The United Nations World Food Programme (WFP) aims to leverage parametric social protection products that provide disaster risk transfer and financing in the Caribbean and Latin American markets by working with the CCRIF SPC (formerly known as the Caribbean Catastrophic Risk Insurance Facility).
The World Food Programme (WFP) has already been working successfully in Africa to provide parametric disaster risk financing alongside the African Risk Capacity (ARC), using its replica approach to parametric insurance.
Through ARC’s replica parametric coverage option, which allows an NGO or other organisation to buy parametric insurance that replicates the coverage of a government in a country it operates in, organisations like the WFP have been able to integrate disaster risk financing into their own operations to the benefit of those it aims to serve.
In addition, the WFP has also worked alongside ARC on the Replica Plus approach, which can provide an element of parametric disaster insurance protection for years when the typical climate insurance product ARC offers doesn’t payout, as the trigger isn’t met, but impacts are still significant.
In this way, the WFP through ARC has been able to secure disaster risk financing for both the less frequent and more severe climate shock events, as well as the higher-frequency and lower-severity events.
Now, based on the lessons learned with ARC’s Replica products in Africa, WFP is hoping to expand that model to the Caribbean and Latin America working with CCRIF SPC.
WFP said it is “exploring how to transfer sovereign risk financing to two additional regions with existing sovereign risk pools.”
Which has led it to work towards, “Developing mechanisms for risk finance to be transferred to social protection beneficiaries through existing insurance products offered by the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC).”
Explaining that, “This can help social protection systems to become more shock-responsive and ensure more rapid and targeted responses for vulnerable populations in the event of a tropical cyclone or excess rainfall.”
The CCRIF SPC has already made clear its own ambitions to scale up its risk pool through introduction of new parametric disaster insurance products, as well as their sale to non-sovereign buyers.
Offering a way for an organisation, like the WFP, to benefit from a replica coverage in the countries where it provides coverage, will help to further extend the usefulness of the CCRIF and also mean more natural catastrophe risk is ceded to its risk pool, so requiring more reinsurance to underpin it.
WFP said that it believes parametric disaster and climate risk transfer, such as ARC or CCRIF, are, “innovative climate risk financing mechanisms that transform the current humanitarian financing model.”
The WFP also said that too often humanitarian financing is, “Caught in repetitive loops of under-funded crisis response,” and needs to transform towards a model “based on forward- looking risk management,” that “enables the sequencing of public and private sector financing for quicker and more predictable action.”
The WFP added, “To operationalize and scale up this approach in Africa and other regions, additional partnerships and resources will be required to expand climate risk insurance coverage, build institutional capacity for risk financing, and develop evidence-based guidance for government partners.”
As use of disaster risk financing and climate insurance expands globally the need for efficient risk capital to underpin it will increase to and that may in future be found outside of the traditional insurance and reinsurance market, in risk pools that leverage technology and transparency on risk and claim data with capital markets backing.
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