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On 15th July 2020, the Insurance Development Forum (IDF) and Climate Policy Initiative (CPI) jointly hosted a roundtable event, drawing leading voices from across public and private sectors to debate the crucial intersections between climate risk, pandemic risk, financial resilience, and the role of insurance.

Listening to the dialogue between these leaders[3], four elements emerged that offer key lessons and insights to inform our collective actions to drive resilient solutions.

1. The resilience and financing gaps are deep: Beyond debt

The figures and science speak for themselves. The reality is that COVID-19 alone will push 70 million additional people into extreme poverty. This number becomes staggeringly high when we consider in parallel climate change risks and disasters, which could push 120 million people into extreme poverty as the world hurtles towards a 2.5C global temperature rise.

During the roundtable, the Prime Minister of Barbados offered insight into the extremes of this experience, pointing to near-term “wipe out risks” being a reality for many small island states who, pre-COVID, were already struggling to address climate change while contending with high debt levels. Unlike Europe, where a €750 billion recovery deal was recently approved by the 27-member block, such options are not available to many nations, and particularly the most vulnerable and exposed countries.

The early warning signs experienced by small island nations struggling to cope with COVID, economic, and climate impacts highlight the urgent need to address the inadequacy of the global development financing infrastructure to match the needs of the most vulnerable countries.

A number of urgent efforts to mobilise resources have been undertaken over the past few months. As an example, the IMF doubled its emergency financing to meet expected country demand of approximately US$100 billion, and the World Bank and the G20 Finance Ministers endorsed the Debt Service Suspension Initiative (DSSI) to grant debt-service suspension to the poorest countries to help them manage the severe financial impacts of the COVID-19 pandemic. With that said, almost all of the financing mobilised for response thus far are loans, which will essentially go to those that can afford it.

Recent research indicates that of the US$48 billion in COVID-19 funding committed by international organisations, the top 20 countries seeing the biggest increases in poverty are only receiving 4% of the funding. For more developed economies, increasing debt to fund crisis response is possible. However, for many developing countries, the ability and capacity to increase debt is vastly different – as are the implications. There are also questions as to whether new funding is being structured to be green, resilient, and inclusive. If not, a critical opportunity could be lost.


2. Insurers have to be part of the solution

With this environment of tremendous financing needs coupled with unprecedented global uncertainty, the role of insurance, and its place in the development finance landscape, has been thrown into the spotlight. As the world knows, protecting against future risk is the core business of insurers. Insurance can be structured to make contingent capital available to address the contingent risk of concern.

We have a window to rebuild our world for a more inclusive, more resilient, more sustainable future. Not doing so would pose a significant threat to a sustainable recovery and risk propagating future systemic shocks brought about by the impacts of the climate crisis. We need systemic solutions and the insurance industry has an important role to play in the needed deep transformation.

When compared to the rest of the financial sector, insurers offer a unique combination of large balance sheets (holding over US$30 trillion), deep risk management expertise, and quantified long-term perspectives on risk.

The spectrum of activities to which these capabilities could be applied are vast, and include supporting the financial resilience of households, communities, cities, organisations, and governments through the provision of de-risking tools and products, and reducing dependency on debt, aid, and government support. In addition, there is scope for expanding the role of insurers as institutional investors and the potential role they could play in increasing infrastructural sustainability and resilience, as part of the green recovery from COVID-19.

Insurers are well aware of the physical risks of climate change. They were the first in the financial sector to raise it as a real threat to the global economy, with many (re)insurance companies now aligning their portfolios (both underwriting and investment) with a 1.5C world.

Global pandemics on the scale of COVID-19 were also not unexpected by insurers. What was perhaps less expected, although not completely surprising was the economic consequence provoked not by the pandemic itself, but by the broad, comprehensive, and sudden closures and lockdowns. The reputation of the industry also suffered because of business interruptions that were not, or could not, be insured or claimed.

The need to revisit and rethink the risk solutions, tools, innovations, and partnerships available to tackle an increasingly more exposed world has never been more clear. The discussions held during the online Roundtable demonstrated the importance of risk management for people and communities globally, and the necessity of public-private partnership in a world that is significantly underinsured.

Insurance penetration is extremely low in developing and emerging markets. These are the markets that are the most vulnerable to disaster risk and also the least able to access insurance coverage or loans.

Clearly, multilateral development banks have the structuring know how, networks, and access to concessional funding to supplement the financing they provide. Insurers have the risk management expertise, deep capital base, and long-term view on risks that few financial players do. Insurers can also play a role in advising governments in the risk assessment phase and providing risk modelling support to improve awareness.

Such collaborative approaches could help governments analyze their needs in different scenarios and develop more holistic risk financing systems. More should be done to tap into this nexus given the existential threat posed by climate change and the resilience gaps exposed by COVID-19.

