The IFRC-DREF is a vital fund that provides immediate support for the National Red Cross and Red Crescent Societies when disasters strike, especially for smaller-scale emergencies that may not attract global attention. Up to the end of 2022, the fund always ran the risk of running dry before a year’s end. That prompted the IFRC, in 2023, to secure a groundbreaking indemnity insurance policy developed by Aon – the first ever created for the humanitarian sector.
For an annual premium of around CHF3M, the IFRC-DREF ‘pot’ has been insured on an indemnity basis. A potential payout of almost CHF15M is available if, or when, demands on the IFRC-DREF fund because of natural hazard-associated disasters hit a certain threshold – a ‘deductible’ set at CHF33M in one calendar year. For the rest of the calendar year, further demands on the IFRC-DREF for natural hazard disasters in ODA (‘official development assistance’) countries are covered by the insurance payout, up to that total maximum of CHF15M.
In 2023, the threshold was not reached so the policy did not pay out. But in 2024 it was. It was an allocation to respond to Super Typhoon Yagi in Asia in September that tipped IFRC-DREF spending over the insurance trigger threshold.
Since then, the insurance policy has paid towards disaster recovery efforts in:
- Vietnam – for Typhoon Yagi (17 September 2024)
- Nigeria – for floods (18 September 2024)
- South Sudan – for floods (18 September 2024)
- Niger – for floods (18 September 2024)
- Algeria – for floods (19 September 2024)
- Bolivia – for wildfires (21 September 2024)
- Mali – for floods (30 September 2024)
- Sierra Leone – for floods (10 March 2024)
- Nepal – for floods and landslides (2 October 2024)
- Lao PDR – for floods (16 October 2024)
- Sri Lanka – for floods (24 October 2024)
- Cuba – for Hurricane Oscar (28 October 2028)
The effectiveness of IFRC-DREF insurance is a potential game-changer for the humanitarian sector.
IFRC Secretary General Jagan Chapagain said: “Innovative insurance for our Disaster Response Emergency Fund gives us financial security to help communities made vulnerable by climate change when they need that help most. It gives our donors the confidence to support us knowing their contributions to the insurance premium could be multiplied many times over if needs demand it. And it sets a welcome precedent for the whole humanitarian sector in terms of how innovative finance can boost our collective responses.”
Eric Andersen, President of Aon said: “Floods in Algeria, typhoons in Vietnam and wildfires in Bolivia left 43 million people impacted by disaster in September alone. At Aon, we believe funding should not, and cannot, stop emergency aid. The IFRC-DREF insurance policy expands the impact and scale of emergency aid by the IFRC and is proof that the private sector can do more to support humanitarian organizations and our world’s most vulnerable populations.”
On 8 November, the IFRC hosted its annual ‘pledging conference’ in Geneva when donors were encouraged to help with the insurance premium for IFRC-DREF insurance in the knowledge that, in a year that needs it, their donation could potentially be multiplied many times over. Overall, donors committed more than CHF 73M to the DREF, including an amount to cover the insurance premium. Overall, that means the fund is worth over CHF 85M in emergency funding should that amount be needed.
