In an effort to address the growing challenges of climate change and natural disasters, a recent summit held on October 5, 2023, brought together the heads of key sovereign risk pools and various stakeholders from across the globe.
This event, organized by the Centre for Disaster Protection and Gallagher Re resulted in the signing of a joint Memorandum of Understanding (MoU). The summit served as a platform for strategic engagement, collaboration, and the formulation of innovative solutions to enhance the capacity of sovereign risk pools.
The summit welcomed CEOs and senior advisors from organizations such as African Risk Capacity Limited (ARC Ltd) the Pacific Catastrophe Risk Insurance Company(PCRIC), the Caribbean Catastrophe Risk Insurance Facility(CCRIF SPC), and the Southeast Asia Disaster Risk Insurance Facility(SEADRIF). These entities together form the Sovereign Risk Pools, which have been established to serve the sovereign climate and disaster risk insurance objectives of nearly 100 nations globally.
This initiative aims to secure access to financial resources before a disaster strikes, allowing countries to respond quickly to emergencies and mitigate their impact on people and livelihoods. By pooling risks in a diversified portfolio and retaining some of the risk through joint reserves, countries can transfer excess risk to the reinsurance and capital markets, thereby enhancing their financial resilience.
One of the main challenges discussed at the summit was the cost of re/insurance, which remains a significant obstacle. Representatives of the insurance industry engaged in extensive discussions to explore solutions and share best practices. The joint efforts and enhanced collaboration discussed at the summit aim to make risk coverage more affordable for countries.
The sovereign risk pool executives have agreed to cooperate under the joint MoU, with a focus on several key principles:
1. Defining Development Insurance Programs: The pools will establish principles that define insurance programs to promote development, including protecting vulnerable populations and supporting Sustainable Development Goals (SDGs).
2. Accelerating Innovation: The collaboration will drive innovation in disaster risk financing to make it more efficient and responsive.
3. Expanding Access: The aim is to expand access to disaster risk finance for the public benefit, ensuring that more countries can access the resources they need to respond to disasters effectively.
4. Seeking Capital: The pools will actively seek the necessary capital to achieve global scale in their operations.
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Furthermore, the summit attendees confirmed a shared interest in exploring the establishment of a joint reinsurance facility. This facility would facilitate global risk transfer access to global capital markets, providing an additional layer of financial support to enhance the insurance offerings to countries.
Ms. Hien Anh Than, Executive Director of SEADRIF Insurance Company, emphasized the importance of collaboration in strengthening financial protection against increasing climate risks. She highlighted that working closely with partners in the global family of sovereign risk pools is crucial in these efforts.
The collaboration will extend to the development of parametric models and the exploration of meso-micro and replica schemes to complement sovereign-level risk transfer. ARC Ltd. CEO Lesley Ndlovu expressed his enthusiasm about this cooperation, citing the pool’s expertise in these areas.
CEO Mr. Aholotu Palu of PCRIC expressed the commitment of his organization to providing cost-effective, bespoke parametric insurance products and actively engaging with other regional risk pools. This collaborative approach equips them with practical knowledge to develop impactful risk mitigation solutions.
Antoine Bavandi, Global Head of Public Sector and climate Resilience Solutions at Gallagher Re, emphasized the critical role of sovereign risk pools in closing the protection gap. He expressed Gallagher Re’s commitment to supporting the sustainable growth plans of these pools in collaboration with donors and development partners.
The Sovereign Risk Pool summit in London marked a critical milestone towards a more holistic and collaborative approach to climate and disaster risk finance. The outcomes of this summit promise a brighter future for disaster-prone nations by strengthening their financial resilience and enhancing their ability to respond effectively to emergencies.
As nations continue to face growing climate-related challenges, the importance of such collaborative efforts cannot be overstated.
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