DREF Insurance

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Article

IFRC’s Disaster Response Emergency Fund takes important stride as it marks 45th year helping people hit by crisis

Ever since it was established 45 years ago, the IFRC’s Disaster Response Emergency Fund (IFRC-DREF) has been a unique and essential tool that ensures communities hit by sudden crisis get the resources they need quickly and efficiently.Four and a half decades later, donors from around the world reaffirmed IFRC-DREF’s critical role in disaster response during a one-day pledging conference in Geneva, Switzerland on 8 November.By the end of the conference, donors had pledged approximately 74 million Swiss Francs. With the projected payout from IFRC-DREF Insurance before the end of the year, this total is likely to rise to 85 million Swiss Francs.IFRC-DREF is now on track, therefore, to fully meet its funding target for 2024 while increasing the total amount of raised income by 20 percent compared to 2023.These pledges move IFRC-DREF closer to its strategic ambition of growing its annual funding budget to CHF 100 million by 2025 and help ensure that people hit by small- and mid-sized disasters – which often don’t get international media attention – get the critical support they need.The fund also allocates money to help people get ahead of imminent threats such as storms, floods, heatwaves, drought and other crises.“Your pledges today ensure that before, during, or straight after the next storm hits, or the next crisis unfolds, help will be there — not as a distant promise but as a reality, and fast,” IFRC Secretary General Jagan Chapagain told the donors who gathered for the conference.To back up his point, Chapagain recounted the story of Leonica Ibanez, who lives outside Manila, Philippines, and was hit by the full force of flooding caused by Cyclone Gaemi in June. Her family just barely survived by clinging to nearby trees.While Cyclone Gaemi only stayed in international headlines for a few days, it was devestating for Ibanez’s family. The storm completely destroyed their home.With funding from IFRC-DREF, however, the Philippines was able to help people like Leonica Ibanez find the resources to get by until they could rebuild.“An allocation from IFRC-DREF to the Philippines Red Cross was one of more than 188 allocations that, as of last week, we'd already made this year,” Chapagain continued. “So far, we've allocated over 72 million Swiss francs to help people – particularly women – respond to disasters or prepare for hazards before they hit.”IFRC-DREF also provides critical resources until more funds arrive as part of larger funding appeals. A recent case in point: IFRC-DREF allocated 2 million Swiss francs to enable the Lebanese Red Cross to scale up humanitarian services while a larger campaign for funds was being launched.When the Al-Hamshari hospital in Sidon was preparing for an influx of casualties, therefore, the hospital could remain stocked with critical medical supplies and trained staff, Chapagain noted.A new tool, already put to the testIn the months leading up to the conference, a new key tool – IFRC-DREF Insurance – was also put into action for the first time. This new modality for private financing was initiated in 2023 and was first put into practice in 2024 following the IFRC response to Typhoon Yagi, which impacted multiple countries in Southeast Asia.Under this novel private insurance model, an additional 15 million Swiss francs can be tapped for disaster response once a certain threshold – like a deductible – is met and an insurance payout can be triggered.The insurance payouts were triggered in part by the unprecedented number, scale and complexity of disasters requiring IFRC-DREF funding. Nena Stoiljkovic, IFRC’s Under Secretary General for Global Relations, Humanitarian Diplomacy and Digitalization, thanked donors for their steady and growing support for IFRC-DREF and for new innovative ways of addressing today’s mounting challenges.“This year’s pledging conference demonstrated the commitment donors have to continue helping people in extremely vulnerable situations,”Stoiljkovic said. “And it shows their belief that IFRC-DREF is uniquely situated to respond quickly to humanitarian needs, particularly in the face of increasing demand, and increasingly complicated, climate-related disasters.“We look forward to even more collaboration and innovation – with all our partners and donors – in helping local communities find their way through difficult times.”Click the link below fora video recording of the full pledging conference live stream.IFRC-DREF milestonesEvery year, small and medium-sized disasters occur in silence. Without media attention or international visibility, they can struggle to attract funding. Despite this, IFRC-DREF has reached over 240 million people affected by disasters since it was launched in 1979.IFRC-DREF stands out for its commitments to channel support directly to local actors: 82 percent of allocations go directly to National Red Cross and Red Crescent Societies, enabling them to deliver fast and effective local humanitarian action. Globally, the average percentage of funding that goes to local actors stands at a mere 1.2 per cent.In 2023, the IFRC also reinforced the fund’s capacity to respond quickly, effectively and transparently. In partnership with Aon, Lloyd’s Disaster Risk Facility and the Centre for Disaster Protection, it launchedIFRC-DREF Insurance. By leveraging public aid budgets to mobilize private resources and make donor contributions go further, IFRC-DREF aims to assist six million more people.Please click here to read thePledge Statements Sum-Up documentfor all details. For more information about the IFRC-DREF:Visit this page on our website.For more information,you canalsocontact:Florent Del Pinto (Manager, Emergency Operations Centre)[email protected] Mrdja (Manager, National Society and Government Partners)[email protected]

