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Original Risk: A Society for Change Agents

Global Risk Financing Facility (GRIF) launched with World Bank support


The World Bank, alongside German and United Kingdom governments, have announced a new initiative to help vulnerable countries manage climate change and natural disaster related shocks, with the launch of the US $145 million Global Risk Financing Facility (GRiF).

World Bank logoAnnounced at the World Bank and IMF Annual Meetings in Bali in recent days, the Global Risk Financing Facility (GRiF) is a vehicle to provide financing to set disaster risk finance and insurance mechanisms that can help governments to have the funding required to aid recovery from disasters and to deliver money to those who most need it.

The facility will help to establish more disaster risk insurance pools such as the CCRIF in the Caribbean and PCRAFI in the Pacific, aiming to ensure more people who are exposed to climate change and natural disaster losses can access the fast liquidity that parametric facilities can deliver.

“Natural disasters push some 26 million people into poverty each year as people struggle with the economic fallout of earthquakes, hurricanes, floods and other catastrophes,” commented World Bank CEO Kristalina Georgieva. “We can’t stop all these terrible events, but we can help countries with insurance or other risk finance so people get faster help to rebuild.”

The GRiF has a development objective to strengthen the financial resilience of vulnerable countries, with a mandate to provide, “earlier and more reliable response and recovery to climate and disaster shocks, and over time to a wider range of crises, through establishing or scaling up pre-arranged risk financing instruments, including market-based instruments like insurance.”

As well as funding the establishment of new disaster risk insurance facilities, likely to be largely parametric in nature and backed by the wealth of reinsurance capital available, the GRiF will also offer governments the technical support required to develop, test, scale up, and improve on financial solutions.

It will work closely with The Centre for Global Disaster Protection in London, which is a partnership set up by the UK and the World Bank Group to deliver specialist risk, insurance and reinsurance support to broaden the uptake of disaster insurance coverage.

“This new Facility will help governments access risk financing and insurance solutions to mobilize effective response and prepare better for climate and disaster shocks,” added Germany’s Parliamentary State Secretary Norbert Barthle. “It is key that the new facility focus on the poorest and most vulnerable people.”

“We have all seen the devastating impact of the recent earthquake in Indonesia. Disasters are becoming more frequent and more extreme, leading to the loss of life, homes and jobs, particularly among the world’s poorest people. Through the World Bank’s Global Risk Financing Facility, UK aid is supporting countries to build resilience and put in place finance and systems to ensure they are better prepared to respond to emergencies. This will save lives and also help vulnerable countries recover more quickly after disasters,” explained Secretary of State for the UK’s Department for International Development, Penny Mordaunt.

The GRiF will contribute to the goals of the InsuResilience Global Partnership. It is supported by the German Federal Ministry for Economic Cooperation and Development (BMZ) and the UK Department for International Development (DFID), while the World Bank’s Disaster Risk Financing and Insurance Program (DRFIP) and the Global Facility for Disaster Reduction and Recovery (GFDRR) are jointly managing its remit.

The focus of the GRiF will be on climate and natural disaster risks to begin, but the World Bank explained, “given the high potential to apply risk financing instruments to wider crises, over time, projects and instruments financed through the GRiF will also respond to crises.”

That suggests we could see initiatives to apply insurance and reinsurance techniques to other kinds of humanitarian disasters, such as famine, which has been a goal of institutions like the World Bank for some time.

The GRiF will be used to scale up and strengthen existing risk financing initiatives and drive innovation to attempt new approaches not yet explored.

“This includes scaling-up existing and piloting new risk pooling mechanisms; testing insurance premium financing for the poorest countries; and new types of contingent financing to complement insurance, including contingent investment loans. It would also explore new financial structures, for example linking risk financing directly to scalable safety net systems, disaster preparedness plans, or to financing for resilient infrastructure,” the World Bank said.

It is to be hoped that the depth, liquidity and ability of the capital markets to absorb climate and disaster risk is considered as the GRiF helps facilities scale, as the use of catastrophe bonds to provide the reinsurance support necessary to back the use of insurance techniques could help to keep costs lower and offer greater efficiencies.

The GRiF will also look at other contingent financing techniques, as well as integrating risk transfer with lending and other financing tools.

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