The International Federation of Red Cross and Red Crescent Societies (IFRC), in collaboration with global professional services firm Aon, Lloyd’s Disaster Risk Facility and the Centre for Disaster Protection, has announced a pioneering approach to disaster response. The groundbreaking risk transfer mechanism will ensure swift and agile support is available when a disaster occurs. This tool provides a backstop for the IFRC’s Disaster Response Emergency Fund (DREF).
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Emergency Funding Always Available When Needed
DREF has proven to be the simplest, fastest, most transparent, and localised way for IFRC’s member National Societies to access reliable international, short-term emergency funding for community action in all kinds of disasters when needs surpass the resources available at the national level. The new insurance backstop will be a critical safety valve for DREF’s life-saving work, ensuring the DREF can continue to meet the needs of today while standing ready for the crises of tomorrow.
IFRC’s ambition is to grow the fund every year to reach 100 million Swiss Francs in 20251. Currently there is an alarming increase in small and medium-scale emergencies, and funding may not always be available when needed. The new insurance tool provides DREF with a contingency funding of up to 20 million Swiss Francs. Essentially, once DREF’s allocated funding for natural hazards hits 33 million Swiss Francs, the reinsurance is triggered to replenish DREF’s reserves.
By transferring risk from strained public balance sheets to the private sector, DREF is now able to respond more flexibly and effectively, with the potential to reach an additional 6 million vulnerable people each year. The reinsurance acts as a safety net for DREF, ensuring that extra funds are available and ready to provide aid to vulnerable communities, even during periods of increased demand.
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Pioneering Partnerships
Aon and Lloyd’s Disaster Risk Facility together developed the insurance mechanism and designed a unique structure drawing upon DREF’s 40 years of experience in supporting IFRC’s member National Societies across the world. Importantly, this has been achieved without forcing any changes to DREF’s current operational process.
DREF insurance is supported by international donors including: the UK Foreign, Commonwealth, and Development Office (UK FCDO); the British Red Cross and Danish Red Cross; and the private sector. DREF Insurance is also co-funded by InsuResilience Solutions Fund (ISF) to support insurance premium funding and product development. Global law firm Reed Smith provided legal advice to IFRC, with support from Swiss law firm Lenz & Staehelin and offshore specialist law firm Ogier.
The partnership has resulted in a completely novel – yet replicable and scalable – reinsurance product that:
- Is tailor-made for DREF and modelled on its actual historic performance
- Uses publicly published data, supporting transparency and accountability of approach
- Is, for the first time, an indemnity-based reinsurance model that has been developed within a Humanitarian Disaster Risk Finance context
- Is designed to make use of well-established commercial catastrophe re-insurance markets, reducing cost and improving scalability (allowing it to be used in other humanitarian contexts)
- Has been continuously vetted and subject to an independent assessment prior to ensure its applicability
The capacity for the reinsurance deal was offered by the three founding members of the London-based Lloyd’s Disaster Risk Facility, as led by Hiscox alongside Chaucer and RenaissanceRe, with Fidelis MGU completing the placement as the sole representative of the Bermuda market.
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