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Press release

Humanitarian-sector first as worldwide insurance policy pays climate disaster costs

Coinciding with COP29, the IFRC’s ‘world-first’ indemnity insurance policy demonstrates an innovative approach to financing costs of climate risk.Insurance policy – developed by Aon - was triggered in mid-September. From then, and until the end of the year, allocations from IFRC’s Disaster Response Emergency Fund (‘IFRC-DREF’) are being met by the financial sector - not draining IFRC or National Red Cross/Red Crescent resourcesA ‘pledging conference’ on 8 November asked donors to contribute to the policy premium as well as to the fund directly, knowing that any premium financing help could be multiplied by the insurance when it’s needed most. Geneva – 12November 2024A commercial insurance payout has paid the bill for more than CHF 7M worth of climate disaster response costs since an innovative insurance policy triggered in September. By the end of the year, as disasters continue, it could pay as much as CHF15M towards the recovery efforts of some of the poorest communities on Earth.The IFRC-DREF is a vital fund that provides immediate support for National Red Cross and Red Crescent Societies when disasters strike, especially for smaller-scale emergencies that may not attract global attention. Up to the end of 2022, the fund always ran the risk of running dry before a year’s end. That prompted the IFRC, in 2023, to secure a groundbreaking indemnity insurance policy developed by Aon – the first ever created for the humanitarian sector.For an annual premium of around CHF3M, the IFRC-DREF ‘pot’ has been insured on an indemnity basis. A potential payout of almost CHF15M is available if, or when, demands on the IFRC-DREF fund because of natural hazard-associated disasters hit a certain threshold – a ‘deductible’ set at CHF33M in one calendar year. For the rest of the calendar year, further demands on the IFRC-DREF for natural hazard disasters in ODA (‘official development assistance’) countries are covered by the insurance payout, up to that total maximum of CHF15M.In 2023, the threshold was not reached so the policy did not pay out. But in 2024 it was. It was an allocation to respond to Super Typhoon Yagi in Asia in September that tipped IFRC-DREF spend over the insurance trigger threshold.Since then, the insurance policy has paid towards disaster recovery efforts in:Vietnam - for Typhoon Yagi (17 September 2024)Nigeria – for floods (18 September 2024)South Sudan – for floods (18 September 2024)Niger - for floods (18 September 2024)Algeria – for floods (19 September 2024)Bolivia – for wildfires (21 September 2024)Mali – for floods (30 September 2024)Sierra Leone – for floods (10 March 2024)Nepal – for floods and landslides (2 October 2024)Lao PDR – for floods (16 October 2024)Sri Lanka – for floods (24 October 2024)Cuba – for Hurricane Oscar (28 October 2028)The effectiveness of IFRC-DREF insurance is a potential game-changer for the humanitarian sector.IFRC Secretary General Jagan