Investing in the global disaster protection gap

A new impact fund named the Natural Disaster Fund (NDF) Deutschland has been formed jointly by Global Parametrics (GP) and the German Federal Ministry for Economic Cooperation and Development (BMZ) in partnership with the German Development Bank (KfW) and Hannover Re.

GP is the provider of parametric protection against climate risks in developing markets and is actively managing NDF Deutschland. The fund has secured initial commitments of EUR25m ($32.9m) from BMZ and will target investments in risk-transfer instruments relating to natural catastrophes and climate risks in developing markets exclusively where there are regions that are disproportionately affected by extreme weather events.

It follows on from and will partner with, the NDF UK, which was launched in January 2018 with EUR25m of committed capital from the UK’s Department for International Development. Commenting on the fund launch, BMZ parliamentary state secretary Dr Maria Flachsbarth said that the NDF is an innovative mechanism that brings together public and private insurance players for the benefit of poor and vulnerable people who far too often face a protection gap.

“While about 50% of disaster losses are covered by insurance in high-income countries, the corresponding proportion in poorer countries is less than 5%. The BMZ is committed to help closing this gap through a substantive contribution to the NDF. In doing so, the NDF will play a crucial role to achieve the targets of the InsuResilience Global Partnership's new Vision 2025 that was presented at the UN Climate Action Summit in September,” she said

This particular vision aims to cover 500m poor and vulnerable people against disaster and climate shocks through pre-arranged risk finance and insurance mechanisms over the next six years. “Extreme weather and natural disasters are a major cause of an endemic poverty cycle in many developing markets and with the onset of climate change, the situation can only get worse,” said GP CEO Hector Ibarra.

In a market first, Hannover Re has committed $50m of matching capacity to the funds. The commitment from the reinsurer is said to underline the opportunity for private sector investors to participate in disaster risk-financing in untapped markets which mitigate the impact of climate- linked disasters to business and communities. Instead, such financing grows resilience and expedites recovery alongside delivering commercial returns to investors. 

“Hannover Re’s commitment to make contributions to close the protection gap is an important element of our sustainability strategy. Our experience has shown that innovative parametric concepts with fast claims payment processes are most effective when it comes to mitigating the impact of natural disasters that are particularly devastating in low-and-middle income countries,” said Hannover Re managing director retrocession and capital markets Henning Ludolphs.

Source: Asia Insurance Review