I am attending the first World Humanitarian Summit in Istanbul. This is a flagship event organized by the United Nations and a number of heads of state are joining UN Secretary General Ban Ki-Moon to discuss the way forward. Total humanitarian assistance has increased dramatically from USD 18 billion in 2012 to USD 28 billion in 2015 – the highest ever recorded. With this increase comes a massive funding gap as needs for humanitarian assistance are increasing even more. Consequently, the humanitarian funding mechanism needs to be fundamentally redesigned. And insurance can play a meaningful role in there – for example by providing coverage against natural disasters! Natural catastrophes are increasing in frequency and severity. The consequences are especially severe in vulnerable low-income countries, which are both the worst hit and the least prepared. Innovative financial instruments such as parametric insurance or catastrophe bonds exist to protect these countries against humanitarian crises caused by natural catastrophes and to preserve hard-won development gains – even in the face of floods, earthquakes, adverse weather and other setbacks. Natural catastrophes and (soon) even the outbreak of epidemic diseases are insurable risks. The re/insurance and capital markets are prepared to and have the financial means to absorb these risks. Governments and humanitarian actors can transfer these risks to the private sector, which has the benefit of converting a highly volatile financing requirement into a more stable budget item and of leveraging available funds. This leverage can be as high as 30 times (USD 1 million of premium could result in USD 30 million payout in case of major catastrophe). Doing this allows the global community to move away from reactive post-event funding towards proactive funding strategies. Humanitarian actors and governments could tap into the technical expertise of re/insurers to develop objective and politically acceptable ‘triggers’ for the early and quick release of funding. A paradigm shift in humanitarian financing for natural catastrophes towards risk transfer solutions requires the willingness and ability from the side of governments and humanitarian actors to take control of their disaster risk financing. Humanitarian actors can both promote and sponsor insurance schemes as well as securing funds for their own operations through insurance mechanisms. Humanitarian actors can increase the efficiency of their funding mechanisms by reserving traditional humanitarian funding for non-insurable risks, particularly for conflict-related settings and slow, onset disasters, while transferring insurable risks, such as natural catastrophes, extreme weather and potentially epidemic outbreaks to the private sector. Insurance does not only provide the funding for recovery after an event but also puts a price tag on risks by analyzing the underlying exposure and vulnerability. This process informs decision makers of their overall preparedness, allows for improved contingency planning and targeted investment in risk reduction measures. Source - https://openminds.swissre.com