Chapagain said:“Innovative insurance for our Disaster Response Emergency Fund gives us financial security to help communities made vulnerable by climate change when they need that help most. It gives our donors the confidence to support us knowing their contributions to the insurance premium could be multiplied many times over if needs demand it. And it sets a welcome precedent for the whole humanitarian sector in terms of how innovative finance can boost our collective responses.”Eric Andersen, President of Aon said:“Floods in Algeria, typhoons in Vietnam and wildfires in Bolivia left 43 million people impacted by disaster in September alone. At Aon, we believe funding should not, and cannot, stop emergency aid. The IFRC-DREF insurance policy expands the impact and scale of emergency aid by the IFRC and is proof that the private sector can do more to support humanitarian organizations and our world's most vulnerable populations."On 8 November, the IFRC hosted its annual ‘pledging conference’ in Geneva when donors wereencouraged to help with the insurance premium for IFRC-DREF insurance in the knowledge that, in a year that needs it, their donation could potentially be multiplied many times over.Overall, donors committed more than CHF 73M to the DREF, including an amount to cover thh insurance premium. Overall, that means the fund is worth over CHF 85M in emergency funding should that amount be needed.At the COP29 climate conference in Baku, much discussion is focused on how to secure reliable finance to tackle increasingly severe and frequent climate-caused hazards. The IFRC’s DREF insurance is an example of the sort of innovation needed and will be at the heart of the talks Notes to journalists More data is available by searching ‘DREF’ under ‘Appeal Type’ at the ‘IFRC’s Go Platform’. More information is here: IFRC-DREF InsuranceIFRC-DREF insurance is co-funded by InsuResilience Solutions Fund (ISF) to support project preparatory work, development and refinement of the insurance product as well as premium funding.IFRC-DREF insurance is also made possible by generous support in paying the premium, particularly from the British Red Cross, the Danish Red Cross and the British government (FCDO).IFRC-DREF has provided rapid and efficient funding to local Red Cross and Red Crescent Societies before and after disasters strike since 1979. However, with the increasing frequency and intensity of disasters, particularly due to climate change, the demand for humanitarian assistance continues to grow.The IFRC has plans to grow its IFRC-DREF insurance, to widen coverage beyond disasters caused by natural hazards - to epidemics and anticipatory action, for example. It hopes grant donors will see the added value of contributing to the IFRC-DREF fund if their humanitarian contributions could potentially be multiplied in particularly calamitous years.For more information, for interviews, for video of IFRC and Red Cross Red Crescent responses to disasters contact [email protected] Geneva:Andrew Thomas: +41 76 367 6587Hannah Copeland: +41 76 236 9109

