Humanitarian risk transfer in focus at COP26 with Start Network & IDF partnership

The Start Network, an international network of non-governmental humanitarian organisations, is partnering with the Insurance Development Forum (IDF) on the creation of a new financial service for the humanitarian sector, with parametric triggers and risk pooling at its heart.

Named Start Ready, the new humanitarian funding paradigm is designed to help communities to get ahead of escalating climate risks, through the provision of pre-agreed funding at scale for relatively predictable crises like droughts, flooding and heatwaves.

Start Ready will be based on locally led action and intelligence, but uses insurance and reinsurance market techniques such as risk analysis, parametric triggers and risk pooling, alongside collective planning, and pre-positioned financing to anticipate and respond to climate risk related needs around the world.

Through Start Ready, IDF member companies are set to provide technical assistance to Start Network members that are working to get ahead of escalating climate risks.

This will include support in the development of tools that analyse risks, seen as an essential building-block for robust plans and financing ahead of time.

Technical risk modelling expertise is set to be provided by Bermuda-based global reinsurance firm RenaissanceRe, while IDF members will also provide software to help the Start humanitarian network with financial modelling and strategic decision-making.

The idea is to enable and also finance local humanitarian action before a climate crisis event hits, with Start Ready expected to also make funds go further and ultimately protect lives and livelihoods.

Christina Bennett, CEO of Start Network, commented on today’s launch at COP26, “The time for talking is over – we need action now to protect the most vulnerable communities. The climate crisis is a shared crisis, and we all share responsibility to act. The IDF’s commitment to delivering concrete action to help humanitarians understand risk is impressive. We are delighted the IDF is partnering with Start Ready, which will help the insurance industry have a transformative impact in communities most vulnerable to the climate emergency.”

AXA Group and Insurance Development Forum Chairman Denis Duverne, added, “As an industry we have consistently recognised that climate change is the biggest challenge of our time. A fundamental pillar of addressing it will be greater access to climate risk information, tools and standards, as well as benchmark metrics that will shed light on the climate risks of today and on future impacts. We are proud to work with Start Network, to drive a major step-change in the effort to open up access to climate risk understanding. This announcement is a testament to the power that collective action can have in the effort to build resilience to climate change.”

Start Ready will feature contingency funds, such as the Start Network’s Start Fund, for crises of mild severity, risk pooling for more predictable moderate crises, where it can be more efficient to share risks and diversify them, as well as insurance products for the more extreme and rarely seen crises, where transferring the risks to another party can be key.

Which is where the pre-agreed triggers that are expected to underpin the Start Ready financing paradigm come in and are most likely to be parametric in nature, so capital can be disbursed when disaster strike, or even in advance of them through the us of forecast-based financing techniques.

The Start Network has experience here, having worked on anticipatory risk financing projects before, as well as other parametric insurance arrangements.

The Start Network was one of the first buyers of an African Risk Capacity (ARC) replica coverage, which is a parametric disaster insurance product focused on drought.

The Network has also previously committed to developing prototype use-cases for parametric insurance and catastrophe bonds as solutions to provide funding in response to humanitarian crises.

It has also worked with parametric risk transfer specialist Global Parametrics to design appropriate parametric risk transfer mechanisms to address challenges and opportunities around pre-agreed financing triggers for drought and other perils, for humanitarian funding purposes.

So the Start Network has plenty of experience in this sector and its plans for Start Ready look set to use cutting-edge techniques around risk analysis, financing, transfer, pooling, parametric triggers and forecast-based funding techniques, to provide the NGO’s it works with a robust way to finance their climate related risks and secure anticipatory funding against them.