There is clearly a demand for innovative financial products that are affordable and accessible, with these two factors often being cited as hindrances to the uptake of insurance. So, what are the opportunities to better match supply with demand? How can the insurance value proposition be more aligned with the longer-term financing needs of exposed governments, communities, institutions? How do we crowd in financing? What are the new innovative and accessible products that are needed?


3. Need for public-private action to drive scale and innovation

For developing countries, access to financing will be even more challenging once the world begins to move to post-COVID recovery and re-development. More than ever there will be a need to leverage existing resources. Public-private partnerships have emerged as crucial to the development of meaningful, effective, and scalable solutions.

The joint collaboration between the IDF, BMZ, and UNDP to accelerate risk management and financing solutions for 20 countries by 2025, is an example of the collaboration needed. These partnerships offer a channel through which governments can be better informed and carefully consider the risk financing tools and options available to them, be it for establishing insurance coverage for critical public infrastructure, for low income households, or the establishment of innovative risk pools.

The demand for these solutions will increase as governments, humanitarian actors, and international organisations face increasingly drastic pressures on their financial resources.

Some donor governments have been forward thinking in driving support for this and other initiatives. As an example, the German government has supported the provision of capital for regional risk pools and, more recently, premium financing for those governments fiscally constrained by COVID-19 but yet facing an uncertain agricultural season or bracing for a tropical cyclone season that could result in additional losses.

There are other interesting models of collaboration between the public sector and the insurance industry. One example is the IFC’s recent partnership with six global insurance companies to mobilize US$2 billion in credit capacity under the Managed Co-Lending Portfolio Program (MCPP) as part of the COVID-19 response.

This initiative will allow the IFC to increase its medium- and long-term lending to commercial banks and non-bank financial institutions in emerging markets by up to US$5 billion. It demonstrates the potential of a new partnership model between development finance institutions and global insurance markets, where private sector risk capacity can support and expand development finance activities. It builds on the existing MCCP programme which leverages insurers’ investment capabilities.

Many other initiatives offer additional insights and are more directly linked to vulnerable populations. A state-backed agriculture insurance programme in India, for instance, features private sector involvement, backed by public subsidies, to provide insurance coverage for small farmers. Subsidies are often a topic of contention, but the insurance needs of the majority of the population will not be covered without some form of premium subsidy from donor countries or multilateral institutions. 

With an ad hoc (and therefore unpredictable) global humanitarian crisis financing system, using public and development finance to subsidize insurance coverage as part of proactive risk management ahead of disasters is far more cost effective than funding recovery efforts after a cataclysmic event.

Recent reports by the Centre for Disaster Protection highlight this issue and describe a ‘development insurer’ as a financial institution that offers insurance and complementary technical assistance tied to explicit development objectives or insurance programmes where payment terms are calibrated to promote prevention and preparedness.

Equally, we are witnessing innovative developments within the catastrophe bond and the parametric insurance space that open up other streams of financing and tools to address the protection gap. During the roundtable, the Prime Minister of Barbados also talked about successfully introducing hurricane clauses in Barbados’ new sovereign bond issuances (aka the “Grenada clause”). Could there be a role for insurance when coupled with these financing programmes to allow for greater efficiency, access, and improved pricing?


4. Collective political will to spark action

Given the risks and needs faced, political will also emerged as a central vein in the discussions. Political will exists not only in the realm of politicians but is also very much the responsibility of leaders at the helm of institutions – irrespective of whether they are in the public sector, private sector, or civil society.

At a time when innovation and solutions are needed to tackle COVID-19, the climate crises and the economic fallout, political will and leadership will be central. Such will must be as part of a collective. Partnerships between the public and private sector hold part of the solution and will require political will to ensure that they translate to measurable positive impact.

Partnerships, such as initiated with CPI through this roundtable, are a good example of how IDF pursues this line of action by interrogating more deeply the role that insurance can play; its limitations, but also the opportunities to innovate and inform a more resilient future. Through the IDF, the goal is to begin to foster these coalitions, partnerships, and ideas with the insurance industry with a focus on practical and sustainable solutions whilst also driving the policy discourse in a positive direction.

Ekhosuehi Iyahen[1] & Vikram Widge[2]


[1] Secretary General, Insurance Development Forum (IDF)

[2] Senior Advisor, Climate Finance, Climate Policy Initiative (CPI)

[3] Hon. Mia Amor Mottley, Prime Minister, Barbados; Denis Duverne, Chair, AXA Group & IDF; Anshula Kant

Managing Director & World Bank Group Chief Financial Officer; Ingrid Gabriela Hoven, Director General, Federal Ministry for Economic Cooperation and Development, (BMZ), Federal Republic of Germany; Christa Schwimmer, Head of Corporate Client Management, Munich Re (Group); and Rowan Douglas CBE, Head of Climate and Resilience Hub, Willis Towers Watson & Chair, IDF Operating Committee


10th August, 2020