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Press release

2024 Triggers First-Ever Insurance Payout for Disaster Fund

New York/Geneva – For the first time, an insurance payout has been triggered by the International Federation of Red Cross and Red Crescent Societies’ Disaster Response Emergency Fund (‘IFRC-DREF’), as demands for disaster relief surpassed its ‘deductible’ threshold.The IFRC-DREF is a vital fund that provides immediate funding for National Red Cross and Red Crescent Societies when disasters strike, especially for smaller-scale emergencies that may not attract global attention. Previously, the fund could run dry before year-end, prompting the IFRC to secure a groundbreaking — and humanitarian-sector first — indemnity insurance policy with Aon and reinsurers.Since the start of 2023, and for an annual premium of CHF3m, the IFRC-DREF ‘pot’ has been insured on an indemnity basis. A potential payout of up to CHF15m is available if, or when, demands on the IFRC-DREF fund because of natural hazard-associated disasters hit a certain threshold — a ‘deductible’ set at CHF33m in one calendar year. For the rest of the calendar year, further demands on the IFRC-DREF for natural hazard disasters are covered by the insurance payout, up to that total maximum of CHF15m.In 2023, the threshold was not reached so the policy did not pay out. But in 2024 it has been, with allocations to respond to Super Typhoon Yagi in Asia last week tipping IFRC-DREF spend over the insurance trigger threshold. Overall, there have been almost 100 separate IFRC-DREF allocations in 2024; combined those to respond to the impacts of eligible natural hazards have exceeded CHF 33m. When NationalRed Cross and Red Crescent Societies make further requests of the fund in September, October, November or December, allocations to respond to natural hazard disasters will be paid for by the commercial insurers, up to that CHF15m cap.The IFRC’s Under Secretary General for Global Relations and Humanitarian Diplomacy, Nena Stoiljkovic, announced the insurance payout at an event at the United Nations General Assembly in New York on Wednesday.Ahead of it, Ms Stoiljkovic said: “The triggering of the IFRC-DREF insurance policy is a significant moment. For the first time ever a single, worldwide, commercial indemnity insurance policy will pay the emergency humanitarian costs of disasters. The scale of the needs caused by 2024’s disasters is sobering. But the fact the insurance is helping with the burden is good news and proof that there are innovative finance solutions that we hope to grow in coming years.”The IFRC has plans to grow its IFRC-DREF insurance, to widen coverage beyond disasters caused by natural hazards — to epidemics and anticipatory action, for example. It hopes grant donors will see the added value of contributing to the IFRC-DREF fund if their humanitarian contributions could potentially be multiplied in particularly calamitous years.Notes to journalistsIn 2024, IFRC-DREF allocations so far have been paid, among others to:Maldives Red Crescent to help deal with a Filariasis outbreak in January (CHF 299,986)Chile Red Cross to help deal with wildfires in February (CHF 496,982)Eswatini Red Cross to help with its drought response in March (CHF 546,683)Iraqi Red Crescent to help with it deal with Flash Floods in April (CHF 499,900)Honduran Red Cross to help it deal with a hospital fire in May (CHF 336,394)Armenia Red Cross to help its response to floods in June (CHF 499,759)Venezuelan Red Cross in the aftermath of Hurricane Beryl in July (CHF 270,049)Philippines Red Cross after floods in August (CHF 738,170)Cameroon Red Cross after floods in September (CHF 421,471)The single largest allocation so far in 2024 was to the Sudanese Red Crescent after floods in September (CHF 943,271); the single ‘smallest’ allocation was the Red Cross of Equatorial Guinea after a shipwreck in July (CHF 24,962).More data is available by searching ‘DREF’ under ‘Appeal Type’ at the‘IFRC’s Go Platform’1 CHF = 1.19 USDIFRC-DREF insurance is co-funded by InsuResilience Solutions Fund (ISF) to support project preparatory work, development and refinement of the insurance product as well as premium funding.IFRC-DREF insurance is also made possible by generous support in paying the premium, particularly from the British Red Cross, the Danish Red Cross and the British government (FCDO).IFRC-DREF has provided rapid and efficient funding to local Red Cross and Red Crescent Societies before and after disasters strike since 1979. However, with the increasing frequency and intensity of disasters, particularly due to climate change, the demand for humanitarian assistance continues to grow.More information on IFRC-DREF insurance can be found here:IFRC-DREF InsuranceFor more information, for interviews, for quotes from IFRC-DREF partners or for video of IFRC and Red Cross Red Crescent responses to disasters [email protected] Geneva:Andrew Thomas: +41 763676587

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IFRC-DREF Pledging Conference

Leading donors from around the world gather each year at the IFRC secretariate in Geneva, Switzerland to pledge new or renewed funding to the IFRC's Disaster Response Emergency Fund, moving the fund a significant step closer to its strategicambition of growing IFRC-DREF to 100 million Swiss Francs by 2025. 

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Podcast

Nena Stoiljkovic: breaking the mold on how to finance recovery after crisis

In this episode: breaking the mold on the way humanitarian organizations pay for recovery and rebuilding after crisis. We talk with Nena Stoiljkovic, IFRC’s Undersecretary General for Global Relations, Humanitarian Diplomacy and Digitalization about new, innovative finance tools that help people and communities get back on their feet quickly after crisis.

