The UK government has said it will mobilise millions in UK foreign aid to buy premiums from UK insurance firms that cover the cost of natural disasters in the most vulnerable countries in Africa.
The initiative driven by London Centre for Global Disaster Protection was announced by UK prime minister Theresa May at the G20 summit held in Hamburg Germany from 7 until 8 July. It aims to cover high-risk countries to the tune of £30 million over a period of four years. After this time, insurance firms are expected to continue to work with beneficiary states in the interest of business.
May’s initiative is considered a divergence from traditional forms of aid spending, which comes as part of a US$200 million package aimed at breaking the cycle of dependency on foreign aid among African economies. However, the decision has roused critics of UK aid to double down on their rejection of May’s policies, especially after she said the UK would continue to spend 0.7 percent of annual GDP on development.
Speaking at the summit, the prime minister said the future of aid would mean “delivering value for money for the taxpayer”. Owen Barder, vice president and director at the Centre for Global Development in Europe, told Development Finance: “This will be a significant improvement on disaster aid provided after the event.”
“It enables rapid reaction, which can prevent a disaster from spiralling out of control. It enables far better planning of disaster response. It aligns incentives to reduce hazards. And it harnesses the expertise of the insurance industry in managing risks.”
Barder commented that though the international community provides “implicit insurance” through underwriting of natural disaster risk, it continues to do so “expensively and unpredictably”. He said the government’s plan would not only save lives but also makes economic sense, especially as it is backed by the City of London’s strength as a global financial centre.
“To ensure value for money, this insurance should be provided on competitive, open market terms. Britain’s strength as a financial centre puts it in a good position to win a lot of this business in an open competition.”
Catherine Simonet, senior research officer for risk and resilience at the Overseas Development Institute (ODI), also told Development Finance that development professionals must engage with the new centre to harness the potential of innovative financial tools to ensure the economic resilience for the world’s most vulnerable populations. She added however that while insurance products have attracted a lot of attention to the centre, disaster risk reduction should strive to comprise a range of effective methods.
Original source: DevFin.
Posted on 17 July. 2017.
