DREF Insurance multiplies donor impact and reach by up to four times. And it improves the opportunity cost for DREF to maximize its funds to provide an additional CHF 20 million in exceptional years of excessive or unanticipated demand.

This increases DREF’s ability to respond to more disaster events and reach approximately 6 million more people at risk of, or affected by, disasters.

Insurance transfers risk from stretched public purses to third parties.

Rather than responding to volatile humanitarian needs, governments can pay an average annual premium and smooth the financial management for humanitarian response. Triggering the insurance will release private sector funding as grants, without attaching any repayment structures. This relieves both donor governments and humanitarian recipient states from the repercussions of debt burdens further down the line.

Aon estimated 2.98 trillion US dollars of damages occurred from natural catastrophes between 2010 and 2019, but only 845 billion of that was covered by insurance.

DREF Insurance offers a unique opportunity for the insurance sector to support a new financial approach in the humanitarian sector and close the disaster protection gap by helping absorb losses and damages in the context of climate change.

For the IFRC, it allows us to identify and secure support from non-traditional donors who are specialized in supporting innovative financing and public/private mechanisms.

DREF Insurance is designed to make use of well-established commercial natural catastrophe reinsurance markets, thus reducing cost and improving scalability. The extra capacity provided by DREF Insurance also reduces the opportunity cost of stockpiling high amounts of donor funds in case of need. 

The Centre for Disaster Protection conducted an independent technical review and cost-benefit analysis of the insurance product design. It assessed that DREF Insurance is well-placed to maximize humanitarian impact and minimize the risk of funding exhaustion in extreme years, as the insurance is both cost and operationally efficient.

DREF Insurance improves the certainty of funding to National Societies by making sure there are enough resources for them to respond to disasters in years of exceptional humanitarian need. This better supports their capacity to address extreme scenarios by building better resilience and social protection, for instance by enabling them to develop early action plans for climate risks.

It also enhances DREF's capacity as a model for localization and delivery on commitments made under the Grand Bargain to invest more in local humanitarian action. While the amount of international humanitarian funds directly channelled to local actors every year lies around 1.2% globally, 86% of DREF’s allocations are directly transferred to National Societies.

DREF Insurance has the potential to be a commercially viable model of how innovative financing can be more sustainable, replicable, and scalable to address growing humanitarian needs when the public and private sectors work together.

The IFRC is gaining experience using private sector expertise and risk transfer instruments to provide a platform for learning and improvement on good disaster risk financing design in the wider humanitarian sector.