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Press release

IFRC launches groundbreaking financial mechanism to transform disaster response

Geneva, 6 September 2023 - 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). Emergency funding always available when needed DREF has proven to be the simplest, fastest, most transparent, and localized 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. Andrew Mitchell, Minister of State for Development and Africa, UK Foreign, Commonwealth and Development Office said:“Climate change is devastating the lives of millions around the world. With natural disasters on the rise, this innovative new insurance will provide extra funding for life-saving emergency assistance. This is UK expertise at its best – funding from the UK, insurance purchased through the City of London and technical support from the Centre for Disaster Protection.” IFRC’s ambition is to grow the fund every year to reach 100 million Swiss Francs in 2025 (US$116 million, €104 million, £89 million). 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 contingency funding of up to 20 million Swiss Francs (US$23 million, €21 million, £18 million). Essentially, once DREF’s allocated funding for natural hazards hits 33 million Swiss Francs (US$38 million, €34 million, £29 million), 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. 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. Jagan Chapagain, IFRC Secretary General, said:“Strategic partnerships with the private sector are essential to address rising humanitarian needs and the humanitarian funding gap. We have a responsibility to respond rapidly and at scale, in the most effective and sustainable manner, and to ensure that our actions are locally led and community-centred. Our partnership with Aon and the Centre, and through the bespoke insurance solution for DREF, allows exactly that.” Eric Andersen, President of Aon, said:“The impact of climate is giving rise to an increasing number of natural disasters that are disproportionally affecting underserved communities. At Aon, we are honoredto play a role to help protect DREF from volatility and increase its capacity to effectively distribute funds to those in need through our innovative capabilities in matching capital to the risk and the innovation in our industry to address the humanitarian impact from climate-related disasters.” The partnership has resulted in a completely novel – yet replicable and scalable – reinsurance product that: Is tailor-made for DREF and modeled 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 Daniel Clarke, Director, the Centre for Disaster Protection, said: “Having the right plans in place before a crisis is crucial for effective management of its impacts. We are proud to have supported IFRC and Aon teams to develop a risk transfer policy that strengthens DREF's ability to provide emergency funds that will help meet the needs of people affected by crises globally.” Annette Detken, Head of the InsuResilience Solutions Fund, said: “IFRC’s intention to enhance and complement DREF’s capacities when hit by climate-related hazards is a unique opportunity to bring development work closer to the humanitarian work and pilot climate risk insurance as a means for enhancing humanitarian aid activities. The ISF is proud to co-fund this innovative programme, adding capacity to improve the resilience of vulnerable people in many parts of the globe.” John Neal, Lloyd’s CEO, said: “Insurance has a vital role to play in building society’s resilience against climate-related risks: acting as a backstop when the worst happens and a buttress for preparedness in the meantime. This innovative response tool builds on the work of our Disaster Risk Facility and shows what our market can do when we collaborate with our partners in government to close global insurance gaps and mitigate the human and financial impacts of natural catastrophes.” 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. Notes to the editor: About the IFRC Disaster Response Emergency Fund (DREF) Established in 1979, the DREF is the quickest, most efficient, and most transparent mechanism for donors to channel global short-term emergency funding directly for local community-based action. While the average of international humanitarian funds directly channeled to local actors every year lies around 1.2% globally, 86% of DREF’s allocation is directly transferred to the National Societies. Since its inception, more than 220 million people in crisis worldwide have benefited from DREF support. About Aon Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Our colleagues provide our clients in over 120 countries and sovereignties with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their business. Aon UK Limited is authorized and regulated by the Financial Conduct Authority for the provision of regulated products and services in the UK. Registered in England and Wales. Registered number: 00210725. Registered Office: The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AN. Tel: 020 7623 5500. FP#13103 has been approved until 5th September, 2025, after which time the content should not be used or distributed. About the Centre for Disaster Protection (the Centre) The Centre works to find better ways to stop disasters devastating lives, by supporting countries and the international system to better manage risks and move from reaction to readiness. The Centre is funded with UK aid through the UK government. About Lloyd’s Lloyd’s is the world’s leading marketplace for commercial, corporate and specialty risk solutions. Through the collective intelligence and expertise of the market’s underwriters and brokers, we’re sharing risk to create a braver world. The Lloyd’s market offers the resources, capability, and insight to develop new and innovative products for customers in any industry, on any scale, in more than 200 territories. About Lloyd’s Disaster Risk Facility The Disaster Risk Facility at Lloyd’s was formed to look at closing insurance gaps around the world through development and provision of contingent risk financing solutions to mitigate the human and financial impacts of natural hazard and other catastrophic risks. Seven Lloyd’s syndicates – AXA XL, Hiscox, Beazley, RenaissanceRe, Chaucer, MS Amlin, Nephila – have joined forces to develop new solutions to help developing economies tackle underinsurance and improve their resilience against the economic impact of natural catastrophes. The group engages with governments, municipalities, and non-governmental organizations, in addition to Lloyd’s usual, valued client base, and supports the Insurance Development Forum (IDF). For more information: For media enquires or to coordinate an interview, please contact:[email protected]  Click here to learn more aboutDREF Insurance. Watch this video explainer about DREF Insurance.

