Cat bonds for humanitarian & relief needs in focus at Howden

After having played a role in the issuance of the world’s first catastrophe bond for volcano related disasters, the Howden insurance and reinsurance broking group wants to expand the use of catastrophe bonds to cover humanitarian funding and other types of disaster relief.

The ground-breaking volcanic risk catastrophe bond was issued for the Danish Red Cross earlier this year, becoming the first of its kind, a parametric cat bond covering volcanic eruption risk across ten volcanoes around the world.

Howden Capital Markets, the recently established unit of the Howden Group, played a small role in getting the volcanic risk cat bond completed, while Howden Group Holdings’ charitable Foundation assisted with $150,000 of funding to get the deal over the line and Howden’s Reinsurance, Capital Markets and Financial Lines divisions all played a role in the underlying insurance contract and terms.

Looking to build on this example, Howden has today announced the hiring of Caroline Birch, who will join Howden’s newly established Climate Risk and Resilience division as Disaster Relief Executive.

The company wants to develop new funding solutions for humanitarian aid, baking in disaster risk transfer protection to the funding paradigm to secure relief for those in need, protect it for donors and ensure projects are managing risk appropriately.

Birch has has worked in the field with the International Committee of the Red Cross, the United Nations, and the Directorate-General for European Civil Protection and Humanitarian Aid Operations (DG ECHO) for almost twenty years.

She has helped to plan and deliver humanitarian aid operations around the globe, most recently supporting refugees and those affected by natural disasters in Pakistan and Iran.

Previously, Birch has also worked with teams responding to natural disasters and conflict across Africa, Asia and Europe.

Charlie Langdale, Head of Climate Risk and Resilience at Howden, said, “We’re working with risk transfer and catastrophe modelling experts to develop solutions that have the potential to change the way disaster relief is funded.

“To have, within the team, someone with such extensive and in-depth experience of responding to crises will help us to design the solutions in such a way that the funds reach those who need them as quickly and effectively as possible.”

Howden is clearly aware of the opportunity to take examples from other blended-finance approaches, mix them with advanced risk transfer technology such as insurance-linked securities (ILS) and develop new ways for capital market funding to be used to support humanitarian response and relief or recovery from natural disasters.

Work on these humanitarian focused risk transfer initiatives is picking up pace across the insurance and reinsurance industry.

Just recently we explained that the Red Cross, working alongside insurance-linked securities (ILS) risk securitisation facilitator and risk transfer consultancy Replexus Group, is developing a solution to promote nature-based solutions to disaster risk, as well as other humanitarian and development scenarios, financed partly through the use of catastrophe bonds.

Other companies continue to push for ways to embed parametric triggers into humanitarian funding, combined funding with microinsurance, tap capital markets appetite for building to disasters and more.

Howden sees an opportunity to set out its stall as a thought-leader with capabilities in this space.

Given how other initiatives of this kind in the industry have often become bogged down in bureaucracy or political discussion, while other capital markets focused brokers may find the ILS market a more immediately profitable place to focus, others, like Howden, do have a chance to gain a foothold in the humanitarian space.

Langdale continued, “We’re looking at how we can apply a similar approach as the volcano catastrophe bond for other types of disaster relief. Caroline’s advice will be invaluable in this process; I’m delighted that she has chosen to join us.”

Birch added, “I am very pleased to be joining Howden as I have been impressed by what I have seen of the innovative work that the Climate Risk and Resilience team is doing in the humanitarian space. I am looking forward to seeing how my field experience can help inform risk transfer solutions to provide an effective, principled humanitarian response to disasters worldwide.

“The need for humanitarian response funding is only going to continue to grow as climate change triggers more natural disasters and conflicts over dwindling resources develop. In addition to the loss of life, more people are losing their means of survival, are driven from their homes in increasing numbers, and are forced to remain displaced for longer periods of time. As traditional funding sources struggle to keep pace with ever-increasing needs, the use of alternative provision through risk transfer could be just what it is needed to enable humanitarian organisations to continue their vital work.”

Embracing pre-disaster funding, alongside multi-year risk transfer, is set to be a really important way for the humanitarian sector to combat climate change and related hazards, while still being able to do its job effectively and deliver on its promises to those in greatest need.

Get the approach and structure right and risk transfer can help to make humanitarian funding more sustainable in the face of climate, weather and natural disasters, while the capital markets and ILS fund investors can provide the deep liquidity needed to absorb risk and finance response or recovery.