WFP highlights importance of pre‑arranged financing, including cat bonds and parametrics

Pre-arranged financing through macro-level disaster risk instruments, including catastrophe bonds and parametric insurance, are deemed a practical, scalable solution that can deliver financial support for early action to support recovery and resilience, the United Nations World Food Programme (WFP) has explained.

Laying out its approach to deploying Macro‑Level Disaster Risk Financing (DRF) in regions facing food security threats, including from climate and natural disasters, Lucy Bloxham and Michael Goode of the World Food Programme explain the rationale for the WFP’s use of risk transfer instruments, which comes at a highly-relevant time given its ongoing work on a food security catastrophe bond.

The WFP has been utilising parametric insurance arrangements for approaching two decades. Our first coverage of a WFP arrangement was a weather-index insurance research initiative back in 2008.

Over the year’s the WFP has entered into weather-index insurance arrangements, typically in partnership with aid organisations and charities, while also offering parametric risk transfer protection to countries for humanitarian disasters, and becoming the beneficiary of a parametric drought reinsurance arrangement.

As we recently reported, the World Food Programme (WFP) is progressing a plan under its Innovation Accelerator, to become the first to utilise catastrophe bonds for food security financing.

A novel transaction is planned, that would see it become the first UN agency to sponsor a cat bond.

We reported that there is a target to source up to $100 million in risk transfer to boost drought resilience in Sub-Saharan Africa, while the WFP is working with the World Bank on the initiative.

That is a sign of the WFP recognising the benefits of responsive risk transfer and the need to scale-up the financial support it provides, as it looks to crowd in private, institutional capital to benefit the food security of countries it works in.

The WFP’s Bloxham and Goode explain why this is important and what drives this strategic direction of travel at the UN agency.

Explaining how food security related issues affect the lives and livelihoods of people and communities, they wrote, “When harvests fail, they are often pushed into debt and forced into difficult choices that undermine their long-term recovery.”

Going on to explain that the goal is to be able to respond before losses to communities escalate, they explain the WFP’s approach to Macro‑Level Disaster Risk Financing (DRF).

“To limit these impacts, the World Food Programme (WFP) is deploying Macro‑Level Disaster Risk Financing (DRF) to ensure pre‑arranged funding can be released automatically when conditions reach pre‑defined thresholds. DRF secures rapid liquidity after an event through mechanisms such as parametric insurance and catastrophe bonds.

“Instead of waiting for humanitarian appeals or assessments after losses occur, financing for responses becomes available early, helping families avoid asset sales, high‑interest debt and other harmful coping strategies.”

Embedded resilience and operational planning is part of the strategy, ensuring payouts from disaster risk financing instruments are able to be deployed responsively.

They wrote, “Pre‑arranged financing is designed to complement existing humanitarian responses while supporting governments and partners to plan and budget more effectively for recurring shocks. A key component of WFP’s macro-level DRF approach includes developing pre-agreed operational plans that ensure insurance payouts are mobilized quickly and predictably, reducing both financial and operational strain.”

Right now, the WFP’s Disaster Risk Financing tools are utilised by the agency in 48 countries.

These arrangements support national institutions, local markets and households, helping shocks be managed more effectively.

“By shifting from reactive to early action, this approach helps protect livelihoods, reduce humanitarian needs and strengthen long‑term resilience,” Bloxham and Goode said.

They conclude that, “Pre‑arranged financing cannot prevent difficult seasons, but it can help ensure people are not left to cope alone when impacted by extreme weather.

“It offers a practical, scalable solution that supports early action where it matters most.”

As use of disaster risk financing instruments, such as catastrophe bonds and parametric insurance becomes more embedded in social safety nets, it provides UN agencies and similar a way to access efficient risk capital that can be responsively deployed when food security disasters strike.