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Article

The IFRC wants to leverage financial markets to keep up with the world’s unprecedented humanitarian needs. Here’s how.

This opinion editorial was originally published on Fortune.comhere. -- The humanitarian and private sectors may appear to be at opposite ends of the spectrum, but closer collaboration could yield solutions to the world’s biggest problems. From Corporate Social Responsibility (CSR) to Environmental Social Governance (ESG), the corporate world has increasingly sought to engage in socially and environmentally beneficial activities. Meanwhile, humanitarian organizations are overwhelmed with rapidly increasing needs that traditional funding cannot keep up with. TheGlobal Humanitarian Assistance Report 2022found that total funding for crisis response has plateaued despite historically high (and rising) demand. The report showed that the value of international humanitarian assistance reached an estimated $31.3 billion in 2021. The World Economic Forum anticipates an increase to $50 billion by 2030. The donors we currently rely on—primarily a core group of governments—are too few and too precarious. We need to grow and diversify our funding sources if we are to have any hope of keeping up with the level of humanitarian needs forecast. I believe it’s possible to move toward a shared ownership approach, whereby both the private sector and humanitarian partners align their objectives, including financial returns. The private sector’s responses to the conflict in Ukraine and the COVID-19 pandemic have shown its power in times of crisis. To date, this has been mostly through grants, but the private sector’s skills, knowledge, and expertise could be the real game changers for the humanitarian sector. Insurance companies are one example of where we have significant overlap when we drill down into our operations and goals: We are both dealing with the impacts and consequences of loss and damage caused by crises and disasters. Since 1985, the IFRC’s Disaster Response Emergency Fund (DREF) has worked as a central pot of money that can be quickly and transparently distributed to support community action in countries facing disasters before or when they hit. Now we are working with AON and the Centre for Disaster Protection to structure an innovative insurance mechanism that uses commercial insurance markets to leverage contributions of traditional donors in order to increase the capacity of the DREF for responding to natural disasters to CHF 100 million by 2025. We are aiming for the new insurance mechanism to be in place in 2023. We are taking a system that’s been proven over three decades and adapting it to an uncertain future. Through the insurance mechanism, instead of putting up the money to fund disaster responses, donors pay the premium. This stretches the value of their contributions and transfers the risk to the private sector if allocation requests exceed available resources. The approach uses reinsurance markets to lay off the risk of excessive natural hazards and ensure funds for response are available in a timely and reliable manner even in periods of excessive or unanticipated demand. Our ambition will not be possible to achieve through grants alone. We will need innovative financing that can leverage our resources and allow for the private sector to meaningfully engage. Through our initiative, we are keen to demonstrate the value of structures that can be more sustainable, replicable, and scalable to address humanitarian needs. Currently, we’re exploring options of innovative finance for our other flagship programs, including the potential to use green bonds or climate bonds as well as impact bonds for our water, sanitation, and hygiene programming. We’ve set up a pilot with the Islamic Development Bank following the impact bond model that unlocks private capital through investors. Instead of the donors paying grants ahead, they pay when the results are proven. Investors provide the upfront funding, while the bank acts as the guarantor, which reduces the cost of the bond and enables true additionality of capital. In collaborative financing models, it is important to consider the value and approach for each partner: The private sector can engage in ways that drive social impact as well as profits, governments can lead the change by creating enabling frameworks, and humanitarian agencies can embrace more agility in their operating models—all with the goal of mobilizing more private sector funding for humanitarian assistance and leveraging overstretched government donors’ grants. We also need to strike the right balance between risks and rewards and be alert to conflicts of interest, value for money, and ethical questions. Today’s humanitarian needs demand that we create opportunities and conditions for private capital to come in to scale up funding, but it is paramount that the product we develop is in line with our principles. This transition will take time and require making difficult compromises and changes to our operating models. We will likely fail before we succeed, but unless we try—with the will to learn from our mistakes—our humanitarian investments will continue to be mere drops in an ocean of needs. For the private sector, this will be an opportunity to design innovative solutions that align with their ESG approach and to be at the forefront of a new untapped market while saving the lives of millions of people.

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Article

The untapped potential of innovative financing and humanitarian organizations

This piece was originally published in the OECD Development Co-operation Report 2023 'Debating the Aid System', available here. The past several years have been unprecedented for the humanitarian sector. Worsening disasters and evolving crises across the globe have demonstrated that, despite our best efforts, the assumptions, approaches and structures that have long defined humanitarian responses are no longer capable of adequately meeting people’s needs. This comes as no surprise to members and observers of the humanitarian sector. Important and necessary discussions on questions of localisation and the decolonisation of aid reveal the extent to which transformation is necessary – not only for the future of the humanitarian system but also the future of our organisations and the future we strive to build for the individuals and communities we partner with. At the International Federation of Red Cross and Red Crescent Societies (IFRC), local organisations lead our humanitarian action. The 192 National Red Cross and Red Crescent Societies that make up the IFRC network are embedded in their local communities and are intimately aware of the needs and how best to shape an appropriate humanitarian response. In this way, the IFRC network has a unique strength and capacity to directly channel resources from the international ecosystem to local and national organisations. A recent analysis found that local and community actors deliver programming that is 32% more cost efficient than that of international intermediaries. We know through the work of our IFRC network that localising humanitarian assistance promotes greater inclusion and equity, more trust, faster and more timely responses, more flexibility, broader access, and long-term sustainability in our operations and programming. By investing in local and national support systems, we are able to strengthen and reinforce national infrastructure – directly benefiting the people who need it most. Yet despite donor commitments in the Grand Bargain and significant progress made by some donors, the overall percentage of direct funding to local actors has barely moved beyond the low single digits. As the impacts of climate change accelerate, and as new and unexpected conflicts devastate entire populations, small or medium-sized crises and disasters struggle to attract visibility and funding, leaving those affected at risk of being neglected by the international community. At the IFRC, we are exploring innovative ways of covering the costs of our work to prevent this from happening. We’ve had to ask ourselves, how are we reacting to the challenge of doing better with less? How are we exploring innovative ideas around financing and engaging with new donors? The blurring of lines between the humanitarian and the private sectors is an area of exciting growth that represents untapped potential when it comes to innovative financing. In a groundbreaking move, the IFRC is collaborating with Aon and the Centre for Disaster Protection to build an innovative insurance mechanism whereby commercial insurance markets leverage the contributions of traditional donors to expand the capacity of our Disaster Response Emergency Fund (DREF) to respond to natural disasters. The DREF, established in 1985, is a central funding mechanism through which the IFRC releases funds rapidly to national societies for early action and immediate disaster response. The balance of funds required by the DREF to meet the demands of national societies has historically been funded through an annual appeal. However, in 2020, high requests for funds meant that DREF allocations surpassed available resources for the first time in history. The growing needs facing national societies around the world and the uncertainties of the future have therefore sparked a process of modernisation with the aim of making the DREF more flexible and more effective. Through the insurance structure we are developing, donors would pay the premium instead of directly financing disaster responses through the DREF. This extends the value of their contributions and transfers the risk to the private sector if allocation requests exceed available resources. Reinsurance markets would relieve the risks of excessive natural hazards and would ensure funds are available for national societies to rely on even in periods of excessive or unexpected demand. Through this cutting-edge approach, we aim to increase annual DREF allocations to CHF100million (Swiss francs), equivalent to about USD 100 million, in 2025. As it is impossible to reach this target through donor grants alone, the insurance mechanism represents an enormous step forward that has the capacity to transform how the international humanitarian system responds to complex crises in the future. Another way the IFRC has answered this call is through our cash and voucher assistance programming. Using cash reiterates our commitment to more agile and efficient methods of providing humanitarian support that promotes choice and preserves dignity for people and communities. This type of programming allows us to cut down operating costs by placing the people affected by crisis and disaster – and most importantly, their own preferences and decisions – at the centre of our operations. Recently we developed a new Cash app, built on learnings from other emergency operations, that allows people fleeing Ukraine to self-register and be verified for assistance. This new innovative approach to cash, which has been rolled out in Romania, has allowed us to take our response to scale and at speed, in many instances as the leading agency in the delivery of cash in the Ukraine response. Over 56000 people have been reached and assisted with EUR 17.4 million in Romania. The app has also been launched in Bulgaria, where in just four days, 20% of the known Ukrainians in the country were able to self-register. Ultimately, by scaling up and replicating these ambitious and innovative programmes across our global network, the community-connectedness of organisations like the IFRC can be harnessed in a powerful way. The inescapable reality is that more funds will be urgently needed to confront the ever-increasing humanitarian emergencies of the world – yet financial innovation holds the key to sustainable, meaningful and impactful humanitarian work.

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IFRC-DREF Insurance

Stand Tall in the face of disaster with IFRC-DREF Insurance. We've developed an innovative insurance mechanism that uses commercial markets to make donor contributions toourDisaster Response Emergency Fund (IFRC-DREF)go even further.

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DREF Pledging Conference 2022: Donors united to pledge increased support to local humanitarian action

Climate-related disasters are occurring with increasing frequency and intensity. But the vast majority do not make international headlines—devastating lives, infrastructure and economies without attention, resources or help for those affected. At the IFRC, we know that the global-to-local funding model is the most effective and cost-efficient way to get aid to where it’s needed the most, both in anticipation of disasters and immediately after they strike. This is exactly why we set up our Disaster Response Emergency Fund in 1985: to get funding quickly to local Red Cross and Red Crescent Societies who can support communities in crisis around the world like no other. Since its launch, the DREF has funded thousands of emergency responses worldwide and supported more than 210 million people. And this year, the DREF has evolved to provide even more agility, flexibility and resources to National Societies. Watch the following video to learn about some of the lesser-known crises the DREF has supported in 2022. But donations to this vital fund are not keeping pace with the growing number of climate-induced disasters and increasing humanitarian needs. "Given the need to respond to compounded and frequent humanitarian crises, our collective ambition should be to grow DREF to be able to address these increasing needs" Jagan Chapagain IFRC Secretary General The DREF Pledging Conference 2022 therefore sought to grow the DREF to 100 million Swiss francs per year to address this funding gap—making sure that silent disasters are met with loud responses. To support this aim, we were delighted to receive pledges at the conference from the following governments: Australia Canada Czech Republic France Germany Ireland Netherlands Norway Luxembourg People's Republic of China Sweden Switzerland Thailand United Kingdom United States of America In addition, we also received valuable pledges from the European Union (EU) and, from the private sector, the companies Splunk and White & Case. This year’s conference also showcased an innovative insurance-based finance mechanism we’ve developed for the DREF in partnership with Aon and the Centre for Disaster Protection (CDP). The insurance mechanism aims to leverage donor contributions to attract private capital and ultimately increase the fund’s capacity in times of increased need. Watch the below video and read this recent opinion piece in Fortune magazine to find out more. Now more than ever, communities on the frontlines of climate change—and in many other emergency settings—need fast and effective local assistance to prepare for, and respond to, crises. It is urgent that the DREF can keep pace and help Red Cross and Red Crescent Societies be there for communities when they are needed the most. We are deeply grateful for the involvement of all existing and new donors who participated in the DREF Pledging Conference 2022. For more information about the DREF or the 2022 pledging conference: Visit this page on our website. Read this Twitter thread to see how the conference unfolded. Download our DREF Annual Plan 2022 and DREF Strategic Ambition 2021-2025. Or you can contact: Florent Del Pinto (Manager, Emergency Operations Centre) [email protected] Ivana Mrdja (Manager, National Society and Government Partners) [email protected]

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IFRC Disaster Response Emergency Fund

The International Federation of Red Cross and Red Crescent Societies’ Disaster Response Emergency Fund (IFRC-DREF) is an efficient, fast, transparent, and localized way of getting funding directly to local humanitarian actors – both before and after crisis hits.

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